U.S. Home Builder Confidence Reaches 7-Year High

It has been almost eight years since homebuilders could be described as "optimistic" about the future of new home sales. But, in the builder sentiment index released by The National Association of Home Builders and Wells Fargo from May of this year...they were. The survey measures customer traffic at new home sites, sales conditions, and projections for the future. For the first time since before the market collapsed, more builders rated these conditions as good rather than poor. With interest rates remaining reasonably low, to spite recent advances, and current inventory continuing to be light, builders are beginning to feel good about the future of new home sales.

Just another domino it seams in the housing market's break neck race towards new highs...especially in Las Vegas. Nat Hodgson, executive director of the Southern Nevada Home Builders Association, recognizes that the current boom in new housing in Sin City traces back to the passage of AB-284. Recognizing that this bill would slow foreclosures, and with buyers struggling to find any available inventory, builders rushed to apply for permits. "We're very encouraged by the local economy," Hodgson said, "We're no longer looking down at the bottom. We're looking up to get out of the hole we dug ourselves into."

Yeah. Maybe.

Or maybe we are setting ourselves up for another hole. Many economists have noted that the rapid rise in Las Vegas home prices seems to have very little to do with an improving economy. They have wondered aloud at the feasibility of these gains continuing.

The bottom line is that real estate continues to be very volatile in Las Vegas.  I'd love to tell you that you can come to our town, purchase any piece of real estate, put a renter in it, sit back and make money.  And three years ago you could do pretty much just that. But times have changed.  There are still deals to be had in Las Vegas real estate.  But you have to know where to look, and you have to be careful. I understand this market because I have invested in it, and sold profitable properties to my investor clients, through all the ups as well as the downs. If you are interested in investing in Las Vegas real estate, call me.  We should talk.

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

Las Vegas Builders Rush To Fill Housing Gap

Over the last several months, the Las Vegas housing market has taken a dramatic turn.  Seemingly overnight, Las Vegas has gone from a nationwide foreclosure leader to an epicenter for new housing starts.  How?  Why?  The answer begins with the passage of Nevada Assembly Bill 284.  AB-284 added significant and far reaching restrictions on banks looking to foreclose on delinquent mortgages.  As a result, many banks have slowed foreclosures dramatically or even stopped foreclosing all together.  Last year, in the month of April 2011, over 3000 homes were foreclosed upon in Las Vegas...this year, April 2012, only 410 homes went back to the bank.  This is a drop of 87%!  Over the last three years, over 50% of home sales in Las Vegas have been bank owned REOs.  The inventory of available REOs is now standing at only 510 properties.  Since monthly sales in Las Vegas are still averaging around 4000 transactions, this leaves a significant gap in supply vs. demand.

With home prices remaining at 20 year lows, and interest rates also at historic all time lows, the demand for property in Las Vegas is extremely strong and we are seeing multiple bidding and price increases as inventory continues to shrink.  Some say the good old days are back again.  Others fear this current trend is artificial because of government interference.   Either way, one thing seems clear; the banks want to do anything but foreclose.  Banks are putting more effort into negotiating short sales, we are seeing postponements and cancellations of scheduled foreclosures, and more loan modifications are finally making it through.  Also, with government support, banks are trying, whenever possible, to sell their foreclosure inventory in bulk packages and avoid the individual real estate investor.

In order to address this gap in supply vs. demand, local home builders in the Las Vegas valley have been scrambling to ramp up again for new construction.  National builders are being left behind for the time being as they lack the operational agility to mobilize quickly enough to meet this sudden need for housing.  New construction starts doubled last month from around 300 permits (the lowest in the last 25 years for Las Vegas) to 600 permits pulled.   Just yesterday, I personally sold a new construction home at one of the Harmony Homes neighborhoods and was quoted a 4-5 month build time (framers are two months behind).  Las Vegas unemployment has dropped to 11.7% from highs of 14% just 2 years ago.  We cannot get skilled construction workers back to Las Vegas quickly enough for what is about to take place.   I have been predicting a housing shortage in Las Vegas for quite some time but this is much sooner than even I expected.  I thought we would eat thru another 100,000 foreclosures prior to a construction boom, but the bank’s change of policy, initiated by government regulations, is about to change all of that.

With the presidential election coming up in about six months time,  interest rates at historic lows, and inventory literally nonexistent, we see an opportunity to build homes for the next 9 -18 months and move them very quickly in this market.  I have partnered with a local builder and will be buying lots, building homes, and selling them as fast as we can build them over the next 9-18 months.  Lots that are developed and completely ready to build are on sale for $30,000 to $40,000 per lot.  These same lots cost builders near $120,000 per lot just five years ago and are now selling for around 25 cents on the dollar.   The price of land has not begun to bounce back at all, whereas home prices have begun to creep up.

Owner occupants are continually getting shut out of home purchases because they are up against cash buyers in almost every transaction.  The same is true for financed investors.  With these historically low interest rates it is cheaper to buy than to rent if you are an owner occupant and returns on investment of near 15% can be achieved by financed investor buyers.   The perfect storm for building and selling homes in Las Vegas has arrived.

We have opportunities for investors looking to partner in the purchase of finished lots, building homes, and the purchase of turnkey investment properties.  As the 7th busiest buyers’ agent in all of Las Vegas last year and one of the busiest investors, I have personally rehabbed and flipped over 100 homes in the last two years and sold over 500 homes in Las Vegas in the last five years.  I have partnered with over 35 cash investor/partners in the last several years and have always maintained a minimum of 12% returns for my clients.  References are available upon request.

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.