In Real Estate Good Things Come to Those Who Don't Wait

They say that good things come to those who wait, but lately good things come to those who pounce quickly.  Real estate has become a hot commodity once again, and houses that once languished months, or even years, on the Las Vegas MLS are now being snatched up in days or even hours.  We have certainly observed this phenomena first hand, especially in the last six months, as we watch foreclosures and REOs being bid up and short sales being submitted with multiple back-up offers.  

The following graphic is constructed off of data from the latest Realtor’s Confidence Index.  As you can see, nearly ⅓ of all homes on the market are selling within one month.  This is a huge departure from sales data one and two years ago.

Why are homes selling so quickly here in Las Vegas?  Affordable housing and attractive interest rates.  Interest rates remain the lowest they’ve been in years, and housing is extremely affordable even after the 20% gain in median home price we’ve witnessed in the last year.  What is interesting to note in all of this, is just how strong the rental market in Las Vegas continues to be, even with low home prices and even lower interest rates.  

Traditionally, as home prices drop, if interest rates are low, it becomes cheaper to buy than to rent.  This is definitely true here in Las Vegas.  The average home-owner can save between 50-100% monthly on their mortgage versus rent on the same property.  When this occurs, typically rents will fall as landlords are forced to make their product more competitive.  For the most part, this has not happened in Las Vegas.  Rents have dropped very slightly, but nothing compared to the plummet in home prices, and even as interest rates remain low, rents have remained strong.  This is due, no doubt, to the large percentage of the Las Vegas population who are currently ineligible to purchase a home because of recent foreclosure, bankruptcy, or other negative credit activity.  

As a result, it continues to be an excellent time for investors to enter the Las Vegas real estate market, although it is much more difficult to find affordable properties than it was one or two years ago.  Gone are the days when investors had multiple Las Vegas foreclosures to cherry pick.  For those who are interested in Las Vegas investment real estate, I recommend “alternative acquisition strategies.”  We have had to get very creative in order to find properties for our clients in this market.  Give me a call if you’d like to hear more.

Prices Continue to Rise in Las Vegas as Foreclosure Freeze Drags On

For several years, Las Vegas made headlines nationwide as the foreclosure capital of the United States.  Now the big news coming out of Las Vegas is the complete lack of foreclosures.  In September of 2012 less than 300 homes were foreclosed upon in the Las Vegas valley.  There are only 375 foreclosures listed for sale on the MLS as of November 15, 2012.  There are 876 short sales listed.  A year ago today, there were approximately 12,000 short sales listed on the MLS!  Great news for homeowners right?  Not really.

At the moment, real estate in Las Vegas is very clearly divided into two groups.  In group #1 are the few foreclosures that are available, short sales, new construction, and certain other properties that can be priced, for one reason or another, at current market value.  These properties are selling...and selling quickly.  United Press recently quoted real estate agent Keith Lynam who said that the problem in Las Vegas is, "There is just zero inventory."  But why?

The answer to this question lies in group #2.  Group #2 is composed of all the homes in Las Vegas that are still “under water.”  With all of the talk of a recovery in the Las Vegas real estate market, it is interesting to note that according to the Las Vegas Sun, 70% of Las Vegas homeowners are still underwater.  In fact, 36% owe more than double what their homes are worth.  These are homes that cannot be sold.  But, because the median sale price of homes in the Las Vegas area has risen almost 20% in the last year, many of these homeowners are holding on...hoping that this small recovery will blossom into a return to the prices of 2007.  Unfortunately, this is extremely unlikely.

During the real estate boom in Las Vegas in the early 2000’s, prices soared to highs well above the steady 3-4% annual growth that real estate typically generates.  As far as prices have fallen since then, surveys show that they’ve really only just about returned to the trend line.  Prices aren’t supposed to be any higher than they are right now.  This point is illustrated by the return of new construction to the Las Vegas housing market.  For several years, new housing starts were virtually non-existent in Las Vegas because foreclosures were selling for less than their replacement value...that is, less than what it would cost to build the same house from scratch.  As prices have risen, new home starts have rebounded because it is now possible for home builders to compete with foreclosures.

The combination of these factors have created a very odd dichotomy in the Las Vegas real estate market.  We have homeowners that are months (or even years) behind in payments but are not being foreclosed upon because of the halt in foreclosures brought on by AB 284 and other factors.  We have homeowners who are buried in debt holding out a desperate hope that the market will once again soar and their homes will no longer be upside down.  We have new homes being built and sold to fill the vacuum of demand created by the fact that 70% of potential Las Vegas real estate is essentially frozen.   It is an interesting paralysis.  

In the midst of this mess, Las Vegas remains very attractive as an investment destination.  For those investors who can secure affordable properties in Las Vegas, these properties are generating great returns and very strong cash flow.  If you are interested in purchasing Las Vegas investment real estate, contact me.  There are ways to beat the crowd using non-traditional buying methods and we specialize in those methods.

Las Vegas Real Estate - Four Years Later

On the eve of this election day 2012, I thought it fitting to look back on the last four years of activity in the Las Vegas Real Estate market.  Romney fears that we are in worse shape and heading down the wrong path.  In the interest of full disclosure, I should note that I agree with him.  Obama says that his incentives are working.  I would argue that the rise in prices we have observed in the Las Vegas real estate market are a “false recovery” that has more to do with artificially low inventory brought on by a decrease in foreclosures than a strengthening of the local or national economy.

2008 marked the first year where it was safe to start dipping a toe back into the Las Vegas real estate market.  Prices careened downward for 18 straight months from Jan 2007 through late 2008 sending the average home price in Las Vegas plummeting from over $300K to around $120K.  As the free fall began to slow, I started advising my investor clients that Las Vegas was becoming the perfect location for property investors.  Over the next four years, Las Vegas consistently led the nation in foreclosures with over 100,000 foreclosures being completed in those 48 months.

What is interesting to note is what has happened in Las Vegas in the last year.  Although over 150,000 homeowners are still upside down on their mortgagees, foreclosure proceedings have ground to almost a halt.  In 2008, foreclosures accounted for 75% of all sales.  This year (2012) they account for only 15%.  Part of this is due to the difficulty banks are facing carrying out the foreclosure process in the wake of AB284, but some of it is also due to an increased willingness on the part of the banks to negotiate short sales or loan modifications rather than foreclosing.  Unfortunately, this slow down in foreclosures has caused home prices to artificially inflate in the Las Vegas valley with median prices up almost 20% just this year.

Another interesting statistic shows that even as foreclosures ease, the majority of homes are still being purchased by investors.  80% of all closings in Las Vegas this year were sales to investors and 60% were cash deals.  This graphically illustrates how difficult it is currently for homeowners to obtain financing to purchase a home.  I have personally observed this trend within my own business model.  Over the last four years, I have sold over 450 homes, more than 300 were foreclosures, over 100 were short sales, and 150 were flips.  I have also brokered two bulk deals; one a 9 home package at near $1M and the other a 15 home package at around $5M.  Of these, only about 10% were sold to owner occupied buyers.  The rest were sold to investors, and approximately 85% were cash deals.

As this election plays out, it will be interesting to see how things change in Las Vegas over the next four years.  One thing, however, is certain: the opportunities right now, at election day 2012, are tremendous for real estate investors in Las Vegas and even better for those owner occupants that can buy in this market.  Things are a little rockier for the 150,000 homeowners who are still hoping for relief from their upside down mortgages.  Only time will tell if the next president can help these folks and whether or not a full recovery is in Las Vegas’ immediate future.