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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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