The Great Housing “Trade” Part 2. Featuring the “Vegas” Debacle

Like so many other epic bubble years’ housing market explosion epicenters, Las Vegas real estate caught fire again pushing prices up 30% YoY vs the 10% national average.  This statement alone should raise a plethora of red flags to anybody remotely familiar with the sector.  But to Wall Street, which has a memory of about 9 months at best, this is what a “housing market recovery” looks like this time around.  I beg to differ.

That’s because there is little about the past year of ‘better’ housing market data that is rooted in economic fundamentals (things that drive “durable housing market expansion).   It’s not like house sales volume, rents, jobs, or income is surging.   It’s not like supply is so ‘low’ because demand is surging;  rather, it’s because 6 million units of supply headed for market was rented back to its’ legacy owners by the banks and gov’t in the form of mods;  several states made it virtually illegal to foreclose;  and foreclosure timelines were being stretched out 15 days for every 30 that passed.

But besides all that, taken in the context of “post-crash” the past year of data are “underwhelming” especially relative to consensus opinion, sentiment, and periods prior to 2007.    That’s because this market is structurally broken. It lacks the fundamentals horsepower imperative to a “durable” housing market recovery.   And without the fundamentals in the drivers’ seat, the past year of housing market activity is more closely akin to a stock market “short squeeze” than anything else.

Take Vegas for example. It has gotten some interesting contra-recovery press over the past few days from a couple of market observers noticing things just don’t feel or look right there.

“Lack of Supply” is mostly commonly referenced as the reason house prices in Vegas “v” bottomed.

And with:

  • 10% unemployment
  • 57% of all homeowners Zombified;  underwater, over-levered renters of their own houses (70% in many regions)
  • 25% of all homeowners on modifications and workouts so exotic they would make Angelo Mozillo blush
  • 12% of all houses in default or foreclosure
  • a 50% increase in construction permits
  • Falling Rents – about to get really bad
  • MASSIVE SFR rental supply coming online (some 55k units) and multi-family starts back to 2006 highs.
  • and only 3000 to 4000 sales on avg per month (down YoY for several months running I might add)

it certainly isn’t housing market “fundamentals” pushing up prices.

Bottom line With a fundamentals backdrop as portrayed by the metrics above, Las Vegas — and dozens of other legacy bubble years regions around the nation — should not be performing so well.   Yes, last year there was a transitory supply shortage amidst numerous wildly over-supplied housing markets, as investor demand collided with massive loan mod intervention and new laws outlawing foreclosure all together.  But that’s neither durable nor a positive…rather, it makes it highly questionable whether the recent performance even can be durable.  It makes more sense that these regions have turned highly volatile and house prices stand just as strong of a chance of declining 10% over the next year as increasing.

via 5-6 The Great Housing “Trade” Part 2. Featuring the “Vegas” Debacle.


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