Las Vegas Residential Real Estate Update

The latest available housing statistics available from the Greater Las Vegas Association of Realtors show fewer home sales in August 2010 compared to the previous month and year, but higher prices.

The increase in shadow inventory, combined with few sales in a post-tax credit environment (The federal tax credit for homebuyers expired in April 2010), has lead to higher supply. By the end of August, GLVAR reported 11,327 single-family homes listed for sale without any sort of pending or contingent offer and another 3,026 such condos and townhomes. For single-family homes, that’s an increase of 11.9 percent from July’s inventory total and an increase of 32.0 percent from August 2009. For condos and townhomes, the inventory without offers in August increased by 4.6 percent from last month and 18.9 percent from last year.

However, under these conditions the median single-family home price in Southern Nevada during August rebounded to $140,000, up 3.7 percent from July, up 3.3 percent from August 2009 and matching the price from June 2010. The median price of local condominiums and townhomes sold in August was $67,000, down 1.5 percent from $68,000 in July, but up 1.1 percent from one year ago. These increases come at a time when the total number of local homes, condominiums and townhomes sold in August was 3,638. That’s down from 3,748 in July and down from 4,039 one year ago.

One would expect an increase in supply and fewer transactions to lead to lower prices, but as the Las Vegas market seems to be bumping along the bottom the buyers still see sufficient value to bid prices up. Local homes purchased with cash in August held steady at 45.9 percent, matching July and just below record levels. It is not uncommon to see multiple bids on a property, and bids above list price.

Trustee Sales
The supply of product and pricing at the trustee sales was constant from June-August, but in September more properties came up for auction of which 2,771 homes went back to the bank, a 52 percent increase from the previous month and 32 percent increase from the same month a year ago. The number of foreclosure sales purchased by third parties was 564, compared with 566 in August and 513 in September 2009. There is no clear reason why this would be the case as different banks are on different release schedules, but it is possible that this is just a wave following a lull during the summer holiday period.

Desert Inn Properties:

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Las Vegas Foreclosure Fraud

Disclosures at the end of September 2010 that some big mortgage processors filed affidavits without proper scrutiny in thousands of foreclosure cases drew anger from congress and advocacy groups, with some prominent lawmakers calling for foreclosures to be halted in all 50 states. For example, in October Rep. Maxine Waters, called for a nationwide moratorium on home foreclosures accusing banks of “massive collusion and fraud” for putting people into mortgages they couldn’t afford. Possible Las Vegas foreclosure fraud is under the microscope.

Much of this is driven by political posturing with the US mid-term elections coming up in November. For example, Democratic Senate Majority Leader Harry Reid, who is locked in a neck-and-neck re-election contest with tea party-endorsed Sharron Angle in Nevada, has called for a moratorium.

The U.S. Attorney General Eric Holder has said the Justice Department is looking into the allegations, but he stopped short of opening a formal investigation. The Attorney General and bank regulators in all 50 states have announced a joint investigation into questionable foreclosure practices, including forged documents, apparently bogus signatures and questionable notarizations, but there are significant economic reasons why this is unlikely to develop into a complete halt.

The history of the issue is:

  • Since 2004, Florida Legal Aid attorney April Charney has been arguing on behalf of borrowers that those initiating foreclosure proceedings on behalf of securitized pools of mortgage loans had no right to do so, because they couldn’t prove they actually owned the debt.When lenders wish to foreclose, the law typically requires them to produce original, signed documents including the mortgage and loan note. While the mortgage documentation is on file at the local courthouse, the note is often lost or misplaced, particularly if the mortgage has been sold and securitized.
  • In 2007, a federal judge held that Deutsche Bank lacked standing to foreclose in 14 cases because it could not produce the documents proving that it had been assigned the rights in the mortgages when they were securitized.
  • In June 2010, in a Maine foreclosure case, a GMAC loan officer admitted in a sworn deposition in Pennsylvania that he signed off on up to 10,000 foreclosure documents a month for five years. He said that he hadn’t reviewed the mortgage or foreclosure documents thoroughly. This lead to a number of mortgage companies to halt foreclosures in the 23 states that have a judicial foreclosure process.
  • In the first week of October 2010 Bank of America announced that it was halting foreclosures in all fifty-states while it reviewed its foreclosure process for defects. Now several lawmakers on Capitol Hill are calling for other banks to initiate nationwide foreclosure freezes—a move which the Obama administration is currently opposing.
  • Bank of America’s temporary halt on foreclosures has reduced the number of properties coming up at the Las Vegas trustee sales by 50%, but as Nevada is a non-judicial state it is not expected that other banks will follow suit, or that the Bank of America moratorium will continue for an extended period.

The majority of states in the country allow banks to foreclose on defaulted mortgages without going to court. They simply deliver the borrower a notice of the foreclosure sale. This non-judicial process, followed by Nevada is far less prone to the issues that have been raised around judicial foreclosure where banks are typically required to produce a sworn and notarized affidavit of a loan officer and submit the mortgage documents.

In non-judicial states, banks aren’t required to submit anything to the court until they are sued by a homeowner seeking to stop a foreclosure. That means that they are far less likely to submit fraudulent documents, since the process has already been slowed. Nonetheless, banks may still find themselves swamped by challenges. Thus the situation in Nevada is that foreclosures may slow down for one of three reasons:

  1. Political/legislative demands
  2. Self-imposed review of procedures
  3. Increase in borrowers contesting foreclosures and asking to see the note to slow down the process

Each of these is unlikely for the following reasons:

  1. At the current time the Obama administration is resistant to any foreclosure moratorium, and to have one would make no sense economically: it would slow the market correction, extend the period of uncertainty, reduce future bank lending as capital ratio concerns arise, penalize pension funds, insurance companies and investors who hold mortgage-backed securities, and further weigh on mortgage giants Fannie Mae and Freddie Mac thus putting taxpayers at greater risk of losses.
  2. The banks need the income from foreclosures. A combination of delinquent loans and lack of income from foreclosures would have a negative impact on their balance sheets
  3. The majority of borrowers are not sophisticated enough to initiate “show me the note” defences

Whilst banks will delay foreclosures to mitigate future fines, the reality is that far more homeowners are behind on their mortgage payments than are even in foreclosure. The clear problem in the housing market today is not Las Vegas foreclosure fraud, but negative equity. With around 80% of people upside down on their mortgages the painful unwinding of the speculative bubble is set to continue for some time.

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Las Vegas Retail Market Update

The Las Vegas Retail market is commonly divided into three sectors:

  • Neighborhood Centers: Anchored with a single tenant such as supermarket, and also has other shop-space tenants. Size starts at 30,000 sq ft
  • Community Centers: Anchored with multiple tenants. Size starts are 100,000 sq ft
  • Power Centers: Multiple big box tenants, with a few shop-space tenants. Size starts at 100,000 sq ft

Retail in Las Vegas has been hit by three negative trends since the end of 2008: low consumer confidence, high unemployment and a declining local population. Total employment in Nevada was 799,700 in the first quarter, and unemployment climbed further to 13.9% in the quarter. These pressures have led to a market that has:

  • A vacancy rate of 10.5%. The historical vacancy for anchored retail centers is 3-5% and the current inventory of 5.4 million sq ft is the highest amount of available space in market history
  • Negative net absorption for the last two quarters (negative 147,000 sq ft during Q1)
  • The lowest growth in new spaces since the early 1990s (516,300 sq ft during the last 12 months)
  • Top line revenue of retailers remains down on two years ago
  • Almost all tenant and developer expansions, and new constructions have been on hold – approximately 1.2 million sq ft of space has been stalled or delayed
  • Average asking lease rates are $1.79 per sq ft per month, down from $3 at the peak of the market. However, actual negotiated lease rates tend to be far lower than these figures. New tenants in neighborhood centers can expect to secure lease rates of $1 per sq ft per month in the current market.

Any improvement in these conditions is contingent on improved consumer sentiment, an upturn in the housing market, and employment and population growth. It is likely to be well beyond 2011 before the retail market comes out of the bottom part of the cycle that it is currently trawling. In the meantime there is significant opportunity for cash buyers to take advantage of the distressed market. The current vacancy rate is a 10 year high for the Las Vegas Valley.

Retail employment has been in decline for the past two years after posting strong growth between 2004 and 2007. Between November 2008 and 2009 there has been a decline of 5,400 jobs.

Leasing activity has increased as a result of the lower asking rents, but the combination of ongoing weakness in consumer spending and retail employment us expected to keep demand for retail space weak through 2010 and into 2011.

Recently there has been a significant increase in foreclosure activity as banks have moved to protect what equity they have left in deals. Based on deals transacted at in-place rents, CBRE estimates that cap rates are at 8.5% – 9.5% for Class A grocery anchored retail, and 10-12% for lower quality product, such as unanchored retail product. However, there are very few deals being transacted to substantiate this assessment. Historically cap rates for Class A grocery anchored retail were 6.5% in April 2008, and as low as 5% at the peak of the market.


Residential Market Snapshot

The median single-family home price in Southern Nevada during May matched April’s $142,000, which was a 1.4 percent increase from May 2009, marking the second straight month the Greater Las Vegas Association of Realtors reported a year-over-year increase in local home prices, after seeing prices fall since February of 2007. However, the market is still significantly embattled. Nevada had the nation’s highest state foreclosure rate for the 40th straight month in April, with one in every 69 housing units receiving a foreclosure filing last month or more than five times the national average, according to RealtyTrac.com. In April, 16,217 properties statewide received a foreclosure filing, up 10 percent from the previous month.

Of the 21,143 single family residential units listed 10th May, 8,049 were listed without offers. Of the 5,907 condos and town homes listed on 10th May, 2,427 had no offers. 2,884 single family units sold in the month, with 50.9% of them selling in under 30 days. 769 condo/townhouse units sold, with 54.1% sold in under 30 days.

A growing market trend is an increase in short sales and decrease in sales involving foreclosed homes. In February, 22 percent of all existing homes sold in Southern Nevada were short sales. That number increased to 25 percent in March to 27 percent in April and to 29 percent in May. At the same time, bank-owned homes are accounting for a decreasing percentage of all local home sales, dropping from 53.0 percent in February to 50.0 percent in March to 43.0 percent in April to 40.0 percent in May.

Cash buyers continue be a major factor in keeping the market buoyant, with 42.6% of all deals in May paid for with cash, although this is a decline from the 50% levels of a few months ago.

The story that these statistics do not tell is that the banks have a significant shadow inventory and they are rolling properties out at a controlled pace to avoid further price depreciation. One example is Bank of America, which is planning to unload approximately 6,000 foreclosed properties to the Nevada real estate market in 2010, with most of these in Las Vegas. Estimates on how much shadow inventory is out there varies, with First American CoreLogic estimating there to be 1.7 million properties nationwide, and Amherst Securities estimating 7 million. Wherever you come out at within this range it is fair to assume that Las Vegas has a disproportionately large percentage of the nation’s shadow inventory. John Burns Real Estate Consulting Inc. estimates that Las Vegas has a shadow inventory that is equivalent to 18 months of sales.

There is strong investor demand for the shadow inventory as it comes online so if it is dripped into the market we do not expect it to depress prices further. The threats to this would be if interest rates increased from moderate rates, or unemployment increases further. Despite the shadow inventory you can see from the below that new listings are controlled. If banks were to change their artificial supply this would be a further threat to pricing.

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Half a Harmon

The Harmon Hotel is part of MGM International Resort’s CityCenter development. Designed by British architect Norman Foster this oval, blue glass tower has a prominent position on the front of Strip, but unfortunately the project has failed despite it’s prime location and high quality design team. The Harmon Hotel construction issue is one of the major blights on the Strip.

The Harmon is one of six high rise towers on CityCenter’s 67 acre plot and it was originally planned to be a 47 storey mixed-use tower. It was going to have 207 residences at the top, and a 400 room hotel. Then it was discovered that the reinforced steel bars used in the concrete (the rebar) had been incorrectly installed. The project was subsequently shrunk to 26 stories in height, with the residences wiped out – whether this was an economic decision, or related to the construction is a matter being debated by teams of attorneys.

General contractor Perini Building was tasked with making the Harmon a reality, but the company is now tied up in litigation with MGM. The affair was investigated by the Nevada State Contractors Board and the Clark County Building Department. It seems that Converse Consultants, the Harmon’s inspection firm, provided inaccurate data in their daily reports. As a result the firm was suspended from bidding on new work in Southern Nevada for six months and Perini Building’s subcontractor Pacific Coast Steel was fined $14,105, although it did not admit any fault in the rebar mistake. The mistake likely had its origins in the fact that the rebar was moved without first checking with the structural engineer.

The legal battle between MGM and Perini over the Harmon Hotel construction issue has a number of aspects to it. Perini is suing its subcontractor Pacific Coast Steel for defects relating to the beams, the general contractor has also pointed the finger at MGM by claiming the structural drawings were late and riddled with errors. MGM claims that the Harmon was halved in size because of the construction defects, but Perini counters that it was a decision made because of the downturn in the market for luxury condos.

Today, the Harmon remains unfinished and on hold, and $490 million of payments are being withheld by MGM International Resort. Perini has filed a master mechanic’s lien, and the attorneys are the only ones making money out of this deal at this time.

Showing properties 1 - 5 of 500+. See more city of Las Vegas real estate.
(all data current as of 2/6/2012)

  1. 2 beds, 2 full baths
    Home size: 1,323 sq ft
    Year built: 2006
    Parking spots: 1
    Days on market: 1
    Walk Score®: 63
    Broker reciprocity icon
  2. 3 beds, 3 full, 1 part baths
    Home size: 2,913 sq ft
    Year built: 2000
    Parking spots: 2
    Days on market: 3
    Walk Score®: 65
    Broker reciprocity icon
  3. 3 beds, 3 full, 2 part baths
    Home size: 4,103 sq ft
    Year built: 2003
    Parking spots: 2
    Days on market: 3
    Walk Score®: 65
    Broker reciprocity icon
  4. 2 beds, 0 baths
    Home size: 1,657 sq ft
    Year built: 2006
    Parking spots: 1
    Days on market: 3
    Walk Score®: 58
    Broker reciprocity icon
  5. 0 beds, 1 full bath
    Home size: 615 sq ft
    Year built: 2006
    Parking spots: 1
    Days on market: 3
    Broker reciprocity icon

Listing information deemed reliable but not guaranteed. Read full disclaimer.


Jim’s Rocking On

On Wednesday 21st of April 2010 developer Jim Rhodes was granted permission to apply for higher-density housing that is permitted by zoning for his proposed development on the former James Hardy Gypsum mine. The Clark County Commissioners voted 4-3 in favor of allowing Rhodes Red Rock company to apply for major projects that are at least 700 acres in size.

The original plan filed in 2003 was to build 5,500 houses on 2,400 acres. It was in this same year that the state introduced restrictions on the land that Rhode’s had bought, and he went on to sue the state and the county for making the changes. In 2009 a federal judge struck down the restrictions made by the county. The Clark County Commissioners feared that if they did not allow Rhodes to apply for housing then he may win a court battle and then be free to build or sell the land in smaller parcels.

At the heart of Rhode’s argument is that the state specifically singled out is land in their 2003 changes and thus violated equal protection rights. Wednesday’s ruling was a step forward for Jim Rhodes, but it won’t be seen as a positive move by most of the residents of Blue Diamond.


Foreclosure Outlook

The exact level of Las Vegas foreclosures coming onto the market is unknown, but there are indications from analysts that they may depress pricing levels further:

  • Trulia.com in December 2009: “the market is still on the decline…A lot of cuts are at the top of the market. It would not surprise me to see double-digit declines, unfortunately, in Las Vegas over the next 12 to 18 months. Until unemployment levels off and starts to get better, we expect foreclosures to continue to play a big role in the 2010 housing market.”
  • SalesTraq in December 2009: “Hundreds if not thousands of Las Vegas homeowners haven’t made a mortgage payment in more than a year and still haven’t received a foreclosure notice…that’s how backed up it is. The banks are overwhelmed…If two out of three homeowners in Las Vegas are upside down, it’s a matter of time. If the economy doesn’t improve, a lot of people are going to take a walk and they’re not showing up on the radar right now.”

1 in every 102 housing units received a foreclosure filing in February 2010, and 1 in 89 in Clark County, most of which are in Las Vegas.

February 2010 Foreclosure Map

Source: Realty Trac

In addition to the uncertainty surrounding the shadow inventory, 76% of Las Vegans are currently upside down on their mortgages. If the economy does not improve, or worsens, there could be a further wave of foreclosures. On a more positive note, the recent dip in the number of foreclosures that are coming to market indicates that there may be price appreciation once the shadow inventory is worked through. The time horizon and rate of such capital growth is far from certain.

Las Vegas Foreclosure Activity

Source: Realty Trac


Inventory Remains in the Shadows

Current Stock of Properties

Source: Greater Las Vegas Association of Realtors

The story that the statistics above do not tell is that the banks have a significant shadow inventory and they are rolling properties out at a controlled pace to avoid further price depreciation. One example is Bank of America, which is planning to unload approximately 6,000 foreclosed properties to the Nevada real estate market in 2010, with most of these in Las Vegas. Estimates on how much shadow inventory is out there varies, with First American CoreLogic estimating there to be 1.7 million properties nationwide, and Amherst Securities estimating 7 million. Wherever you come out at within this range it is fair to assume that Las Vegas has a disproportionately large percentage of the nation’s shadow inventory. John Burns Real Estate Consulting Inc. estimates that Las Vegas has a shadow inventory that is equivalent to 18 months of sales.

There is strong investor demand for the shadow inventory as it comes online so if it is dripped into the market we do not expect it to depress prices further. The threats to this would be if interest rates increased from moderate rates, or unemployment increases further. Despite the shadow inventory you can see from the below that new listings are controlled. If banks were to change their artificial supply this would be a further threat to pricing.

Of the 20,262 Single Family Homes listed for sale in February 2012, 7,974 have no contingent or pending offers, and 4,087 are new listings. There were 2,390 units sold in February at a total dollar value of $402.4 million. Of these sold units, 46.6% sold in under 30 days, 18.7% in under 60 days, 12.3% in under 90 days, 6.9% in under 120 days, and 15.5% in over 121 days. The total value of homes sold is 6.3% down on January 2010, and 4.5% down on February 2009. The average price of units sold is 2.2% up on January 2010, and 8.6% down on February 2009.

New Listings

Source: Greater Las Vegas Association of Realtors

Of the 5,495 Condo/Townhouse Units listed for sale in February 2012, 2,255 have no contingent or pending offers, and 1,166 are new listings. There were 685 units sold in February at a total dollar value of $58.7 million. Of these sold units, 54.6% sold in under 30 days, 18.2% in under 60 days, 9.8% in under 90 days, 7.9% in under 120 days, and 9.5% in over 121 days. The total value of condos sold is 3.9% down on January 2010, but up 40.3% on February 2009. The average price of units sold is 7.7% down on January 2010, and 9.5% down on February 2009.

The market for condos is picking up relative to single family homes, and the February statistics follow a trend, with the total dollar value for condo sales in January 2010 35.4% above those in January 2009.


Economy Of Nevada

Whether the US economy can successfully skirt the hazards of a double dip recession, inflation, a currency crisis and rising interest rates, will have a direct impact on the direction of the economy of Nevada since it is driven by the discretionary spending of the American consumer.

After four straight quarters of decline US GDP growth moved into positive territory in the third quarter of 2009. Although GDP grew at an annual rate of 2.2 percent in the quarter, much of this is attributable to government spending linked to the federal fiscal stimulus package. The US economy expanded again in the 4th quarter, growing at a robust annual rate of 5.7 percent, and this was not only stimulus-related as there was growth in the manufacturing sector. Despite these positives unemployment sits at 9.7 percent, which is a 2.1 percent increase from one year ago.

Whether or not these signs of life in the American economy are sustainable, one thing that we can say for certain is that they are not enough to sustain Nevada as it continues to lag the US recovery. The current Nevada unemployment rate is 12.8 percent, a significant increase from the 11.8 percent of November 2009. Visitors, the lifeblood of the economy, have increased a mere 0.7 percent in the past year. Furthermore, the end of the construction-fueled boom has seen massive unemployment in the construction sector, and it is hard to imagine it will return to its former size in the near future. The State budget deficit was $887 million in March, as a result of taxable sales being down by 6.6 percent over the year and gaming revenue down 3.2 percent over the same period.

If one were to look for a positive angle it could be said that just as Las Vegas’s reliance on construction and tourism saw it suffer a disproportionate impact from the US recession, it is a leveraged play on the US recovery. That thinking hasn’t been born out yet, and perhaps that is a sign that the nationwide recovery is not deep and sustainable. Another reason that the national recovery is not having a knock on effect is that Las Vegas’s rapid growth led to structural imbalances in the real estate sector that will take some time to correct.

The double-digit drops in gaming revenue and taxable sales in Southern Nevada in 2009 were a direct result of the national decline in discretionary income that had been partially allocated to travel. Taxable sales in Southern Nevada have fallen from a high of $3.49 billion in December 2007 to a current value of $2.66 billion.

One of the best insights into the Las Vegas economy is the Southern Nevada Index of Leading Indicators, which is composed of 10 economic series, based on criteria used to build the National Index of Leading Indicators. The series and their respective weights are:

  • Residential building units permitted 0.7
  • Residential building valuation 0.9
  • Commercial building permits 1.0
  • Commercial building valuation 1.4
  • Taxable sales 1.0
  • Air passengers enplaned and deplaned 1.0
  • Sales of gasoline (gallons) 1.2
  • Gross gaming revenues 1.4
  • Visitor volume 1.1
  • Conventions held attendance 0.5

The Southern Nevada Index of Leading Indicators offers a picture of expected economic expansion over the coming four to six months, and Las Vegas continues to diverge from the national economy. Although the statistics are for the economy of Nevada as a whole, it is Las Vegas which is the engine of this economy.

economy-of-nevada

Source: Center for Business and Economic Research University of Nevada, Las Vegas

Further reading:
http://www.lvre.com/las-vegas-real-estate/


There is a shortage of homes for sale in Las Vegas

Looking at homes for sale in Las Vegas you will see that volumes are on a par with those seen in 2004-2006. In addition to this trend of increased closings there has been a reduction in the time spent on the market for housing units sold. The affordability of housing relative to the last few years is bringing people back into the market. And one interesting fact that is often overlooked is that there is actually a shortage of non-distressed product.

Source: SalesTraq

Of the buyers in today’s market around half are investors, many of whom are cash buyers. In February it is estimated that 52% of all transactions were cash deals. This puts individual purchasers trying to get a foot on the property ladder at a distinct disadvantage as sellers prefer cash buyers rather than those that have to qualify for financing. Furthermore the market is saturated with Las Vegas short sales which generally take months of negotiations to close as the banks are overwhelmed with inventory and under-staffed.

In today’s market one product that is not common is non-distressed real estate: i.e that is not bank-owned, is in a good state of repair, is ready for occupancy, and can be readily financed by Conventional, FHA or VA loans. The graph below shows the limited supply of non-distressed real estate relative to the market.

las-vegas-home-closings

Source: SalesTraq


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