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.”  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 1/3^rd 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.

Truth two: If a community’s economy is growing including its work force, so grows its real estate.

 We have a huge building boom in Las Vegas, we have more cranes in the sky than a Montana marsh.  They are everywhere.  Then add to that all the small commercial, commercial and mid-rise residential being built.  YES, single family residential building is SEVERLY OFF, but the rest of the building industry is booming! Our economy is still growing.  But for the moment our work force is really not growing.

In the casino industry with the closures of so many properties here in Las Vegas we have actually shrunk the inventory of hotel rooms available and the number of workers it takes to staff the properties that are left.  The last major casino openings were the Red Rock and the Wynn.  We have seen the closing of Stardust, New Frontier, Boardwalk, staff reduction at the Tropicana and several smaller properties have shut to make way for the new Super properties of the future. So the number of Casino jobs have actually been reduced.

The residential home building industry has had to shrink because of soft demand as the number of resale houses have increased.  As a result the total number of jobs in residential construction has fallen over 40%.

But surprisingly in spite of these two negative numbers other job categories in the area have been increasing leading to a total unemployment rate of just .01% higher than the national average.  But for the next 3 to 6 months we should see these numbers begin to climb as the people that were laid off find employment in other job sectors and as the Palazzo Casino/hotel opens at the end of this year.  This should have an impact on our economy much like the Wynn did upon its opening.

The Las Vegas Convention and Visitors’ Authority says that by 2010 we will have added an additional 40,000 rooms to the valley resulting in a need for an additional 70,000 jobs.  Now understand that includes the bagger at the grocery store where some of these new hotel people will shop.  They aren’t all going to be standing in the hotel halls waiting to help the guest.

So what we are experiencing for the moment is almost flat employment as the people that have been laid off find new work in the jobs that are being created in the valley.  But all this is about to change as you can see.

Please com back for part 3.

What is going on with the real estate market here in Las Vegas? 

We read about the impending real estate bubble bursting. 

Some writers have even predicted a drop in values as much as 30% and a possible collapse of the U.S. economy.

So what is happening?  Is it time to build a bomb shelter, arm ourselves and horde more food than a polygamist?

No, take a deep breath and let’s look at the market and the reports a bit more logically.

Truth one: In media sensational sells. The more outlandish the story the better the readership, viewer ship and that means higher sales.  For a while the movie industry was using this principle announcing the famous movie critic Billybob Zhislslicker of the Las Vegas Times says “This is the best movie ever made.”  So we all ran out to the theatres to see a movie that shouldn’t have even been released.

The same thing is happening right now with the internet, news and press all trying to compete for your attention. 

If they write that real estate will drop 30% in Las Vegas, they know that will get your attention.

So will real estate drop 30% in Las Vegas? It is as likely as the total

U.S. economy collapsing followed by a world depression as a result.  No, I am not a dooms-day believer and no I definitely do not see any of it happening.

I will tell you much more in the next installment of this report.

 This is a part of a series that will be released every 3 days.

I have just completed the 2007 market report for Las Vegas for the first half of this year.  This report will give you the latest sales statistics with an in depth look at what has happened in the Las Vegas real estate markets.  The information covered includes, new home sales, resale homes, condominiums, future forecasts and much more.  The report shows many easy to understand charts and graphs to help you better understand what has happened and what is anticipated to happen in the Las Vegas real estate market in both the short term and over the next few years.

You can find this free on demand video on the Las Vegas real estate report by clicking on the picture above or by cutting and pasting this link into your browser bar:

http://www.maxsellsvegas.com/videolibrary/LasVegasReport/LVReport.htm

So, when will the sky cranes come down and the slot machines start ringing in these new cutting edge resort properties in Las Vegas?  When will we get the economic shot in the arm that Las Vegas always gets when a major Casino Resort openings creating thousands of new jobs and new residents to our valley?

Well the first of a flood of properties will be coming on line beginning this fall (2007) with the opening of the Palazzo a $1.8 billion dollar 50 story luxury resort with 3,400 rooms and suites and a 105,000 sq. ft. casino and will need 4,000 new employees.

The Wynn Resorts “Encore” will open between Thanksgiving and Christmas of 2008 with 2,000+ rooms this 1.5 billion dollar project is a 48 story structure with a 40,000 sq. ft. casino. Estimated employment of about 2,000 workers.

Cosmopolitan has a projected opening for the last quarter of 2009. With 3,000 rooms, an 80,000 sq. ft. casino, 265,000 sq. ft. of retail space and 150,000 sq. ft. of convention space. The Cosmopolitan will have an estimate worker base of 4,000 people.

Project “City Center,” with its massive opening slated also the last quarter of 2009, this 7.4 billion dollar project may put a strain on employment here in the Valley. With 4400 hotel rooms, 3 condo towers with 2,700 units, an urban village and shopping mall, casino and much more. It will require 12,000 employees to service its guests and residents.

Fontainebleau Las Vegas will open its doors in 2009 with $2.8 billion dollars invested.  This project has 3,889 rooms, 100,000 sq. ft. casino and a 1,000 unit condo-hotel. Projected employment of approximately 4,500 workers.

Echelon Place which replaces the old Stardust is a $4.4 billion dollar project with 5,300 rooms, 1 million sq. ft. of conventions and retail space.  This project is scheduled for opening in 2010. Approximate new employment 6,000 people.

Plaza Hotel on the old Frontier casino site will open in 2011. This $5 billion dollar high end project will include hotel, casino, condominiums, convention center and retail.  The project details have yet to be released.

There are many other projects on the drawing board that could put additional pressure on residential real estate here in Las Vegas such as the development to be announced this fall on the S/W corner of Sahara and Las Vegas Blvd.,  the major project to be built on the site just west of the Hard Rock on Harmon Ave.,  3 major projects to be built on the South Strip, a new arena and casino complex to be built at Charleston and Main and much more.

Add to this several resort major expansions that are underway such as Hard Rock, Caesars Palace, Planet Hollywood, Palms, Lady Luck, Gold Nugget, etc.  And we could see a real housing and employment problem headed our way beginning in 2009.

I have not discussed the condo towers, Locals casinos, major retail expansion and commercial and industrial projects currently under construction that will also require employment.  I have also not discussed the jobs created in the community to support the new employees for these large casino properties.  All this will add to the employment problems here in Las Vegas.

My thoughts are that the housing market will stabilize in Las Vegas in late 2008 and once again the pressure on the housing markets, start in 2009. It looks like the casino industry will have to increase its workers salaries about this time to compete for the workers. So look for better wages at these new high class properties.  This brings more money into the local economy including housing making home purchase a possibility for more residents here in Las Vegas.

Remember the basis of good real estate investment starts with good employment figures.  If employment is the corner stone then Las Vegas has transformed its self once again into a golden investment opportunity, once again.

Lady Luck closed over a year ago. The Boardwalk was imploded late last year. The Klondik was shut last year. The Stardust closed and was tour down in January. The New Frontier will close on July 15th and be torn down.  With all these casino closings the number of rooms has actually been shrinking.  Unemployment in Las Vegas actually exceeded the national average by .01%!  My goodness why hasn’t the Press made this into a national crisis!

Other Casinos have changed hands like the Tropicana and laid off 300 workers recently as well.  The residential housing industry has laid off about 10 to 15% of its work force according to the Nevada Dept. of Employment Security.  With all the closings and layoffs it is surprising that Las Vegas doesn’t have a higher Unemployment rate.  What is suprising is that job growth is showing up in all other sectors (excepting residential construction and casino workers).  It looks more and more like Las Vegas is no longer a one industry town.

But for those of you that want to see big gains in employment which means big numbers of housing sales and a stable real estate market, you don’t have long to wait.  According to the Las Vegas Convention and Visitors Authority, 40,000 hotel rooms will come on line in Las Vegas between now and 2010 and will require over 70,000 employees.

The first of these properties to open will be the Palazzo towards the end of this year.

Now besides the 40,000 rooms under construction you still need to factor in the following properties:  The “M” casino, Southern Highlands Casino, Tropicana expansion, the new casino on the S.W. corner of the Strip and Sahara, The Maxum Casino, The Plaza (replacing the New Frontier), The Crown Las Vegas (tallest building in the Western Hemisphere), Las Palmas, The project forth coming from Africa-Israel on the old “W” site, and more.  None of these projects have been figured into the 40,000 rooms.

The 40,000 rooms are in properties like, Project City Center, Fontainebleau, Echelon Place, Encore, Plazzo, Cosmopolitan, and expansion at the Hard Rock, Planet Hollywood, MGM Grand, etc..

Add to that all the luxury high-rise condos being built and I think you get the idea that employment opportunities in Las Vegas are going to grow like weeds in the coming years.  The seeds of growth are planted, its going to be fun to see it grow.

Keep in mind that as we again start to grow, you will look back and think “Why didn’t I buy more real estate while the market was soft?”