Saturday, 2 May 2009

Sign of Recovery in Las Vegas and Phoenix?

Las Vegas and Phoenix is the poster child of US housing bubble, driven by migration of priced-out Californians, baby boomers retirement and speculation from "California Investors". Based on Case-Shiller Index, their real estate price index has peaked around 225 in mid-2006 (2000 = 100).

However, Las Vegas and Phoenix property value has gone down to 2002/2003 level in Feb 2009 --- decline of -45% and -50% respectively!

Scott Sambucci, VP of Altos Research, has posted very detailed analysis of Las Vegas and Phoenix market in his blog as follows.

HOSING IN LAS VEGAS - "C'mon Black!"
- Inventory has been stabilized at around 16,000 for a while.
- New listing and Absorbed transactions are balancing.
- Median sales price has gone down from $350,000 to $144,000 but it is still falling.


- Median price has been stabilized around $105,000.
- Absorbed transactions has exceeded new listing (sign of seller's market)
- New listing median price is 10% higher than absorbed median sales price (on average, new listing is absorbed at 95% of original price in Phoenix).
- Bottom 25% priced propertie's transaction is booming.

I believe Phoenix's housing market is faring better than Las Vegas's because 1) lower median price (= better rental yield) and 2) low unemployment rate at 8% range (Vs. LV's 10+%).

Having said that, I do not think there will be rapid recovery for below reasons:

- As FTHB (First Time Home Buyers) represents 50%+ of total transactions, there are limited number of FTHB. In addition, $8000 credit for FTHB will expire on Nov 2009.

- Lenders are accelarating foreclosure activities once government moratorium was lifted.

- Massive Shadow Inventory -- Bank has foreclosed quite lot of properties but have not sold them for some reason.

Lastly, it is my opinion that real estate price in Las Vegas and Phonex will continuously stagnate because 1) their demand is driven by cash-strapped retirees, 2) their job growth are concentrated on low paying manufacturing and service/tourism related positions. I do not see any indication of household income improvement nor migrations of high-income "creative types."

How the Crash Will Reshape America?

Happy Investing!!!!!

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