Bubble Much? Is a Second Real Estate Bubble Upon Us?

Here's the short answer to that question: Maybe.

Home prices in the United States spiked a remarkable 12.2% in the year long period ending May, 2013.  That gain is the largest one-year post since 2006. In fact, for the first time since the housing collapse, two cities posted new record high median home prices: Dallas and Denver. In Las Vegas, the gains were even more incredible. Las Vegas home prices rose 23.3% in twelve months, although prices still remain well below the highs of 2006.

So what does all this mean for the average home buyer or the real estate investor? Are prices going to continue to sky rocket? Are we creating another real estate bubble here in Las Vegas? Are we watching the beginnings of "Bubble 2014"?

Maybe. But I don't think we've reached the "danger zone" just yet. Many economists believe that rising mortgage rates (likely to continue to rise as the Fed begins to taper off quantitative easing) and rising supply levels will hold back the meteoric rise of real estate values and start to restore balance to the Las Vegas real estate market in the next year. I think that this is a definite possibility. IF these things occur, then I believe prices will stabilize in the Las Vegas market and we will likely avoid another real estate crash. IF, however, supply levels in Las Vegas do not rise quickly enough to keep up with demand, or if mortgage rates rise only marginally and do not serve as a deterrent, then it is likely that we will see prices continue to rise sharply in the Las Vegas real estate market. If that happens, we may very well find ourselves facing another bubble. Bubble 2014 perhaps.

Only time will tell.



 

Real Recovery for Las Vegas Real Estate?

 

 

The sales numbers for Las Vegas real estate have been extremely promising over the last year and a half.  But does this mean that a real recovery is underway?  It might be too soon to tell.  One thing we can be sure of, however, is that Las Vegas, previously known as the foreclosure capital of the nation, has now become one of the hottest housing markets in the U.S.

As I discussed with my co-host Brad Henderson on the Las Vegas Real Estate Realty Hour show of February 9th, Las Vegas real estate appreciated between 15% and 24% last year alone.  This leads all other major metropolitan markets other than Phoenix.  

My personal experience in the Las Vegas marketplace bears out this trend.  Two years ago, it was relatively easy for me to find investment properties for my clients at $50/sq. ft. or even less.  Now it is difficult to find properties listed under $100/sq. ft.  This recovery seems to be extending to new construction as well.  New construction ground almost to a halt in the Las Vegas valley for over four years after the real estate bubble burst, but now new builds are back in full swing and selling at a brisk pace.

If you are looking for timely updates on the Las Vegas real estate market along with different viewpoints from fascinating guest speakers, tune into my weekly radio show or visit teamplantone.com to listen to all the back episodes.

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.

Stripped Homes Offer Great Profit Potential

It's the newest thing in housing these days... 4 BD/3BA... no kitchen.  No kitchen, no ceiling fans, no landscaping, even no light fixtures.  Yes, it appears that appliances and hardware are the latest casualties in the nation's foreclosure meltdowns.  A recent article in the New York Times calls attention to this growing phenomenon.  It cites a recent ad in Craig's List where the owner makes no effort to hide his intentions.  " 'Stripping House — Before Foreclosure,' the ad declared, offering potential buyers the cabinets and counter tops, the sinks and toilets, the doors, the appliances, the sprinklers. Even the palm and citrus trees in the yard were for sale, with a catch. 'You dig,' the author advised."  According to the article, areas like Las Vegas, which have seen the nation's highest foreclosure rates, have also been affected the most by home strippers. 

Some metro areas, like Phoenix, have laws in place that make stripping homes prior to foreclosure a felony under a state fraud statute.  In cities like this, the FBI has been able to apprehend home owners attempting to liquidate appliances.  Although the sentences for these crimes is usually quite light (18 months probation for a recent offender), police hope that criminal prosecution may deter home owners from trying to strip their houses before they leave.  But in other cities, like Las Vegas, there are no laws that make gutting your property prior to eviction illegal.  Mortgage contracts do specifiy that homes must be kept in good order, but the lack of state law on the subject makes the issue a civil, rather than a criminal, matter.  And legally pursuing home owners that sell off a home's assets prior to foreclosure is not usually a profitable venture for the bank, as costs of a lawsuit greatly outweigh potential recovery.
 
This has led to rampant home stripping in the Las Vegas area.  But we don't need an article in the New York Times to tell us that.  I see these stripped homes first hand every day.  In fact, they have provided me and my investor clients with some great money making opportunities.

One of my most recent purchases was a 2113 square foot home that was only three years old.  When we walked through the house, it was a mess.  It had no kitchen and needed new paint, carpets, and various hardware items that had been stripped.  We purchased the house for $104,000.  It had been sold new for $319,000.  After putting in a brand new kitchen for $4500 and spending $1500 on new carpets and $1500 on new paint and accessories, we had a beautiful home for a total of $112,000 ($53 per square foot.)  We were able to turn around and lease the property under a two year contract for $1295 per month.  This created terrific cash flow for my client and translated to acquiring the home for $0.33 on the dollar at an 11% cap rate (based on the $104K cash purchase.)

These types of deals are available for anyone who is willing to put in the time and effort to revamp one of these foreclosure homes that have been gutted by the previous owner.

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.