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.

Full Service Real Estate Brokerage - Missing the Forest for the Trees

There is an old adage that says, “Don’t miss the forest for the trees.”  In other words, don’t get so caught up in minor details that you miss the big picture.  This is good advice for all of us...especially me.   Sometimes I write and talk so much about the areas that myself and my team specialize in, that I forget to mention all the other folks at VIP Realty and all the other services that we offer.

Most of you who have followed my blog and articles for the last several years are very aware that I specialize in finding investment properties for my clients and helping to place quality tenants in these properties so that they become turn-key, cash flowing investments suitable for local Las Vegas buyers as well as out of town investors.  You probably also know that many of these properties happen to be located in the Northwest area of Las Vegas that we call the “New Northwest.”  This is because this area of Las Vegas often provides the best combination of newer homes, low prices and high rents.  You have most likely also noted that I have closely followed the MGM Signature property on the Las Vegas Strip and that I have sold dozens of these units because I find them to be the best value on the Strip.

What many of you may not be aware of is that our business has grown exponentially since I first obtained my real estate license several years ago.  I am now a real estate broker presiding over an office full of agents and support staff that handles listings throughout the Las Vegas valley.  We have full time property managers, transaction coordinators, sales agents, buyers’ agents, agents who specialize in rental listings and office staff on site in our new office.  We have agents on our team who specialize in Henderson, Summerlin, Aliante, North Las Vegas, Southern Highlands, Old Las Vegas, and everywhere in between.  We have agents that excel at taking listings and those that regularly take buyers on tours of homes in the local area.

Whether you are an investor looking to purchase income property in Las Vegas or an owner occupant looking for a great deal on a new home, we can help you achieve your goals.  If you are a renter, we have a large selection of newly renovated properties available, many with lease options or owner financing.  No matter what your Las Vegas real estate needs may be, we have someone who can provide you with prompt, personal service.

Does the Rise in February Sales Mean the Bottom is Near?

Home sales soared nationwide in February leading many market analysts to wonder if the bottom has finally come for the distressed U.S. housing market. But it is important to note that sales also rose in December and September without a bottom arriving. Another important factor to consider is that even as home sales have risen, median home prices have continued to fall nationwide.

Steve Bottfeld, a real estate analyst with Marketing Solutions presented at our Real Estate Insider Club of Las Vegas last year and outlined a three point test to gauge the bottom of a real estate market. First, he looks at the inventory of homes listed on the local Multiple Listing Service (MLS). Second, he evaluates the sales data. (Sales rose in February.) Lastly, he considers the average median price of homes in the market...which, as of February, is still descending.

Bottfeld stated last year that the hold out factor in the data for the Las Vegas housing market was the median home price...and that appears to continue to be the case, not just in Las Vegas, but across the country as well. As soon as we see the median home price stabilize, according to Bottfeld, we will have found the true bottom of the market.

So what does all of this mean for us property investors looking to add to our portfolios? Should we hold off on purchasing property until the market reaches an identifiable bottom?

I think that the answer is a resounding “NO.” The key element to consider when purchasing investment real estate in a stagnate or declining market is cash flow. Cash flow is king. As long as an investment property cash flows at the time that you buy it, you will not have to count on appreciation to make your deal worth while. The property will continue to provide you with monthly income even if the value dips slightly before a bottom is reached. Any appreciation you do incur will be a bonus.

Vegas Market Nearing Bottom

Home prices peaked in the Las Vegas valley in early 2007. As the year progressed, foreclosures rose at a rapid and steady rate, but median home prices stayed relatively stable. This was a result of home owners and investors who, not wishing to face the reality of a declining market, left their homes on the market without lowering their listing prices, even as very few of them actually sold. Inventory grew until the flood gates finally burst. Since then, median price highs of around $300,000 at the end of 2007, have fallen at the rate of approximately $10K per month to the current median price of near $184,000.

High foreclosure rates nationwide have created excellent buying opportunities across the U.S. But Las Vegas is truly leading the pack. 1 in 76 homes is currently in some stage of foreclosure in the Las Vegas market. (RealtyTrac) This is more than double the amount of the nearest rival, Florida at only 1 in 173 homes. Arizona, California, and Michigan round out the top 5. Of all home sales in the Las Vegas valley in October, 86% were foreclosures or short sales.

Steve Bottfeld, a real estate analyst with Marketing Solutions discusses a 3 point theory of how to gauge the bottom of a real estate market. First, he looks at the inventory of homes listed on the local Multiple Listing Service (MLS). Second, he evaluates the volume of business which is simply the number of homes being sold in the marketplace. Lastly, he considers the average median price of homes. Bottfeld states that once the inventory stops increasing, the volume begins trending upward and the median price stabilizes… you have found the true bottom of the market. From the data we are now considering for the Las Vegas valley, it appears that the elusive bottom may be right around the corner if not already here.

POINT #1: INVENTORY STOPS INCREASING

Rick Shelton of ReMax & Associates and 2010 president–elect of the Greater Las Vegas Association of Realtors (GLVAR) spoke recently at the Real Estate Insiders Club of Las Vegas and pointed out that the inventory of homes on the Las Vegas MLS has held steady for several months at around 22,000 units. This inventory stabilization represents the first point needed for a bottom to be reached.

POINT #2: VOLUME OF SALES PICKS UP DRAMATICALLY

The number of units sold monthly has been increasing all year from lows in late 2007. Sales volume in November, 2008 was nearly double that of November, 2007. Of course the sharp decline in home prices is largely responsible for this rise in sales. In some cases homes are selling for just 35% of their inflated highs in late 2006. As an example, I just put an offer in on a home for one of my investor clients at $96,000. The home sold in July of 2006 for $300,000 as is now listed for only $109,000. Even at current full asking price, this house is selling for just 37% of its 2006 value. You can read in the paper that Las Vegas has experienced a 30% drop in home values, but I can personally attest to the fact that in some cases we are looking at a 70% decrease. With prices adjusting this low, it is no wonder that the volume is starting to pick up.

POINT #3: DROPS IN MEDIAN SALES PRICE SLOW TO A CRAWL

After dropping nearly $10,000 per month for the last year, home prices fell only about $2800 last month, landing near a $184,000 average median price. This change in price decline is significant and may indicate that the bottom is only a couple of thousand dollars away. As the three elements necessary to recognizing the bottom of a market take shape, the savvy investor realizes that now is the time to start buying these low priced homes.

Investor money that has sat on the sidelines is now flowing back into the market to snatch up the homes lost by other, less savvy investors and owner occupants who could not afford the homes they purchased at those inflated levels. Many of these recent transactions are cash purchases as investors forgo the credit crunch and lending melt down entirely. The key turning point for these investors to reenter the market came as homes in Las Vegas once again reached a price point where they could cash flow as rentals. Cash flow can be simply defined as the point at which the income (rent) from the property exceeds the costs of ownership (mortgage, taxes, insurance, property management, and maintenance etc.)

Anyone that is looking to buy a home in Las Vegas should note that the timing may not get better than this. Interest rates are at historic lows in the 5 ½ % range. Even the national builders are getting into the game to compete against the foreclosures. Melissa Schmidtberger of Richmond American Homes in Las Vegas is promoting a 4 ½ % 30 year fixed mortgage special on homes starting from $139,000. I never thought we would see national builders building again at levels under $100 a square foot… but they are.
Over 18 builders, both local and national, have homes starting under $100 per square foot. With the government offering first time buyers tax credits up to $7500 and mortgages under 5%, it is actually cheaper to own than to rent. It also appears that new home prices have also reached a bottom as only 399 building permits for new homes were issued in October. This is the lowest level in decades.

I am actually quite surprised that more owner occupants, second home buyers, vacation home seekers, and baby boomers looking to retire are not already in this market buying homes at 35 cents on the dollar. The people have known for the last year that we’ve been in a recession, but it took the government that entire time to realize it and “officially” report it. The same will be true of the bottom of this real estate market. If we wait until the news reports say that the bottom has been reached (or was reached a year ago) we will be paying a lot more for the foreclosure we could be buying now. “Buy when the blood is running in the streets.” Now is the time.