We’re just so accustomed to treating our homes as an investment that even in times when residential real estate has dropped in value by 40% over the past few years – 60% in communities like Las Vegas, NV since 2006 – there are lots of investors and homebuyers who only remember how far home prices fell in 1993 and how they skyrocketed in the years following. They still believe that such an explosion of value is just around the corner, despite the fact that there are market conditions that are materially different from that era: vastly higher unemployment (which almost everyone agrees will last years longer than any recession in recent memory) and a complete lack of sufficient credit (particularly for anything but lower and entry-level housing) to fund the necessary demand that drives home prices upward and pulls all real estate values w ith it.
In Vegas, according to the May 16th New York Times, there are 9,517 “spanking new” houses sitting empty as well as an “additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.” So you’d think that Las Vegas would be the absolutely last place in the country that would be pushing to build new housing. You’d be wrong, although you might be right as to the fate such new housing would like face in the near term. Because building and land costs are now so low, builders in Vegas (and other hard-hit “sand” states) believe that constructing houses with new values – green requirements and new efficiency considerations – will be well-received in the marketplace. 1,100 homes are under construction in Vegas, and cheap lots for more are g oing fast. “The chance to make money on the next housing boom ‘is like it’s never been,’ Mr. [Richard] 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.’”
The Times continues: “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… ‘There’s a surprising rebound in the hardest-hit markets,’ said Brad Hunter, chief economist with the consultant Metrostudy. ‘People are buying again.’ From the recession’s lows, construction has nearly doubled in Las Vegas, Phoenix and Tucson. It is up 74 percent in inland Southern California and soaring in Florida.” Because these are often starter homes, they come with financing that could not be applied to people trying to buy foreclosed properties.
“In Phoenix, a billboard for Fulton Homes summed up the builders’ marketing approach. ‘Does your foreclosure have tenants?’ it asks, next to a picture of a mammoth cockroach… Brent Anderson, a marketing executive with another Southwest builder, Meritage Homes, said it bought 713 lots in stricken Arizona last year, and was on the verge of starting construction in a new Phoenix community called Lyon’s Gate… ‘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?’” The Times.
I’ve written of entirely new communities, stripped of appliances and bulldozed because of taxes on finished homes as well as the cost of maintaining the properties. I’ve suggested that if we have new industries that need a place to locate, we set these up near these vast tracts of vacant homes to give new workers new opportunities to become homeowners at reasonable cost. It just seems odd that in communities that do not have jobs to sustain those who might buy this newly-created inventory, perhaps there needs to be a new set of realistic priorities before we begin what has failed so miserably over the last few years.
I’m Peter Dekom, and I never ceased to be amazed at what people do.