Monday, February 25, 2008

Are We Afraid Yet?

Chicken Little

The sky is falling: The space junk from a spy satellite has fallen to earth after a successful shoot down by the U. S. Navy. The real estate market has also plummeted to the earth in Las Vegas, right? I mean, that is what the media has been pounding into us for the past year or so, right? Well, let’s just take a closer look.

Have you quit beating your wife? Like that trick question pundits say that the Las Vegas housing market has taken a beating. Media repeats what the pundits say like so many seals clapping their flippers and moaning, “Urp, urp.” A recent article in the local paper focused on one particular zip code in Las Vegas in which the housing prices are down by 24%. However, a chart that accompanies the article gives a better perspective. The AVERAGE depreciation for homes in the Valley of the Dollars is a tad over 4%.

Down compared to what? Suppose you purchased a home in Las Vegas in 2000 at a cost of $ 200,000. That year your home saw 8% appreciation so the home where your heart is increased to $ 216,000. In 2001 the house increased in value by 9% for a grand total of $ 235,440. In 2002 it went up 8% for a value of $ 254,275.

Hold on to your hats: Then the market in Vegas began to really do wild toad ride. Beginning in 2003 home values increased by 13% which resulted in your digs jumping to $ 287,331. It got even better in 2004 with an additional 40% increase to make the value a whopping $ 402,263. In 2005 your Vegas shanty increased by 20% for a value even greater at $ 482,716. Things started to slow in 2006 to add only 4% making your old $ 200,000 house worth $ 502,025. Then the housing market crashed according to real estate pundits. Alas and alack in 2007 4 % depreciation occurred making the hovel worth a paltry $ 482,000.

Be sure to not live in the wrong zip code: The illustration above speaks to average appreciation and decreases. The 89169 zip code that shows the 24% decrease is near the Strip where the Wynn and Palazzo construction has been going on making single family dwellings drop in value. Other areas that saw speculators rush to buy and flip which pumped their values up like a Ponzi scheme are now showing the steepest decline.

Parallel to the tech stock crash of 2000? Comparisons have been made between the current housing market in Las Vegas and the tech stock crash. While some similarities exist many factors are not the same. With tech stocks people bought in many cases what businesses call “blue sky,” or a concept with little actual value. Those who borrowed to buy stocks usually borrowed what they could afford. With the real estate run-up the product was solid – housing, but lenders were anxious to loan money on housing regardless of the borrower’s strength or without closely examining the property because they were betting on future value. The market may be down but if you still live in your Las Vegas home that you purchased in 2000 for a market value of $ 200,000, the current value of nearly $ 500,000 makes it a good investment.

A little blogging music maestro… “Home of the Blues,” by Johnny Cash.

Dr. Forgot

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