What is going on with the real estate market in Las Vegas (Part 3)
Truth three: The value of a property is based on what someone is willing to pay for it. When real estate was HOT here in Las Vegas lenders were offering sub prime loans. Sub prime means to barrowers with lower credit scores and many of these loans were being offered in programs with beginning interest rates below what you would normally pay, or what the mortgage industry calls “teaser rates.â€Â This allowed some people to obtain a 3% loan when the normal mortgage interest rate was 5%, but with a clause in the contract that the loan interest rate would reset to the market rate 2 to 4 years later. So if you had a loan that was 3% in 2005 you may be looking at a new interest rate of about 6.5% today. On a $300,000 house your first 2 years payments were $1,265 per month principle and interest with no money down, but this year the payment will jump to $1,897 plus principle and interest. That’s a 33% jump in monthly payments, if the buyer had substandard credit then the payment will jump even more because the rate the mortgager will have a higher risk rating. The reason prices rose so quickly in the valley was partially due to these sub prime loan because people could afford to pay more for their houses because of the lower interest rates. Add to that the borrower only had to qualify for the 3% loan and not the higher reset rate. The new regulations enacted by congress recently now require the Borrower to qualify for the highest rate not just the lowest.
Plus the residential builders didn’t see the influx of buyers partially as a result of the Wynn opening and other job creation. Prices started rising and then the real estate speculators came in and started buying seeing the opportunity of a fast appreciating market and a way to make a quick buck. And that is the real estate boom.
So what is the result of this boom? Is it a bust?
Well the sub prime loans continue to reset and will do so for the next 2 ½ years according to the National Bankers Association. Approximately 25% of the mortgages in the Valley are some type of sub prime loans because a number of people who went in and refinanced to get the equity out of their homes.  So it is possible that many people here in the Valley will continue to loose their homes because they can no longer meet their payments. We still have a number of real estate flippers that got trapped with houses they didn’t sell in time before the market changed. Many of these investors have rented there homes out to wait out this slow down, anticipating a serge in the market as soon as 2008. The building industry has shrunk to about 1/3rd of what it was in 2005 and will stay that way until resale inventories shrink to about 12,000 units. And all this has resulted in an inventory level of about 23,500 homes for sale here in the Valley. Compare that with summer of 2005, at the height of the Boom with inventory levels of about 1,500 homes.
We currently have about a 16 month supply of homes on the market opposed to about a 2 day supply in 2005.
Stay tuned for Part 4 of this installment about the Las Vegas real estate market.
For the Latest in Las Vegas real estate call Max at 702-334-2200. Or email me at:Max@MaxSellsVegas. com. Your comments and questions are welcome.