Although the real estate market in Las Vegas is still very week their are signs of life and the future is bright.  Las Vegas housing was simply over built in 2005 and 2006. This was due to heavy appreciation in the market place, easy credit in the mortgage markets, and heavy speculation by opportunity investors.

In order for the Las Vegas real estate market to get healthy again the following things must occur.

1) The existing excess inventory of new homes must drop.

This for the most part has already occurred .  Standing inventory of new homes have dropped to about 1,000 units (excluding age restricted neighborhoods that are not as affected by the down cycle).  Many builders have dropped their incentive programs of closing costs and upgrades and have replaced them with the lowest price and guarantees if the prices drop further between the contract signing and the delivery date of the completed home.  Building permits for the first 3 months of 2008 have dropped over 66% from 2007 levels. Of the 440 neighborhoods with new homes for sale in them 85 of these neighborhoods have 10 sites or less available translating into a drastic drop in available subdivisions in the next 6 months. All the above shows signs of shrinking the Las Vegas new home markets.

2) Repossession’s must slow.

Although Las Vegas home repossession’s have not slowed yet their are several signs that this may occur.  Many of the initial flood of repossession have been the inexperienced short term investor that bought homes at the height of the market in hopes of making a profit and got caught in the market turn around.  Most of these investors have now walked away from their properties and we are seening  these homes as REO repossession’s now in the market place.

One thing that the fed’s have done is to drastically cut the prime rates to banks.  Although the mortgage interest rates have not decreased as much as they have historically, a very little talked about result is about to show its self.  There is a huge number of ARM loans who’s interest rates are to reset over the next 6 months.  Most of these ARM loans are tied to prime rate so the lower the prime rate the lower the over all the percentage rate will be for the home owners that have these ARM’s.  This will result in more of these home owners being able  to make their payments and stay in their homes resulting in fewer repossession’s.  We will still have a flood of repossession’s over the next 9 months as the homes that are in default now will be cycled into the market place but look for repossession’s to slow by this time in 2009.

3) The mortgage markets must stabilize making money available to qualified buyers.

Once again the Fed’s have come to the rescue with new Fanny Mae and Freddie Mac guidelines allowing for them to enter the jumbo loan areas.  A more important change by the Fed’s have been the FHA programs which have been expanded allowing more flexibility in obtaining an FHA loan.  Lastly many conventional lenders that have repossession’s are making down payment concession to qualified first time home buyers allowing them to purchase one of their reposessed homes with as little as no money down.  The mortgage markets are showing slow signs of stabilizing although the conventional markets are still in an uproar.

4) Las Vegas existing real estate inventory levels must come down.

The Greater Las Vegas Association of Realtors reports that in the first 3 months of 2007 new listing totaled 29,905 units.  For the same period in 2008 new listings were 25,752 units showing a slight decrease in listings of approximately 14%.  This downward trend in monthly listings actually started in November of 2007.  Although this is not huge turn around it does show an emerging consistent pattern in the market place.  Even with the huge number of homes being repossessed and placed on the market the total number of homes for sale in Las Vegas is slowly shrinking. As the number of Buyers increase this number of available homes will decrease at an accelerated rate.

4) The price of Las Vegas homes for sale must come down.

According to GLVAR the average price of a Las Vegas resale home in 2007 was $303,497 in the first quarter of 2008 the average price of a home was $262,332.  That is a drop of approximately 14%.  If you prefer to use the median price of a Las Vegas home then in 2007 it was $300,626 and in the first quarter of 2008 it was $246,500. This calculates to approximately an 18% drop in prices. Much of this decrease is due to the sale of Las Vegas REO bank owned properties which have amounted to over 56% of all sales in the first quarter of 2008. It is clear to we Realtors that deal in the market every day that REO bank owned homes are leading the market in sales.  Not all prices on all homes will ever come down uniformly but the opportunity is currently available for many excellent purchases at fire sale prices.

5) The Buyers must come back into the market and purchase.

Yes here also their are signs of real movement in a positive way.  With the devaluation of the U.S. dollar and the drop in prices we Real Estate Agents are seeing a flood of foreign Buyers.  They see an opportunity in our market and they are purchasing.  Many Las Vegas prospective Buyers are waiting to see if prices will continue to fall.  What most people don’t realize is that their are many great opportunities now that may soon disappear.  The whole Las Vegas resale market will never drop its prices across the board as each property is owned by different people with different motivations to sell.  Currently their are many properties on the market at prices that they sold for in 2004.  We are approaching pricing in many communities that are below the cost to replace them.  In my opinion we are near the bottom in price depreciation and because we are seeing some movement in the Buyers coming back into the market we may start seeing a firmer pricing policy by the banks that control the REO’s.  If we look at the 2005 property closing numbers which was a banner year in Las Vegas real estate sales we can see a surprising trend in comparison with 2008.  The first quarter of 2005 had 9,582 homes sold while in 2008 their were 8,907 homes sold which is not a huge difference in sales. We may actually grow in over all sales in 2008 if this trend continues and their is no reason to see a change in this pattern. 

An interesting statistic is the supply of homes in the market place.  This supply is figured by dividing the number of sales in a month by the number of homes on the market the result is the number of months of supply in the market.  As the number of sales increase or the number of listings decrease the number of months of supply decreases.  A balance market is considered to be a 6 month supply of homes.  In Las Vegas our Supply of homes in the market place in the last 3 months is as follows: 

Single Family Resale home supply based on home for sales divided by sales.
Dec. 2007  24.53 months
Jan. 2008  22.49 months
Feb. 2008  20.49 months
Mar. 2008  15.40 months

My personal observation is that we are seeing more and more Buyers quickly coming back into the market place.  This will result in the inventory levels to continue to drop and prices will stabilize.  If this trend continues at this pace we will see a balanced market of 6 months supply with in the next 6 months and that means prices will stabilize. This also means that we may start to see prices on new homes once again begin to rise around October of this year.  If your a Buyer and wait another 3 months to buy you may have missed the bottom of the Las Vegas real estate market.  I am not forecasting a huge jump in prices for this year or 2009 but we may see prices rise from their current 2004 levels to a normal appreciation rate of 4% per year which will mean by the end of 2010 with the demand surge because of all the new massive property openings on the Las Vegas Strip (120,000 estimated job creation) we could see a 15% increase in value over the fire sale prices we are seeing now.

For the Latest in Las Vegas real estate call Max at 702-334-2200. Your comments and questions are welcome.