Las Vegas real estate market report

Almost everyone in the U.S. is familiar with the roller coaster at the New York New York here in Las Vegas.  Many people who purchased property here in Las Vegas were not aware that they were buying a ticket on a different roller coaster, the Las Vegas real estate roller coaster.  So let us all climb on board and see what this ride may look like.

From about 2003 through 2005 real estate in Las Vegas roared up a steep slope of appreciation powered by speculators, slowing as it crested at its peek in 2006 with an approximate increase of 50%. 

 Most of 2007 was slow decline as the depreciation momentum built pressured by the nations highest foreclosure rate, real estate auctions and people needing to sell no matter what.  With the news around the globe decrying the Las Vegas bubble is bursting it was inevitable that the coaster would accelerate in its downward plunge. The last quarter of 2007 the coaster quickly gained speed and the year ended with a 15.3% average home price depreciation in the Las Vegas real estate market.

In January 2008 repossessions actually exceeded all sales in the Valley and sales for the month were the lowest reported since the 1990’s.  Not surprising another large real estate auction was announced for Bank owned (Real Estate Owned) R.E.O. properties to take place in March.  It seems we are now in full speed free fall in our roller coaster ride.  But when does this coaster inevitably reach the bottom and when does it once again turn up?

With many variables in the market it is hard to say for certain but looking at the variable can give us some sense of what will key a change in our market.

1) If congress passes its second proposed economic relief act (it is an election year) and it includes either or both of the following provisions. This could vastly change the Las Vegas real estate landscape. a) A tax credit of up to $10,000 for first time home buyers to purchase a home. b) The ability of Bankruptcy Judges to modify the terms and conditions of a mortgage loan.  Keep in mind that the Mortgage Bankers Association will fight a bloody fight to stop Bankruptcy modification.  It is also note worthy to mention the the National Home Builders Association has suspended all political contributions to candidates because 1st time home purchase tax credit or the Bankruptcy modification was not in the first economic relief bill.

2) The price of resale home reaches below the $100 per square foot average it cost to build in Las Vegas.  This price includes the price of the lot and is an average price. Some areas such as Summerlin and Anthem are much more because of land costs but looking at the over all picture once the price of resale homes are 15% lower than the cost to replicate them without builders markup, you have a sure fire reason to jump right back into the market and buy.  Ultimately the existing housing stocks will dry up because of job growth and population growth.  It is only a matter of time until once again housing will be in demand and with even minimal inflation rates the cost of building will continue to rise. This will bring investors back to the market and will provide many more positive cash flows for landlords willing to purchase as long term investments.  This would be health investment for the market.

3) Employment growth is anticipated to take off in early 2010 but if some or the current major Strip building projects were to open early this may spur an early bottoming to the real estate market as demand for housing will increase.  There are incentives for the major properties to push their scheduled opening up early if possible.  a) The saving of interest costs on construction loans. b) The earlier addition of revenue streams to offset costs. c) The ability to hire workers before all the other properties open resulting in a better employment pool to choose from resulting in better quality workers.

4) A total turn about in the mortgage industry.  This is a little like suggesting that their will be total peace in the Middle East.  The financing world is all about who you eat, families with homes, smaller banks, hedge funds, and multi-national financial institutions.  The climate of the financing world is much more like a pack of lions praying on anything they can devour than doing the right thing. Greed is the definition of morals for most in this industry.  The motto seems to be win at any cost.  But the tower of cards this greed has built is falling apart.  It is estimated that looking beyond the $200 billion dollars the Mortgage Industry has already written off its books they may well need to write off another $1 trillion in bad debt.  My personal opinion is if they could look under the rock where they hid their morals 20 years ago, gain a little compassion for their fellow man, they may find they could actually help stop this free fall in real estate pricing. This could be accomplished through REAL loan modifications on a massive scale, not the public relations schemes they have dressed up and put in the window with the help of the current U.S. president.  But for this devouring lion pack to change its ways means it would have to put away its prides greed and this is NOT going to happen.

5) Less likely is that the government will buy the defaulting sub-prime and Alt “A” loans and rewrite them into modified loans. It is simply beyond governments function and ability to become the mortgage holder for this much risk and exposure to the average American Tax Payer.

 So when will the roller coaster stop its free fall?  I believe it will happen very soon in Las Vegas and I am putting my money on that bet. Call me if you need to know what is happening in the market.

Max Schmidt 702-334-2200

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.