Las Vegas Real Estate Blog

Las Vegas is selling single family homes a little faster than we did in July. The number of contingent SFR contracts stands at 3809; the number in pending is 2630.

What is pending vis-a-vis contingent? Given the odd contract scenarios foisted upon innocent buyers by the investor-sellers, there is no difference in this context. Both mean a property is in contract and is rolling the dice, trying to pass “Sold” to collect $200.

Never before have I had a seller respond to my offer with an un-executed (no signatures at all) counteroffer that I am supposed to have my clients sign and send back to the seller so the seller can decide if they still like what they wrote. Ridiculous. But, that is what is happening, so if you want to buy or need to buy, just be very patient. Things are a little different in the land of Oz.

And, the rising number of single family homes in contract is the fuel for this fire.
Also, my watch on affordability shows that single family listings in the watch area (all of the valley but 101,201, and 202) shows the number of listings at or below $150/sq ft (5092) have fallen slightly and the total number of listings in the same ML areas (14509) are each about 200 units below what they were on August first. Fewer listings, not as many below $150/ft.

We’ll see what the monthly totals bring but it looks like August “total single family closings” will rival or exceed July. The big news might be that with Pending and Contingent sales remaining so strong, we might match the sales totals set in 04 and 05 in September and remain higher than 04-05 for the rest of the year.

BULK SALES of REO’s – and other myths:

I have been checking into this very seriously and have learned from bank corporate property managers and brokers that, so far in Las Vegas, this isn’t happening. There are rumors of it happening, but a source at Wachovia said that, though they were considering a mini-bulk sale agreement on 100 REO homes over the coming year where-in the buyer had yet to qualify by showing them the money, they had no need to do this and knew of no other banks that were.

If it happens it will dry up REO’s fast so that prices can rise. Yeah.

But, most of my sources have said that since the banks can sell all the REO’s they bring to market at market price within 80 days of taking possession in the foreclosure, they don’t need to give away money. Las Vegas closed 3000 single family homes in July – here we just track MLS.
So, if you want to buy one hundred homes (30 MIL) or four hundred homes (100 MIL), to the market, the larger figure is just an extra 13% that the banks will collect next month anyway without you. Why give a big cash buyer 70% off when they can sell to 400 cash buyers for 3% off. That’s right. Most of the REO sales are cash.

Either way, the end will be the same. Foreclosures will slow down. The inventory will be absorbed. And prices will rise, as has already begun.

Live long and prosper.

Here’s what I think happened:

I will try to be brief. This is a snap shot, not a docu-drama, but I had to tell somebody.

The media has a different point of view, of course, but in my experience here in Las Vegas, those greedy investors who are now getting what they deserve and those poor home owners at risk of losing their homes are, to a large degree, the very same people!

There may be notable exceptions – some large corporations and LLCs, and some individuals that nobody likes anyway.

Las Vegas is a place where lots of people go because you can to try to make it, start over, or pull yourself up by your bootstraps. The “No-Doc loans” and adjustable rate mortgages of a couple years ago were just the way the game was played in a town where lots of people make over a hundred thousand a year in tips … and sometimes don’t report it. Anyone wanting to get their piece of the American Dream would have had to be crazy not to buy a house in Las Vegas if there was any way that they could.

The current market correction in real estate is not caused by lack of demand, an over supply of homes for sale, or a change in the basic demographics driving the earlier Las Vegas bull market.

From where I stand, many of the people who had adjustable rate mortgages planned to refinance them long before they adjusted. They were making their payments, and if they also owned investment properties, as many people in Las Vegas do, they had them rented out and were handling whatever negative cash flow that included. They were caught off guard like the rest of the world.

Who knew Wall Street had bundled sub-prime loans into EVERYTHING, just like a computer virus? So, we had a crisis of confidence in the international lending community and suddenly, people who wanted to refinance could not. The media banged their drum and sold their newspapers for all they were worth. Once the foreclosures started, home values retreated because all the 20% second mortgages were “foreclosed” and gone. Private owners are holding their listings off the market waiting for a brighter day . Everything else reflects the demise of the second mortgages. Only the most attractive foreclosure prices make up the bulk of closed sales, so it appears that values (Median Price, Average Price) have fallen 20% or more. Appraisers must take into account the distressed REO’s, and so the tail wags the dog.

For now.

The same factors that made homes worth the prices paid in 2005 and 2006 and the first half of 2007 are still present. It’s a lot like the speculation that has just given us $4.00 gasoline, only in reverse. With gasoline, demand didn’t suddenly go way up and supply didn’t go way down, did it?

This Too Shall Pass:
I guess my point is, this too shall pass. The people who gave us a strong real estate market in Las Vegas are still there. They are, by and large “little guys,” – average hard working Las Vegas people, whether new residents or old, trying to make things better for themselves and their families. They still move here at an incredible rate. They can’t take advantage of the market now, but, when “the powers that be” finally pull their heads out of their Special Place and allow the average person to again get a home mortgage, Las Vegas will be waiting with thousands of jobs, billions in new infrastructure, in the heart of the new solar energy belt, and … with affordable home prices.

The banks have learned to feed the foreclosures into the market. Right now, there is a bona fide feeding frenzy for any house less than $100/sq ft … and some houses at $110/sq ft have multiple offers … even without our traditional “no doc” buyers!

You can list a single family house at $85/sq ft, but it is nearly impossible to sell it that cheap. The market will bid it higher. Even now it makes more sense for our House Team buyers to negotiate with a private owner who is just slightly over priced but ready to make a deal, than to try to out-bid two or three dozen other offers and wait for the bank to call back if they feel like it.

Steady Growth?
As the market sells out the foreclosures over the next year or two, assuming we reduce the number of homes going in, hypothetically, the supply of REO’s will decline and prices will rise.

As home prices rise, at some point we will hit a $/sq ft threshold where private owners – like the ones who bought before or after the peak – will begin to come back into the market. They should fill the gap left by falling numbers of foreclosures possibly producing more of a swell rather than a wave. We should note, our monthly listing numbers for Las Vegas have remained the same for several years.

New Home Developers, who generally haven’t been building anything in the past year or so, may wait to pull larger numbers of new home permits because they won’t be able to demonstrate demand to their lenders, who are likely to be twice shy. So, there you have the recipe for slow, steady growth, just like we wanted, right?

I don’t think so.

Where are all the people walking away from foreclosures in the snow and rust belt going to go when Las Vegas has sixty thousand new jobs? Maine?

Las Vegas pending single family sales were at 2234 on May first (we officially closed 1794 units for April – the preceding 30 days), 2542 on June first (we officially closed 2026 for May) and we have 2591 pending sales today (we unofficially closed 2116 units in June).

If that holds up, not only has each month in 2008 seen more closings than the month before, and we are still better than 2007 for the third month in a row and pulling away, but also it would be the first time since 2005 that June saw more closings than May.

Also, with pendings strong, IF we close 2100 Single Family deals in July we will be ahead of 2006. That would put us in striking distance of the slow months (October thru January) during the “Boom” of 2004 and 2005 when single family closing numbers ranged between 1985 (in Jan of 05) and 2604 (Oct of 2004).

That may not happen if 2008 tails off in the fall as most years do. Or, it could happen, since we have many more people in Las Vegas who haven’t bought anything in 3 years, we should be doing numbers comparable to those given the growth, and the banks are feeding excess foreclosures slowly into the market, so I hear, and FHA transactions are up 2000% since January 2008 (so I heard last Friday from Jeremy Dougherty, area VP with Countrywide).

What I think the official GLVAR numbers show is that Las Vegas closing numbers below 1000 per month (October 2007 thru Jan 2008) represent the bottom as far as demand is concerned.

We are building sales with one arm tied behind our backs, namely, the average guy is still not fully back in the game – FHA makes you declare your tips, and some people don’t want to yet.

When the new president announces that he is here to save the economy and Congress decides they need to save their jobs, Las Vegas will run short of houses in 2010.

Buy Low, Sell High.