Las Vegas real estate market report

If you purchased your home in the years 2004 through 2007 and you live in Las Vegas you may be in an unfortunate group of people that now find themselves in the position of having more invested in their homes than they can currently sell it for.

Many of you may be in a position where your mortgage interest rates and payments are rising further putting the squeeze on your living expenses.  This cash crunch creates much real financial pain and may push you to the point of just giving the house up to the bank. Before you make such a life changing decision, that will affect your credit and financial security for many years to come, you may want to take a look at a little history.

BAD NEWS 

Edward Glaeser a professor of economics at Harvard University and a Manhattan Institute senior fellow has a different view on this housing adjustment when he wrote in an article for the The New York Sun.

Glaeser wrote that for every 10% rise in a boom cycle prices fell 5% historically. If we look at Las Vegas we had approximately a 50% increase in our last 4 year boom cycle.  But also if you take an average normal appreciation curve for Las Vegas you find that home prices over the last 20 years have averaged 5% appreciation in our market.  We refer to this 5% appreciation as a baseline. So if the boom increased prices 50% and the baseline would have normally increased prices by 20% (5 yrs. X 5%) our market is over inflated by 30%.

Using Professor Glaesers estimates of price adjustment we should see a drop in real estate prices of 15% but we have one more problem to throw into this mix.  One of the main reasons home prices boomed in Las Vegas was that we had investors from all over the planet buying on speculation, hoping to make some fast cash by buying homes and then reselling them almost immediately. This created a false market which caused more homes to be built than there were people to buy and live in them.  We find these homes now on the MLS as vacant homes.  For this example let’s use the current December 2007 figures when approximately 28,000 homes are listed on the Las Vegas MLS and approximately 40% were vacant.  The vacant homes indicate excess supply and that number is 11,200 now throw in New home inventory and repossession or REO inventory and you have about 15,000 homes that are unoccupied in the market place.  What you also need to know is that the repossession will continue to climb through the 4th quarter of 2008.  The number of vacant homes will probably not change very much as people give back their homes and then rent in Las Vegas.  People are not loosing their jobs so they must find housing even though they give back their home.

Now you need to know that the valley has about 740,000 homes in it right now according to the Clark County Assessor and that nationally a healthy real estate market has 2% of its housing stock for sale at any time.  This would mean that Las Vegas if it were healthy would have 14,800 homes for sale.  If we currently have 28,000 homes listed on the MLS and we have more new, REO and for sale by owner homes on the market it is safe to say we have twice as much inventory on the market as we should in a normal market.  That is why some economic forecaster are saying that the Las Vegas Market could loose as much as 30% of value before the market bottoms out and starts to climb once again.

Let’s use the worst case of a 30% drop in Las Vegas real estate values and take a look at what is ahead in the near future in Las Vegas.

 GOOD NEWS

Every economist in the United State understands that job growth (employment) is the biggest major factor in driving housing and its affordability.  If housing is tight then prices rise.

In Las Vegas employment experts can calculate the increase in employment by the number of hotel rooms added to the area.  Historically the ration is 6 new jobs per room in Las Vegas.

The good news is that we only have about 15,000 homes that are excess inventory and we are about to have major job growth in the Valley due to $36 Billion dollars of development on the “Strip.” Las Vegas is projected to bring on line approximately 12,000 rooms from December 2007 through December 2008. That will translate to 70,000 new jobs here in the Valley.  If we use the lowest housing to job ratios of 33.8% in 1995 when interest rates were 9.25% we find that this surge in employment will cause a conservative demand for over 23,000 homes.  So at the end of 2008 we should be short 8,000 homes that will need to be built to accommodate our new work force.  In 2009 an additional 16,000 hotel rooms will come on line creating another 96,000 jobs and the need for a conservative 32,000 more homes.

The builders in the valley have the available lots to build on to meet this demand but they developed these lots at 2005 prices and have to carry interest on them for an additional 2 to 3 years increasing their price.  This will mean the new homes will be built on lots that cost more than in 2005 and even if construction costs are lower will still require 2006 pricing in order to strengthen the week home builders after being plundered by this latest price adjustment.  Don’t look for the 2007 prices builders used to liquidate excess inventories in late 2008, they will have vanished.

Bottom Line 

Bottom line is that the surge in growth that we are about to get over the next 2 years should not only bring us back to within 5% of the high point in 2006 prices but might increase the cost of a single family home 5 to 10% over those highs.  This will not be a real estate boom but simply a recovery of values.

It is also projected by local economists that we will actually have a shortage of employable workers by 2010. This leads to more competition for experienced workers and results in higher paying jobs.  This should help ease that tight budget and give you a little more cash to enjoy life.

So if you can meet your mortgage payments for the next 12 months, do it.  Short of a national catastrophe it looks like you may be looking back in 2009 and saying “Wow, am I glad I kept my home.”

The two worst things you can have on your credit is a repossession or a bankruptcy.

Hang on things are going to get better.

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.

This mourning I was reading an article on the Southern Nevada Water Authorities plan to build a pipeline from the interior of the State to Clark County and deliver as many as 400,000 additional homes water. This project would cost an estimated $3.5 billion dollars.

(See the article here)

If the source of funding of this project were purely water connection fee’s for new connections then Las Vegas residents could see connection fee’s increase an additional $8,750 each for the 400,000 new residents (based on 200,000 acre feet).

SNWA needs to be working with other states and their ranchers to get more water from the Colorado. No pipeline cost is incurred by using this resource.

The Feds need to re-examine State rights and water distribution and consider its ramifications on the food supply, the environment and human needs rather than just State boarders. The old water and natural resource rules need to be carefully examined and changed as they no longer work for the best interests of the entire country and our environment.

Clark County does not have to suck the balance of this arid State dry.  Nevada has enough dust bowls thanks to Mother Nature.

The State of Nevada should be negotiating on behalf and in the best interest of Clark County to find additional shares of Colorado River Water. It should be lobbying for change at the federal level and be striking deals with other States.

What about building desalinization plants in Southern California along the coast. Desalination it is credited with making Dubai possible, why wouldn’t it work in Southern California  This would reduce the need for Colorado River water freeing further resources for Clark County.  Should SNWA be subsidizing desalinization plants along the shores of Southern California in exchange for additional Colorado River water rights? Would it be cheaper and make more sense to add additional water to the arid West or to just drill holes and suck it dry?

If global warming is in our future we need to look at redistributing our resources and not just on a State basis or a National basis but on a World scale.

Perhaps we could even expand our conservation right down to your personal homes. A few changes by Congress could put this Nation well on its way to a better environment.  If Congress would pass legislation that would mandate Appraisers to increase the value of homes by the reasonable cost of renewable energy and energy conservation systems installed in the home as well as provide that mortgage companies calculate the energy savings and allow for the difference to be added to the mortgage payment. This sort of effort would immediately spur the average homeowner and the whole contractor industry to start retro fitting homes with solar voltaic panels, on demand water heating units, water conservation systems, energy efficient appliances, energy efficient lighting systems, better insulation, attic fans, upgraded efficient window systems, energy efficient air-conditioning systems.

The bottom line is that we need to make conservation not only cool and responsible but we also need to provide ways that the average citizen can afford to conserve.  What better way than to take the dollars from Joe Citizens energy bill savings and put it dollar for dollar into his mortgage payment in a direct dollar for dollar exchange.  This would allow Joe Citizen to make his contribution to the environment and conserve our resources without shelling out $40,000 from his pocket with no guarantee he will get it back when he sells his home.

Senator Reid, please get off your soap box and start doing something about developing Nevada’s renewable energy resources. Nevada needs your help, not just your rhetoric. Nevada needs a leader as does this Nation to do something about energy conservation and development. We need to become energy self sufficient so that we can quit dictating foreign policy for oil, which has resulted in us sending our wonderful youth to die so that we can fill our tanks. Much of the world hates the United States because of our strong handed tactics in manipulating foreign governments. Aren’t we smart enough to change when we see things aren’t working?

We need to change our Country and quit trying to change the world to fit our needs.

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.

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.

I have finished and uploaded the latest market study report for the third quarter of 2007.  This statistical analysis of the Las Vegas real estate markets should give you a good idea of not only what has happened but where things are going in this volatile market.

With is market currently in a state of flux, you will want to pay special attention to the trends and projections made by the experts. 

We will see much more change in the residential real estate markets here in Las Vegas over the next six months.  These changes offer some unique opportunities for Buyers that may not come available again for a very long time.

We all wish we would have purchased in the last real estate down cycle as those who did made a great deal of money.  This is not the time to wait for everyone else to start buying.  If you do wait prices will start to rise and you will have missed the trough in the down cycle.

You can find this video presentation by clicking on the Las Vegas real estate report video picture above.

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.

The above chart shows price appreciation and depreciation in the Las Vegas residential real estate markets since 2001.  On average Las Vegas historically had a 5% price appreciation rate year over year until the boom in 2004. 

If the historical increases hold true and prices continue to fall it looks like we will hit a true un-inflated value of residential real estate some time in the first quarter of 2008.  This however does not automatically eliminate the over supply of home on the market.  It is very possible that in the short term prices will fall below the average appreciation line until surplus inventories shrink significantly. 

For those Buyers sitting on the side lines waiting for prices to re-adjust, this is good news as the wait may be only 3 to 6 months more. 

Remember as the new mega resorts on the Strip begin opening,  job growth will begin to spike.  Economists estimate for each new hotel room that opens in Las Vegas 6 new jobs are created to support it.  These jobs would include not only maids, casino, entertainment and restaurant jobs but also maintenance and support services for the workers that fill those jobs. 

This will create more people looking for home ownership at the new lower home prices decreasing excess inventories and eventually driving Las Vegas home prices towards appreciation once again.

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.

A few nuggets of FYI:

The downtown casino’s have settled on a new 5 year contract with the Culinary Union. Only a few holdouts remain in the Las Vegas Valley.  The most notable and problematic is the Tropicana which has had major problems with the unions since its takeover.  The word on the street is that the Union may soon strike putting further pressure on this old Queen that has yet to be renovated.  At this point Asatar has not come up with any decisive plan to rebuild on this site.  If this property were to have employment problems it could cause a great deal more red ink since the property cannot currently produce enough income to cover its debt load.  Hold on to your hat as we could see the Tropicana close while they figure out what to do with the property.

At the other end of the strip on the North East corner of Las Vegas Blvd. and Sahara, the old “Holy Cow Casino aka the Ivan Condo Tower” site has been sold to a quiet reclusive real estate investor from Arizona.  He said he has no plans for the site but felt it would be a good investment.  In my personal opinion this is investor speak for “I’m negotiating to buy more land around it or cut a deal with an adjoining property owner.”  It will probably be Spring before we hear any plans for this high rise zoned corner.

Near the Northwest corner of Sahara and Las Vegas Blvd. the Allure condominium Tower I is nearing completion and will start owner move-ins in the next few weeks.  The second tower has been moth balled until the market changes. 

The number of Las Vegas homes for sale keep rising as the Lenders continue to foreclose.  I personally have had several calls from home owners trying to figure their way out of the payment reset jamb from exotic mortgages.  It seems that the Companies such as Countrywide have not been returning their customers calls according to my source.  She stated that she has tried several times and left messages on their answering service but has yet to receive a return call.  It seems that perhaps the willingness of some of these companies to save people in foreclosure may be more “Public Relations” than earnest effort. Of course the above is my personal opinion and not any statement of fact.

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.

By now if you haven’t heard that the average price of a home in Las Vegas has decreased then its time you knew.

If you are like so many other investors or home Buyers you are probably standing on the sidelines waiting for the prices to quit falling and then you will swoop in and grab the deal of the century.

I have a few things you may wish to consider while sitting on the sidelines waiting for the market to change.

Let’s start by considering what is happening right now in the Las Vegas real estate market.  Five days per week there are approximately 100 properties being auctioned off at the Trustee Sale in downtown Las Vegas.  Of all these homes selling on the auction block only about 6 to 8 per week are being purchased by anyone other than the mortgage company who is doing the foreclosure.

With 500 homes going back to the banks per week where do you think they are being sold?  The Greater Las Vegas Association of Realtors Multiple Listing Service has a great many of these properties but they do not have them all.  Many properties are being wholesaled to Buyers at substantially lower than market prices.

The worst estimates by most economist suggest that Las Vegas real estate may fall in value by up to 16%.  If you could buy today at below a 20% discount would this mean its time to get back in the market?

What you need is a Buyers Agent in Las Vegas!

If ever their was a time you need a Buyers agent under contract to find you the very best deal, now is the time to hire one.

Yes, you may have to pay them a 3% commission but if they find you a deal at 30% below market that still figures a healthy gain for you of 27% in your pocket.  A deal like this would be virtually bubble proof.  These types of deals are available if your Agent knows how to find them.  Yes, they will require a lot of work but it will pay off for you in the end.

If you were the Bank selling these properties at 20 to 30% discounts and you saw indications that the market was leveling out or even starting to rise would you continue to sell properties at deep discounts causing your company more losses or would you change your policies and start requiring higher prices for your foreclosed homes?  If you care about your job you will raise the prices if they will still sell.

The point is the smart Buyer needs to buy while the market is headed down but in such a way as to insure that they have purchased low enough to insure that when the market bottoms out they have still make a great deal.  This is a possibility in the market today but as the market bottoms out, in the next 6 months, the market pricing will begin to firm up and deep discounts will disappear.

Use a contracted Las Vegas real estate Buyers Agent to help you find a home run deal today.

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.

If history repeats itself then the graph above can give us some sense of what is happening and possibly going to happen in the U.S. real estate market.  Case Shiller issued the above chart in July 2007. 

What makes this interesting is the historic last dip in the market we experienced in 1990.  If you will take note we seemed to find the bottom of that market in 1991.  This lead to another smaller decline culminating in 1993 and a second decline in 1996 which then brought the market back to a zero basis and the beginning of the last historic climb from late 1996 through 2005.

Beginning in 2005 the real estate markets began to slide and are continuing their decent and now with the lending markets in turmoil we will see further slides until either the mortgage companies wake up and decide to renegotiate their contracts with their debtors on all the exotic loans they handed out, or they simply go broke and other mortgage companies step in and take up the slack.

No matter what happens in the mortgage market it looks like from an historical perspective we will continue to see prices slide and the market continue to slow at least through the first quarter of 2008.

We in Las Vegas have other factors to consider in this real estate roller-coaster ride.  A major consideration is the investor factor.  In 2004 and 2005 we had almost as many short term investors putting money in our real estate market as we did visitors betting on the blackjack tables.  It is estimated the half the real estate sold in those two years was sold to investors.  This means that a vast amount of oversupply in real estate is on the market due to investor gambling and much of this inventory is not occupied.  These propeties are surplus inventory.

With 6,000 people moving in to Las Vegas each month you would think we will eat up this excess inventory in a hurry and eventually we will, when these new move-ins decide the market has bottomed out and its time to buy. But for right now most are renting!

So where does this down cycle end? For we here in Las Vegas it looks like we will be experiencing a shortage in the work force in 2009 when 45,000 new hotel rooms come on line.  Employment Security is estimating the need for about 110,000 workers and estimates a shortfall for the available jobs coming up.  This may lead to a competition for good workers leading to increased income.  This means we could see new qualified Buyers in the market place looking to Buy a home in late 2009 and early 2010.

Keep in mind that we still have all those Buyers that are out their renting now.  If they don’t purchase before this employment flood in 2009 they very well may find themselves not getting the deal they were waiting for but may have to buy in an appreciating 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.

By now it has become clear that the Las Vegas job market will get a big boost in job growth in late 2009.  Many of these huge condo and casino projects will be completing in 2009 and hiring new people to staff these luxury digs.

But for now unemployment is up to just above national levels. This is generally due to the closing of a number of large properties on the strip in order to build new giant projects thereby reducing the number of employees and secondly by the drop in residential real estate sales which have laid off construction workers, mortgage, title and real estate industry personnel.  Remarkably, the figures have not gone up near as much as the job loss because Las Vegas has been diversifying and is still creating a great many jobs in a variety of industries.

Las Vegas is still getting approximately 5,000 new residents per month according to the Department of Motor Vehicle statistics.  So why does Las Vegas still have a growing inventory of home for resale? 

The initial upsurge of listed inventory of homes for sale came as short term investors (flippers) started to realize that the market was turning and was no longer appreciating and they needed to get out.  This occurred, for the most part, in mid year 2006.  Some insisted on not discounting their prices and this left those properties on the market as others were added. 

Las Vegas for about 3 years was well publicized as a get rich quick place for real estate investing.  This created a buying frenzy with bidding wars for a very low supply of homes with people camped out at subdivisions just for a chance to buy one. As these people began to realize that the Las Vegas real estate market had peaked they all rushed to unload their holdings.  It is estimated that as much as 20% of the market is investor owned.

Because real estate was escalating in cost from 2003 through 2005 the mortgage industry loosened their requirements on loans and credit became very easy to get.  This allowed many full time residents that could not prove their full income due to cash tips, to now qualify for a home loan and stop renting.  Because many of these people had marginal credit and no down payment, they were given sub-prime (exotic) loans.  Many of these loans started out with at an extremely low interest and then reset in 2 to 5 years to a new much higher rate. 

So now we have investors and new homeowners competing for the same homes and thus escalating prices further.  Investors were also able to get no principle, stated income (exotic) loans with low down payments.  It seemed like everyone that came to Las Vegas even on vacation became a real estate investor.

Today all the available loose exotic mortgages are gone.  All the Buying short term investors (flippers) are gone.  All the employees that can’t prove their income are no longer Buyers because they can’t qualify for the loan.  Those people who may be in the market to buy a home often times are waiting to see if the market will discount further before they buy. This has left Las Vegas with far fewer Buyers.

Now add to this equation the home owners that took out exotic loans several years ago. Remember that the interest rates reset to a much higher rate?  Well right now and through 2009 we are going to see a lot of these loans reset which can almost double the home Owners monthly payments.  Many of these people can no longer afford their homes and they can no longer qualify to refinance.

So now we are seeing a flood of repossessions and foreclosures adding to the real estate inventories.  And these people will have to go back to renting and loose any credit that they may have built.

The Nevada legislature recently passed a law to help future borrowers here in Nevada.  It basically said that if the Lender didn’t prove the ability of the Buyer to be able to pay for their loan at the highest rate the loan could be adjusted too, then the Lender was guilty of a felony.  As a result many lenders will no longer be offering stated income loans in Nevada.  This gives homeowners trying to refinance and save their homes even fewer chances of doing so.  So in the end the State of Nevada is kicking many current home owners out their doors, by eliminating financing options that were available prior to the passage of this law.

It has been estimated that 50% of all home sales in Las Vegas were financed by exotic mortgages in the last 4 years.  It is further estimated that as many as 56% of these loans may end in foreclosure.  This would result in flood of properties being offered for sale in the Las Vegas real estate market.

So what will stop all this doom and gloom in the Las Vegas real estate market?  The change in the market will be stimulated by increased employment, foreign currency and a continued influx of new residents. 

In the short term from now until the last half of 2009 Las Vegas may be in for a rough ride.  With  population increases of approximately 5,000 new residents per month including retirees who do not need jobs. Heavy new job demands are forecast to actually fall short of the available employment pool in 2009. 

the value of the dollar in relation to foreign currency is making Las Vegas a real estate bargain for many International Buyers.  All of this can turn this market very quickly.  For the balance of this year look for some rough roads as this market shakes out. But in 2009 expect a Sellers market.

All this reminds me of the wealthy real estate investors mantra “Buy when everyone is selling and Sell when everyone is buying!”

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.

The Fed decision arrived with a Big Change! The Fed surprised most economists and traders with a one half percent cut in both the Fed Funds and Discount Rates. Stocks soared higher and enjoyed their largest gain since 2003.

What does the Fed interest cut mean? Rates on consumer car loans, consumer loans, and Home Equity lines will all benefit. But because Las Vegas Home Loan rates are tied more closely to inflation, it is not uncommon to see less of a reaction…or even an opposite reaction in mortgage rates.

This cut also hurts rates of return on investments.  This gives foreign investors less incentive to invest in US securities. This action by the Feds has resulted in sending the Dollar much lower against the currency of most major foreign countries. This makes foreign goods more expensive for us to buy, which adds to inflation pressures.

This Fed interest cut is good news for the U.S. economy, but may nudge inflation a bit higher.

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.