Chief Economist Predicts Better Prices for Las Vegas

Several experts have weighed in recently on the state of the Las Vegas real estate market, and the consensus seems to be that the future looks bright. As an added bonus…the future may not be very far away.

The first piece of good news came from Lawrence Yun, the chief economist for the National Association of Realtors (NAR) who spoke Monday to the NAR Rocky Mountain Regional Conference at Green Valley Ranch Resort. Yun stated that he believes the worst is over in Las Vegas. After seeing prices fall nearly $10,000 per month in the Las Vegas Valley over the last 18 months, Yun believes that home prices will stablilize in the last half of 2009. He even stated that he would not be surprised to see appreciation of as much as 5% in Las Vegas in 2010.

The sharp declines in home prices that have plagued the Las Vegas Valley of late are the very thing that will pave the way for recovery. Yun believes that low prices and the recently approved $8000 tax credit for new home buyers will help fuel the rise in home sales that we are already seeing in Las Vegas. In 2008, every state in the U.S. saw a decline in home values, but only California, Nevada, and Arizona saw a big jump in sales. “$150,000 is very affordable for such a dynamic metropolitan region, once the economy recovers, you are in good shape,” said Yun.

Las Vegas has a lot of positives boosting its long term outlook. The first group of baby boomers officially hits 65 on January 1st of 2011. Las Vegas will be the hottest city in the nation for retirees looking to permanently relocate to warmer climates, families relocating for better jobs, vacation and second home buyers. The low current prices in Las Vegas combined with the warm weather, favorable tax structures, and low cost of living will all help Las Vegas to regain the top spot it occupied over 20 of the last 22 years as the fasting growing city in America.

Glenn Plantone, a realtor, foreclosure expert and full time real estate investor living in Las Vegas, says that his recent personal experience is in line with Yun’s claims. Plantone has been dealing with real estate investors for years and has seen a dramatic increase in sales in the Las Vegas market in 2009. Of the nearly 20 deals Plantone has brokered over the last few months, all but 3 have been all-cash purchases by investors. “Prices on condos are as low as $45,000 and small 3 bedrooms homes have dropped into the $70’s from highs near $300,000 just a few years back,” Plantone says. “Most of the sales I have pending are averaging from 25-35 cents on the dollar from previous highs and the properties are cash flowing very strongly.” Plantone believes that this strong cash flow opportunity is what is driving local and out of state investors back into the Las Vegas real estate market. Plantone has personally met with 5 Canadians and 4 California investors this week alone.

No New Building Great For Investors Buying Foreclosures

I recently ran across an article (which will appear below) in the Las Vegas Review Journal that discussed the stall in new construction of apartments in the Las Vegas Valley. This lack on new construction is coming on the heels of falling rent prices and rising vacancy rates valley wide. At first glance, falling rents and rising vacancies might seem like bad news for private investors. But consider this: There are fewer than 1000 new apartment units slated for construction in 2009 and only 148 new home permits were issued in the Las Vegas Valley in December of 2008. This means that newcomes to Las Vegas as well as the rush of current home owners that are losing their homes and now looking for rental housing will have to rely on current inventory to meet their needs. So even though foreclosures have tripled since 2007, increasing vacancy rates and dropping rents as a result, these drops in rents are temporary. Over the next several months, demand for rental housing will begin to overtake supply and rents will rise again.

This is very good news for the savvy investor that buys investment properties now at 30 cents on the dollar and can rent his unit at a level well below current rent rates and still cash flow strongly. Over time, rents will increase along with appreciation, and this will eventually put this investor in a great position.

The entire Las Veags Review Journal article is reprinted below:
Valley apartment construction stalls

Production expected to fall under 1,000 units in '09 as rents drop, vacancies rise

By HUBBLE SMITH
LAS VEGAS REVIEW-JOURNAL

Apartment construction, like single-family homes, has slowed to a crawl in Las Vegas as landlords struggle with rising vacancy rates and falling rents.

Builders completed 2,670 apartment units in 2008, though production is expected to fall to under 1,000 units this year, said Michael Shaffner, associate vice president for Marcus & Millichap real estate investment services in Las Vegas.

Asking rents are expected to drop 0.2 percent to $873 a month, while effective rents -- taking out concessions -- will drop 3.2 percent to $804 a month, Marcus & Millichap reported in its 2009 multifamily market outlook.

"What we're seeing on average is one month free rent on a 13-month lease seems standard," Shaffner said. "Basically, rent growth is stagnant, so this is something we're seeing across the board."

Vacancy rates will rise 0.6 percentage points to 8.9 percent as the stock of "shadow" rentals, or single-family homes for rent, begins to dissipate. Vacancy rose 2.2 percentage points last year.

Multifamily broker Spencer Ballif of CB Richard Ellis showed vacancy rising to 10.96 percent in December from 9.93 percent the previous month. Vacancy was highest (11.53 percent) in Class C units, typically the older, cheaper apartment complexes.

He's also showing about 6,000 apartment units being built in 2009, though he's not sure what the number will be going forward.

"There's a lot being built because what's under construction today was planned two or three years ago because of all the hotels that were coming," Ballif said. "Some happened and some did not."

Lower monthly rental income diminishes capitalization rates for multifamily investors who once found Las Vegas to be a safe haven for their money, Marcus & Millichap regional manager John Vorsheck said. He's seeing more apartment properties in default and going back to lenders.

"We're seeing risk being priced into these deals," he said. "People look at Vegas as a town of opportunity. They think prices are always going to go up. They look at their debt and the fact rent growth didn't go up; now they get better returns in the markets they came from. A lot of (1031) exchange money was coming to Las Vegas from California. People were selling 50-unit properties in Anaheim and buying 100 units in Las Vegas."

San Francisco-based RealFacts reported average apartment rents of $878 a month in Clark County for the fourth quarter, down 0.9 percent from the same period a year ago. Occupancy dropped 0.3 percentage points to 92 percent for 106,400 units.

Among states in the desert region, Nevada had the highest average rent at $875 a month, compared with $804 in Utah, $766 in Arizona and $744 in New Mexico, RealFacts reports.

Vorsheck said the Las Vegas apartment market will stay in flux this year because of lingering economic stress, but signs of recovery are starting to appear.

Although several Strip resort projects have stalled, the opening of Palazzo and Encore added roughly 10,000 jobs and more workers are expected to be hired this year at M Resort and CityCenter.

Outlying areas in Henderson and North Las Vegas will post the highest vacancies because of single-family homes competing as rentals, Vorsheck said. However, people have become wary about renting a home that could go into foreclosure without their knowledge, he said.

"I'm still a believer in the fundamentals of Las Vegas," Vorsheck said. "Whether it takes 12 months or 18 months, it's going to turn around."

He sees added value in North Las Vegas in the coming years from plans to rehabilitate older neighborhoods along Las Vegas Boulevard. Nearly $1 billion in gentrification projects are proposed for the 238-acre redevelopment area.

RealFacts reported seven multifamily property transactions in 2008 valued at $154.2 million, compared with 19 transactions valued at $916 million in 2007.

Most investors see Las Vegas as being 12 months to 24 months away from recovery, but the real "negative" is the perception that the city is shedding a lot of jobs, Sauter said. In reality, total employment is down 0.5 percent from a year ago.

Due to rent declines and rising concessions, Las Vegas dropped two spots in Marcus & Millichap's 2009 National Apartment Index to No. 16.

Foreclosure Crisis Hits Renters Hard According to Las Vegas Sun

I read the following article recently in the Las Vegas Sun. The problem of renters being suddenly confronted by eviction because the home owner is facing foreclosure has reached epic proportions here in the Las Vegas valley. Our city leads the nation in foreclosures and, as the article details, this impacts our renters as well.

"For Henderson Constable Earl Mitchell, it’s an easy day.

As the department tasked with enforcing court-ordered evictions, Mitchell and his deputies have a trying, and occasionally heartbreaking, job — one that has only become worse as Southern Nevada has slipped into the stranglehold of the foreclosure crisis.

But after doing 17 evictions the previous day, Mitchell only has three evictions on this day’s docket, each one on an apartment tenant who has failed to pay rent and knows what’s coming. He needs little more than an hour to carry them out, and in each case, the tenants aren’t home. One of the apartments has already been vacated.

Thankfully, Mitchell says, today he doesn’t have to knock on the door of an unsuspecting renter and tell a family it’s time to go because the landlord hasn’t paid the mortgage.

“You have all these foreclosures on renters who had no clue what was happening,” Mitchell said. “They’re paying that rent to the homeowner, but the homeowner isn’t paying the mortgage.”

It’s an enormous injustice, Mitchell said, one created by a gaping hole in foreclosure law that Mitchell and his office hope to see fixed in this legislative session.

As the law is written, tenants have no right to know whether the property they are renting is in foreclosure. Many of them don’t find out until the constable shows up at the door, Mitchell said.

Mitchell and other Southern Nevada constable’s offices have persuaded legislators to introduce a bill that would require that tenants receive notification when a property enters foreclosure — not just the absentee landlords."

Excerpts reprinted from the Las Vegas Sun
Jeremy Twitchell
Fri, Jan 30, 2009