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.

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!”

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.

Would you consider buying a Las Vegas home today if only you had your car and those two credit card balances paid off?  That can be arranged through a new tool called a Grant program that is perfectly legal if properly executed.

Here is how it works. Let say that you currently owe:

$13,500, or $405 per month, on your car 
$10,000, or $163 per month, on one credit card 
$4,000, or $65 per month, on another card.
_________________________________
 $27,500 with total monthly payments of $633. 

You have been in with a loan officer and qualified for a monthly payment of $1,850 per month which will get you into a $250,000 home with your savings of $12,500 as a down payment.  The problem is is when you add these two debts together totaling $2,483 per month it doesn’t leave you any breathing room in your budget.

Well there is a new program that can wipe out that old debt and trade it for that house payment that you can use the interest deduction on your taxes.  You are not adding the debt into your mortgage balance but you get your debt paid off and you get to send the checks!

Here is how it works.  You submit the debt you want relief from to the Grant Company.  The Grant Company then sends me your Las Vegas real estate Buyers agent the Grant request to be included as a part of your real estate purchase agreement (offer to purchase).  The Grant is to be paid by the Seller from the closing proceeds and will be sent to the Grant Company.  The Grant Company will send you checks made out to your creditors within 3 business days for you to send to pay off your debts.

You now have your new Las Vegas home and are free from your former debt!

This new tool is useful right now while we are in a Buyers market.  With all the concession Sellers are making to sell their homes this is a great tool if you are interested in buying a home right now.

If you have any questions please give me a call, Max 702-334-2200.

In the last year we have seen Stations Casinos make a play for land around the “Strip.”  With a location on the South Strip near South Point Casino. 

Major land acquisitions around their original flag ship casino, Palace Station and now they are assembling 70+ acres around their Wild Wild West Casino on West Tropicana.  Currently Stations is building a $600+ million dollar casino in North Las Vegasat Aliante Master Planned community.  After it looks like they are headed near the Strip with one of these 3 properties to build on. 

Stations will compete well with its service oriented marketing plan. It has carefully and successfully fine tuned its marketing on the local residents who are not easily impressed.  They now have an upper end product which they initially rolled out with Green Valley Resort followed by Redrock and now the Aliante unit.  This concept has caught fire both with the local residents as well as travelers who love the pampering these properties offer.  It only make sense that Stations should head for the Strip where the lucrative tourist dollar is more abundant.The major cross roads on the strip are starting to get more attention from gaming.  For years we have seen small casino operations struggle to stay afloat, even the

Rio struggled for a while and offered suites at room prices.  Things seem to be changing in a big way as we see the major success of the Palms and other off near strip casinos are doing much better now.

Other properties on major cross streets are starting to move. I was watching the local county commission meeting a few weeks ago when the County approved a casino site on the south west corner of Spring Mountain road and I-15.  That is a very short distance from the location of the proposed Dragon City Casino of a few years ago.  These casinos if built would connect the Strip with China Town and bring new life to the industrial area that currently sites between them.  Purchasing property just off strip looks like a great investment for the future as their is very little land left on the strip and it commands a huge price tag.

Near Strip condos will also benefit from this expansion as new casinos are built and existing communities become better locations. Pinnacle condominiums would be benefited if Stations build a new Casino on the Wild Wild West location.  This would make the neighborhoods between the two projects a much more desirable location for business and may trigger a change in the area.Normally I don’t directly write about hot areas.  I generally keep this information private for my clients.  I do so now to let you know that understanding the real estate market can make you money, even in a down market.  Every real estate deal has its own set of considerations and understanding those factors is what I do best. 

I was very impressed by the New York Times this last week as they presented graphs and a balanced look at the current and historic real estate market in many Major U.S. Cities for the last 20 years.  This is what good balanced reporting is all about which seems to be missing in much of this countries reporting of late.  Please take a look at the video and charts for “Home Prices Across the Nation.” Please notice the light blue bars which shows the Las Vegas market was under preforming from 1996 to 2003 based on the national figures and then soured over the national average through 2005.

What the chart does not show is how extremely low interest rates and very liberal lending practices affected the Las Vegas market.  Because interest rates were so low during this period, payments were acceptable even when purchase prices increased beyond the normal national levels.  This allowed home prices to increase at a very rapid rate, with investors, builders and flippers watching as inventories in our valley began to shrink further driving price inflation. As more and more people started investing in the Las Vegas real estate market we became famous for our real estate appreciation, which in turn fueled more appreciation in the residential real estate sector. 

This chart is also interesting in that you can see the market start to shut down approximately 3 years from when it heated up.  This could have to do with the 3 year adjustable rate mortgages that were being taken out to purchase these homes and which have been driving up foreclosures in the last 18 months.  If you plot a 3 highest peaks in sales from the 2nd quarter of 2004 through the first quarter of 2005 and project those 3 years to consider when the greatest number of three year ARM’s will reset we will see when the bottom of the market will occur in Las Vegas (the time of the most foreclosed inventory and defaults).  This will mean the best time for the Buyers will probably be in the first or second quarter of 2008.  At that point it is likely that inventory levels will begin to shrink and prices will stabilize.  Keep in mind that Las Vegas has a huge employment growth projected for 2009 which may very well bring the residential real estate market back to a healthy level in a very short time.

So what is happening to prices?  Yes, they are moderating some but not like you would expect. There are a couple of things you need to be aware of before I give you figures for the valley.  First off in the last year we have had some big high rise condo projects close.  These projects come with big price tags for the units that have been closing.  Most recently Sky Las Vegas luxury condominiums closed its units in the last 60 days.  This will boost the average price per housing unit in the valley higher than it really is.

So here are the figures.

According to the Greater Las Vegas Association of Realtors the average price of a home is down  3.2% from a year ago.  The total number of home sales in June 2007 were 1,476  a 41.6% drop in sales from a year ago.

 

So where are all the Buyers?  Those nasty headlines about the

Las Vegas real estate market have made the press a lot of money.  But they have also kept the Buyers waiting for that 30% drop in the market.

Yes the market will continue to soften in the short term until probably about the time the Palazzo opens.  And know I don’t think the Palazzo is going to cure the soft housing market in

Las Vegas, but it may very well firm things up and stop the softening.  And don’t look for a repeat of 2004 -2005 in 2008 because now a Buyer has to qualify for the higher rate on their mortgage. This means fewer people will be able to qualify for a loan. 

Prices will probably continue to moderate slowly through the balance of 2007. But the outlook for 2008, 2009 and 2010 show a much stronger market here in

Las Vegas.

 

So if you are thinking of selling a home you need to price your home right.  You need to know the market in your area and your neighborhood.  Your home needs to be well maintained, clean and staged. And you need the right Real Estate Agent who knows how to market in a Buyers market to help you sell your home.

 

That is what is going on with the Las Vegas real estate market!

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.