Las Vegas real estate rumors, truths and falsities
Well the GLVAR came out with their February figures and it looks like there is a POSSIBILITY (rumor) that the market is showing signs of bottoming out. Inventory levels are down (fact), numbers of homes under contract are up slightly (fact) and home sales are up slightly(fact).
However Standard & Poor’s/Case Shiller report still show prices falling in Las Vegas (rumor). Why is this rumor rather than fact? Because approximately 40% of the current housing sales are REO bank auction properties. These properties are sold as is, generally in need of major repairs and are substandard homes that will have to have renovation and redecorating done to them in order to bring them back to a standard in which they can be resold on the open market. According to Case Shiller we are off 19% in price from January 2007 to January 2008 and this includes REO auction sales. So by the time these properties are renovated and put back on the market they may sell for 10 to 15% more than they sold at auction for. Without knowing this the average Buyer thinks they can come along and buy a pristine home at 20% below a year ago which generally is not true.
The recovery in the Las Vegas real estate market will come in conjunction with the completion of $39 Billion dollars worth of improvements on the Las Vegas Strip (truth). This will ad approximately 46,000 new hotel rooms (false) to the strip and create 276,000 new jobs (false) in Las Vegas. The number of rooms to be completed between now and 2010 is more likely to be in the realm of 20,000 units creating 4 jobs per room or 80,000 new jobs (rumor). These jobs are based on not only hotel workers but casino, convention, entertainment, right down to the added grocery bagers that will be needed to service all the new workers on the Strip. Approximately 50% (truth) of these workers will end up buying their home with 2 income workers per home this would mean approximately 20,000 will be absorbed which should be enough to dry up any excess inventories. It is not enough to drive the huge building boom during the speculation era of just a few years ago.
Many future projects on the Strip may be put on hold or canceled (rumor and truth). Because of tight financing it looks like old water park site has once again been put up for sale (fact). This site was once proposed for the tallest building in the western hemisphere. The land is owned by Ausie James Packer. Mean while the old site of the New Frontier with recently Clark County project approval to built a expanded version of the New York Plaza Hotel (rumor) may postpone construction until the commercial financing markets settle down. Look for other projects to take longer to move forward as a more measured expansion of the Strip.
The international tourism will be up over the next few years as foreign currencies buy more U.S. dollars (fact) and this should make Las Vegas a major world stop. The Las Vegas Convention and Visitors Bureau has just launched a multi million dollar advertising campaign to attract these target travelers (truth). As the numbers on international travel start to show in the market reports and the financial markets settle look for development to once again resume on the Strip (rumor) this will be in about 2010.
Foreclosure on the major projects on the Strip will stop construction and leave empty partially completed mega Casino/hotels (false). The financiers of these projects understand that if the project is not completed they may not have an asset to sell. An unfinished project can result in much higher costs to restart and yield them a much lower selling price. A current example of this is the Cosmopolitan whose financier is Deutsch Bank (truth). The Bank is currently foreclosing on the project but has guaranteed payment to the contractor to continue construction. If the Bank takes it back, construction will still be completed. Failing to complete a project of this size is not a possibility.
Projects like City Center, Echelon, Fountainbleau, Aliante Station, Canery East, Encore and ”M” will all be brought to completion (truth).
All current under construction expansion to existing properties will also be completed including Ceasars, Palazzo, Planet Hollywood, South Point, and Hard Rock (truth).
As soon as the commercial financing is available the postponed projects will resume development (false). Las Vegas has always been a city of “If we build it they will come.” But with all the new rooms coming on line in the next few years there is a little nervousness on the street as to weather they can be filled and generate the needed revenue. The industry wants a 90% or higher occupancy rate and if that is not reached you will see new development slow (rumor). Some still appear to be moving forward such as FX’s project across the street from City Center with a planned Elvis themed property.
The Las Vegas housing market will boom in 2010 and prices will return to their 2005 levels (false). Look for inventories to return to normal levels and prices to rise approximately 10% from their 2008 levels (rumor). It will take until 2012 for prices to return to their 2005 levels (rumor).
If we have or are about to reach or residential real estate bottom in Las Vegas then it may be a good time to buy. I bought a home last weekend to rent out. I guess that lets you know where I stand.
If your interested in talking or have questions please give me a call. 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.