Las Vegas Shadow Inventory

The precise level of Las Vegas shadow inventory held by the banks remains unknown, but at the current time analysts believe it is at around 15-18 months worth of sales. As Option ARMs have begun resetting, and defaulting, in the first half of 2010 we expect defaults to increase, and that current loan modification programs will be ineffective in resolving any of these types of foreclosure problems.

The potential resetting of the Option ARMs is shown below. The portion of these that are in the Las Vegas market, and the rate at which the banks will foreclose are undetermined.

Nationwide the following assumptions can be made based on the available data:

  • Foreclosure activity won’t stabilize until late 2011
  • Monthly levels will not return to “normal” until 2012
  • REO inventories will stay at high levels through 2013
  • There is a massive “shadow inventory” that will slow down the housing market recovery
  • 900,000 REOs –nearly 630,000 not listed for sale
  • 1.2 million homes currently in foreclosure
  • 5.5 million loans in some stage of delinquency
  • Most likely scenario is for these homes to make it to market very slowly over the next 3-4 years, as it is not in the banks interest to release them at a faster pace
  • This will prevent another massive crash in home prices, but there will be a very long, slow, flat recovery

Whilst this is going on whilst the Nevada economy is moribund:

Whether or not the recent 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. Taxable sales continue to fall at double-digit rates. Unemployment has reached 13.9 percent, occupancy rates at local hotels are in the low 70 percents, and room rates are deeply discounted over 2008 rates. 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 2010, 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.

Nevada’s reliance on tourism, including travel to conferences, and construction, means that it will continue to lag the recovery of the general economy. 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.

Las Vegas Properties Below $200,000:

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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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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.