New Construction May Provide Insight for the Future of Las Vegas Real Estate

 

 

Many of my articles in the past months have been devoted to discussing the abnormal and unpredictable market conditions prevailing in Las Vegas real estate today. From the collapse of the real estate bubble in 2007, to the passage of AB284 in 2012, real estate in Las Vegas has been anything but a smooth ride.  Recently, experts have wondered whether the sharp gains in median home price over the past year will hold, will continue, or will be lost.  There are several uncertain factors overshadowing these possibilities and these factors have made predicting the near term moves of the Las Vegas real estate market an even more difficult task than normal.

One indicator that might be fairly solid, however, is the data surrounding new construction.  New construction ground to a virtual halt after the real estate bubble burst in Las Vegas in 2007-2008.

Shortly thereafter, a huge glut of foreclosures flooded the market driving home prices down well below builders’ replacement costs.  This made it impossible for builders to turn a profit on new construction.  In 2012, foreclosures ground to a halt of their own with the passage of AB284, and home builders scrambled to pull permits to help fill the demand for homes to buy.  Currently, banks have resumed foreclosing in Las Vegas, but are still only filing less than half the NODs they were before AB284 passed.  Several possible amendments to AB284 is in the works and it is uncertain how those amendments might affect inventory and pricing.

One potential key indicator in all of this confusion can be found in the sales data from new construction.  The number of new construction units sold is on pace to be up for the third straight year and demand continues to be very strong.  What is interesting to note, however, is that builders are largely not replacing the inventory that they are selling.  According to the Las Vegas Review Journal, “Fifteen percent of the market’s 131 subdivisions have fewer than 100 lots left, and another 44 percent have fewer than 50. Sure, builders are buying raw land, but those parcels are a year or more away from construction.”  This means that if changes are not forthcoming to AB284 allowing more foreclosures to fill the gap in demand, prices could escalate even more dramatically in the next couple of years.  As I’ve outlined before, this isn’t necessarily good news.

If you are considering buying or selling in this volatile Las Vegas housing market, contact me for unbiased advice or visit my website to learn more: www.teamplantone.com

3 Steps of Certainty in an Uncertain Real Estate Market

The age old saying is that the only two things you can be sure of in life are death and taxes.  Perhaps in Las Vegas we could add, “the house always wins.”  Well if death, taxes, and the casino edge are 10s on the list of Las Vegas certainties, the real estate market right now is somewhere between a one and a two.  AB284 has slowed foreclosure inventory to a trickle, new construction is hot but running out of available inventory, and the economic recovery remains tenuous at best.  These factors make it extremely difficult to predict whether the market will go up or down in the short to mid-term.  So what is the savvy real estate investor to do?

I recommend three solid steps for success in these uncertain times:

1. Refinance

Mortgage interest rates are at all time historic lows.  Remember two years ago when everyone said that interest rates couldn’t possibly get any lower?  They did. With home prices up 30% in only one year in the Las Vegas valley, now is the perfect time to refinance your investment properties (or your residence for that matter) and free up cash for more investment acquisitions.  Interest rates are unlikely to get any better (really) and it is very uncertain whether home prices will continue to rise.  There really is no downside to refinancing.  If home prices fall or interest rates rise, you will be thankful that you locked in your refinance now.  On the other hand, if rates fall further or prices skyrocket over the next two years, you can always refinance again.

2. List Your Short Sale

The mortgage debt forgiveness act has been extended for one more year (through the end of 2013) and most experts agree that it is very unlikely that it will be extended again.  This act forgives homeowners of the tax obligations associated with debt forgiven through the short sale of their primary residence.  Without the provisions of this act, homeowners who sell their property through a short sale and receive a waiver of deficiency are obligated to pay Federal income tax on the amount of that waiver as if it were regular income.  This tax requirement makes it very difficult for the average homeowner, upside down on their property, to be able to afford a short sale.  If you are considering short selling your home, or if you are still upside down on your property but hoping that gains in the market will erase that deficiency, you should strongly consider short selling your home now rather than waiting.

3. Consider Cash Flow

When market conditions are uncertain, as they are presently, investors should rely heavily on cash flow data when making decisions to purchase an investment property. If you purchase a property with strong cash flow, you can withstand market fluctuations.  We specialize in locating and helping our clients find investment properties with strong cash flow and appreciation potential, even in strong sellers’ markets like we are currently experiencing in Las Vegas.  If you are interested in learning more about investing in Las Vegas real estate or if you would like a referral for your refinance to a company we have used with great success, please contact me directly.

Federal Assistance for Henderson Home Buyers

 

 

If you are someone you know have been looking for a home in Henderson, NV, and need assistance with your down payment, there are two government programs that are worth exploring.  Both are funded by the Federal government but administered by the City of Henderson.

The first option is the First Time Homeowners Program funded by the U.S. Department of Housing and Urban Development.  This program provides up to $10,000 in down payment assistance for low income, first time homebuyers in the form of an interest deferred loan. To qualify, applicants must earn 80% or less of the average annual income for their area and have less than $25,000 in assets.  Once approved, participants must put $1500 towards the purchase of the home and then must complete an 8 hour home education class covering such topics as savings, budgeting, debt resolution, insurance and escrow.  The City of Henderson receives $100,000 annually for this program and unused funds are rolled to the next year.  As of 2012, the city reported that they only receive, on average, 8-12 applicants per year.  So there is a very reasonable chance of being accepted into the program if you are qualified.

The second program was established by the American Recovery and Reinvestment Act (or the infamous stimulus package) and is called the Neighborhood Stabilization Program.  Henderson received $3.9 million through the Round 3 funding of this project. Applicants to this program are restricted to purchasing properties in certain areas of the city, mostly those hit hardest by foreclosures.

If you are interested in either of these programs, you can contact the City of Henderson directly at cityofhenderson.com.

Buying at the Auction Becomes More Difficult

 

 

In recent months, REO sales have continued to plummet in Las Vegas.  REOs are properties that have been foreclosed upon, have been sent to the Trustees’ auction, and then have returned to the bank.  These bank-owned real estate assets, or REOs, are then placed on the market for traditional buyers or investors to purchase through a standard MLS listing.  Because foreclosures have slowed to a mere fraction of their pace from a year ago, the number of properties at the auction has dropped dramatically and competition for these properties has increased to a frenzy level.  Many properties are bid up higher than they are worth and banks have no need to buy them back.  Hence the decline in REOs.

This increased competition for bargain properties has affected investors and their ability to snatch up potential rental properties at the Trustees’ sale auction.  I recently interviewed Richard Weiss on my radio show, “The Las Vegas Real Estate Reality Hour,” about just this topic.  Richard has been a professional buyer at the Las Vegas trustees’ sale for several years.  If you are interested in learning more about how the Trustees’ auction has changed and how to purchase properties through the foreclosure auction, visit my website and listen to the recording of Richard’s show.  All of my back episodes are available for listening at www.teamplantone.com.  On the left side of the home page is a radio icon.  Click on Playlist and then click on Buying at the Trustees’ Sale.

Traditional Home Sales Return to Dominance in Las Vegas

 

 

Las Vegas real estate professionals have watched and waited for the last year to see how the passage of Nevada Assembly Bill 284 would impact the local real estate market.  The initial effects were obvious.  Virtually overnight, foreclosures halted in the greater Las Vegas area.  Banks went from filing over 4000 new notices of foreclosure each month, to filing less than 100. Although banks have since found ways to resume the foreclosure process, foreclosures rates are still less than half of what they were prior to AB284. Many investment specialists, such as myself, cautioned that this lack of foreclosure inventory could very likely create dramatic and somewhat “artificial” price increases as demand temporarily outpaced supply.  This is, in fact, exactly what has happened.

As the foreclosure process continues to be slowed and stopped by this legislation, median sales prices have skyrocketed, rising over 30% in the last year in Las Vegas, while the number of units sold has dropped by a large margin.  This means that the rise in home prices is not being brought on by soaring demand, but by extremely low supply.  What most buyers and sellers in Las Vegas may be unaware of, is that the Nevada Assembly is considering several modifications to AB284 that may be real game changers for the Las Vegas real estate market.  I recently interviewed Las Vegas attorney and co-author of AB284 Tish Black on my radio show “The Las Vegas Real Estate Reality Hour.”  (If you would like more information on the laws that are being proposed in the Nevada Assembly, you can listen to a rebroadcast of the show on my website at www.teamplantone.com.  The radio player is located on the left hand side of the home page.  Simply click on Playlist and then scroll down to the episode titled Possible Changes to AB284.)

The bottom line is that the real estate market is very unstable in Las Vegas at the moment.  Several possible changes to the law could push inventory up and prices down again.  On the other hand, strong gains in the broader economic picture could facilitate another year or more of double digit gains.  The end of the current Assembly session should provide some indications of what the near future might bring.  I will keep you updated as things progress.

Lack of Inventory Drives Down Sales Numbers

Yet more evidence that Las Vegas home prices are being driven up not by above average demand, but by below average supply.  Nationwide, home sales rose in March to a seasonally adjusted annual rate of 417,000 units.  While this is seen as a sign that the broader housing market is starting to shows signs of a sustained recovery, it is well below the 700,000 unit mark, which is what most economists point to as a “healthy” sales rate.  Those 417,000 units though do represent a 1.5% increase nationally from the previous month and a 18.5% increase from the same month last year.

Las Vegas, however, is not leading the way.  In fact, Las Vegas sales data is dragging the rest of the nation down.  Although data was not available in the report I read for only Clark County, data for the Western United States showed sales falling 20.9%.  In the report, this was attributed to problems of supply.  These figures and more like them lead us to again speculate on whether or not the run up of home prices in the Las Vegas valley is a sustainable phenomenon.