Rolling The Dice: Las Vegas, The Fed and Wall Street

Confounded Interest ^ | 05/06/2013 | Anthony B. Sanders

[whitedog57]

A friend of mine is trying to sell a 5 acre lot in Las Vegas and has been trying since 2009. But recently, he has received 3 offers at above the asking price; he has turned all offers down. Why? He thinks The Fed will continue rolling the dice on easy money policies.

Reuters had an interesting piece on the Las Vegas “rebound” entitled “Special Report: Cheap money bankrolls Wall Street’s bet on housing.” According to the Reuters article, The Vegas market has unsteady legs. Statistics compiled by the University of Nevada at Las Vegas show some 40,000 homes are largely vacant – 8 percent of the metropolitan area’s single-family housing stock. Housing research firm RealtyTrac estimates there are 20,000 single-family homes in the metro area either owned by a bank or in some stage of foreclosure.

Some 52 percent of all homeowners still owe more on their mortgages than their residences are worth, more than any other state, according to CoreLogic. It’s even worse in some neighborhoods. An analysis by RealtyTrac for Reuters found that in about half of the zip codes in the Vegas metropolitan area, at least 70 percent of homeowners not in foreclosure were under water on their mortgages.

Economists say with unemployment in Nevada at 9.7 percent, there’s not much real growth underpinning the surge in home prices and new construction.

So, what is fueling the investor housing mania in Las Vegas? The Fed’s Zero Interest Rate Policy (ZIRP).

Low interest rates with The Fed purchasing $88 billion a month in Treasuries and Agency MBS is finally stimulating the real estate market. More on the investor side, but stimulating the market nonetheless.

Where in Las Vegas are the prices the highest (and lowest)? Here is a Trulia heat map for Las Vegas.

The Fed’s ZIRP policy is a blunt instrument and it has benefited the stock market earlier and longer than the housing market.

In fact, the stock market adjusted by The Fed’s Balance Sheet is just limping along … on Fed support!

Both the M1 Money Multiplier and M2 Money Velocity are at all-time lows which is not good news. Even so, Las Vegas … and the stock market are booming.

Eventually, The Fed’s QEs and Twists run out of gas and another round has to be undertaken. But what happens to the stock and housing markets if cheap money wears off and The Fed is generating more inflation than desired?

Stay tuned.

[whitedog57]

Roll the dice with Ben!

[Mike Darancette]

But recently, he has received 3 offers at above the asking price; he has turned all offers down. Why?

Because he enjoys cheating reale estate agents and brokers?