There's definitely an interesting comparison between Detroit and Vegas - both of whom have housing markets which I think could accurately be described as "languishing."
First, Detroit, courtesy of the WSJ:
Detroit is finally chipping away at a glut of abandoned homes that has been piling up for decades, and intends to take advantage of warm weather and new federal funding to demolish some 3,000 buildings by the end of September.
Mayor Dave Bing has pledged to knock down 10,000 structures in his first term as part of a nascent plan to "right-size" Detroit, or reconfigure the city to reflect its shrinking population.
When it's all over, said Karla Henderson, director of the Detroit Building Department, "There's going to be a lot of empty space."
Mr. Bing hasn't yet fully articulated his ultimate vision for what comes after demolition, but he has said entire areas will have to be rebuilt from the ground up. For now, his plan calls for the tracts to be converted to other uses, such as parks or farms.
Pretty amazing. Not really totally crazy, if you think about it - they'll get Federal funds, and create jobs, to knock down houses no one wants, which will also help values of remaining homes hold steadier. Then, in a few years, they'll (probably - assumption on my part!) get more Federal funds and create more jobs when they rebuild these homes - if the situation recovers. Creation by destruction. Bizarre at the core, perhaps - or maybe bizarre on the surface and totally logical at the core.
Also amazing is the situation in Las Vegas, courtesy of the NY Times:
"The chance to make money on the next housing boom “is like it’s never been,” Mr. Lee, a real estate promoter, assured a crowd of agents, investors and bankers. “We’re going to come back like you’ve never seen us before.”
Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.
Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more.
Las Vegas is trying to recover by building what it does not need. It is an unlikely pattern being repeated in many of the areas where the housing crash was most severe."
Never mind the talk of "the next housing boom" when you live in one of the worst real estate markets in the country (yeah - SEVENTY percent of Nevada mortgage holders owe more than their homes are worth!)... Contrary to what my friend Yangabanga emailed me, I explained that this was the same plan as Detroit, just in a different order. While Detroit is demolishing unwanted inventory now, and will rebuild in the future, Vegas is doing the rebuilding without first disposing of the excess inventory, and they'll have to get rid of the excess inventory later - barring a miracle recovery to peak bubble levels. I'm surprised, as I'd think that the Detroit model would be easier to pull off, logistically.
A Vegas builder elborated on the phenomenon in the NYT article:
“We’re building them because we’re selling them,” Mr. Anderson said. “Our customers wouldn’t care if there were 50 homes in an established neighborhood of 1980 or 1990 vintage, all foreclosed, empty and for sale at $10,000 less. They want new. And what are we going to do, let someone else build it?”
So Vegas simultaneously has a surplus of supply and a surplus of demand. Again, amazing.
-KD
6 comments:
> SEVENTY percent of Nevada homeowners owe more than their homes are worth
not quite.
70% of nevada homeowners _with mortgages_ owe more than their houses are worth.
many nevada homeowners (i don't have a source for numbers) paid cash, esp those who bought recently at low prices.
not disagreeing that the situation is terrible.
right. sloppy. replace "homeowners" with "mortgage holders"
Ah yes. The misallocation of capital and malinvesment continues unabated. Nothing bad could come of this, right?
It's so bizarro world here in Vegas. Everyone is convincing themselves that buying is great. People think I'M the crazy one for still renting even though we have money to buy.
When I explain my reasons they completely disregard them and just spout off about what prices were a few years ago.
A week ago I was at a guys house wayyyyyyy up north and he was tickled pink that he bought it for 500k because it was "1.3 mil at the peak" then in the same breath he tells me about the house next door that's currently for sale at 400k.
The best I get from people is reassurance that "You won't miss the bottom by too much" lol.
The machine is doing a good job at managing it though, they've made it so rents remain high enticing more people into buying overpriced crap.
The common fallacy is equating one house to another. There is likely to be significant qualitative and quantitative differences between existing houses and the newly built. I would expect the newly built are smaller, cheaper, more energy efficient, and likely more convenient to maintain and utilize since there are very different dynamics in play at the time of construction.
when I lived in Boston, I hated the phrase, "well, the average house in California is more expensive than the average house in Boston." That comparison presupposes that the average house in California is the same as the average house in Boston. By way of demonstrating that failed comparison, the average house in Boston was probably built before WWII while the average house in California was buily post-WWII.
Who are the construction lenders in Vegas that are facilitating that insanity?
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