Las Vegas Real Estate

2008-10-15T08:51:00.000-07:00

Bank Logic

the new oxymoron

I have seen some absolute stupidity from the banks and loan holders, but this seriously takes the cake. I am absolutely astonished although it does give me a better understanding of why the foreclosure/REO market is so screwed up.

I recently represented a family in an attempt to either re-work their mortgage or to short sell their home. They were a husband and wife with two small elementary school aged children. They bought their home at the height of the sellers market, so needless to say they were upside down in the house. Unfortunately, the loan they used to purchase the home was an option arm, one of the driving forces behind our current situation. The husband lost his job and was having difficulty finding a new one. The wife was working and trying to support the family until they got back on their feet. She had been trying to re-negotiate the loan for over 4 months. She was told by the bank representative to stop paying her mortgage.....let me say that again....SHE WAS TOLD BY BANK REPRESENTATIVES TO STOP PAYING HER MORTGAGE...so they would see she couldn't make the payments and then would be willing to work with her on re-working the loan...they also told her if she didn't bring the account current, they were going to foreclose on the home....sort of a mixed message if you asked me. It was around this time they contacted me to try and sell the home short (they had a $275,000 mortgage on a home that was now worth about $240,000). We had roughly 2 weeks until the bank was going to sell the home at auction. So at this point the bank knows the home is being actively listed for $250,000.

Here's where it gets good, or bad, or stupid and actually kind of surreal.

We got an offer from a buyer to purchase the home for $250,000 and submitted it to the bank prior to the banks auction date. You would think the bank would be interested in trying to let the house be sold on the open market to minimize their potential loss...of course that does include the word "think" and obviously the mental midget or team of oxen that were assigned to this account really didn't understand that sort of logic.

Three days following our submission of an offer for $250,000, a man knocked on my clients door, told them he bought their home at auction and they had until Friday to be out or the constable would remove them. So at this point my clients, with no place to go, moved to Oregon to be with family.

This scenario is bad enough, but wait there's more.

They received a forwarded letter in Oregon from the bank the week following the foreclosure sale, stating that the bank recognized me as the agent they would be working with on the short sale of their home. I guess they missed the part where they already kicked the family out of their home. Now I'm not a bleeding heart nor do I think people should have free rent or a free ride, but you really have to look at the numbers on this one to get the full understanding of how completely screwed this situation is.

The bank sold the house for $170,000 at auction

remember there was an offer on the table for $250,000

The investor that stole the house for $170,000 (can't blame the investor for taking advantage of a stupid bank) resold the house for $230,000 2 weeks after they bought it.

So to recap, instead of reworking the loan for the family that owned the house initially, which would have kept the original principle amount of $275,000 and adjusted the payments to something they could have afforded (could have been done a couple of ways, first set a lower fixed rate, then extend the length of the term to 40 years from 30 years probably would have done it)

orrrrr to let them sell the house short for $250,000, the bank in its infinite wisdom decided it would be better to evict a family of four, sell the house for $80,000 less than they could have and let an investor make roughly $40,000 to $50,000 by flipping the house and driving the values of the neighborhood even lower!!!

Is it any wonder that the banks are in trouble? Had the bank reworked the loan or allowed the initial short sale to take place, they would have had a much smaller loss on their books. This becomes even more relevant as the government is poised to put money in to the banking system to help them remain solvent. I hope the government has a clause in place that stops our money from going to banks that are obviously TOO STUPID TO BE HELPED!!! I certainly don't want my tax dollars going to help an institution that has no idea of how to minimize losses.

I also have to wonder if there was some sort of collusion from the bank with this investor. It would be very easy for a person in a loss mitigation department, to direct a third party to cherry pick and flip a home. It wouldn't do much for the bank, certainly wouldn't do much for the party being foreclosed on, but as is possible in this situation, if the loss mitigation employee got half of the profit, that wouldn't be too tough on the old wallet in a struggling economy!

Of course that's just my thinking....

2008-09-26T08:31:00.000-07:00

Smart money, Dumb investor

I was reading another blog, where a Las Vegas Realtor was writing about the number of buyers and how difficult it is to get offers accepted in the entry level range. I was surprised by the number of "nay-sayers" that were hammering the blog. The following is my addition to the blog...Also, as a heads up, interest rates have jumped dramatically in the last 24 hours, so if you were thinking of locking today, talk to your lender and see if they think things may drop back down after the stimulous package comes out...

What really bothered me was the cynical nature of the posts. I am currently working with 6 buyers right now, one of which is a strict investor, wanting to put a tenant into the home. The rest are people that have been sitting on the sidelines watching the market go down and realizing that real estate is back to being an investment that doesnt move in 6 months. Real estate has historically been a slow growth investment, which is why until recently was a very safe investment. The comments I heard in 05 and 06 about "flipping" have been replaced with "we'll hold on to it for 4 or 5 years then turn it into a rental and move up. Its a different strategy than the get rich quick, instant gratification attitude that contributed greatly to a lot of peoples problems in the market today.

I am currently seeing my buyers put in offers at or above list price and lose the home to buyers putting in offers as high as $50,000 over list for homes. As rental prices rise, which they currently are, people will start to realize they can own for the same price they are renting for, and the elevator will start going back up. Hopefully the loans will be available for the majority of these purchases, but I think the days of being able to get my dog a jumbo loan at 100% are a history!

2008-09-24T12:46:00.000-07:00

Buy and Bail Schemes

The buy and bail works like this, you secure a new loan for purchasing a new home. You show that you have tenants for your current home and 75% of your current mortgage on the home you are moving from are covered. You close on the new home, then let the old home go into forclosure before your credit gets trashed from the forclosure.

The reason behind doing this is obvious, homeowners are seeing the value of a home they just purchased drop as much $100, to $200 thousand dollars, they have mortgages adjusting to higher payments they cant afford, and this looks like a golden parachute. Some people are even able to move down the street into the same floorplan they've just jumped out of.

What happens afterwords, is that the value of the neighborhoods this takes place in is going to continue dropping, because the bank now has another forclosed property they need to unload. Personally I dont' agree with it, I totally understand how it can be rationalized, and even see how for the individual it may the only option available, other than being homeless.

Fortunately the lending industry, (about a year late), has seen that they need to add some oversight and regulation that will stop or at least slow this practice. One of the excellent lenders I work with, Aaron Gordon, of Countrywide Home Loans, recently sent me a list of fast facts that I would like to include here:

BUY AND BAIL GUIDELINE FAST FACTS

FANNIE MAE- CONVENTIONAL LOANS INSURED BY FANNIE MAE If the buyer is converting his current primary residence to a rental and he DOES NOT have at least 30% equity as determined by an Automated Valuation Model (AVM) like Zillow.com and others.
has to qualify for both residences with no rental income counted
has to have 6 months reserves for both properties If he has more than 30% equity.
Has to have a rental agreement
Can count up to 75% of the rent to qualify
No additional reserves required FHA LOANS - GOVERNMENT LOANS INSURED BY FHA If the buyer is converting his current primary residence to a rental and he is DOES NOT have at least 25% equity as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.
has to qualify for both residences with no rental income counted If he has positive equity but less than 25% equity.
has to qualify for both residences with no rental income counted If the buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance he can proceed on the new purchase with the following:
Has to have a rental agreement with at least one year duration
Can count up to 75% of the rent to qualify
No additional reserves required
evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner may be requested The bottom line is if your buyer is moving today, and he doesn't have at least 25% equity in the home he is moving from, and he is not being transferred for work to a new city, he will want to plan on qualifying for both mortgages.

If you have any questions regarding buy and bail guidelines, please don't hesitate to contact Aaron, he's an excellent lend and is very knowledgable about current market

,Aaron GordonHome Loan Consultant /

Sales ManagerCountrywide Bank, FSB

Cell: (702) 283-2333

I am glad to see that the lending institution is finally doing something to slow these practices down, I only hope they finally realize they need to have a more customer friendly approach to their current mortgage holders. It seems like the loss mitigation departments consider everyone to be dishonest in their need to have skyrocketing mortgage payments re-worked into something affordable.

2008-06-18T08:04:00.000-07:00

Foreclosures & Short Sales Need Governance

When an offer is made between a buyer and a non institutional seller, a timeline is set for the expiration of that offer, usually 24 to 48 hours. The seller must respond with one of three responses, acceptance, rejection or counter offer. The sellers agent is responsible to facilitate a timely response, acknowledging that the offer was received, is being considered, countered or rejected. This process allows the buyer to move quickly into purchasing that property, or moving on to another. In reality, the "teeth" in this system is that the seller emotionally involved and has a vested interest in selling the property. The fear of losing the buyer will force them to respond in a timely manner. This is especially true in a buyers market, where the sellers are struggling to get their homes shown, let alone sell for a decent price.

The current situation, where over half of all active properties (single family homes, condominium and townhomes) in the Las Vegas MLS are either completely bank owned from foreclosure, or are dependant upon bank approval as a short sale, do not follow the usual rules. The banks don't seem to have any concern that the buyer might move along to another property, the agents that specialize in these transactions don't have any tools at their disposal to expedite the transactions either, so a typical bank involved transaction can take as long as a month before a definitive answer is given. Then once the transaction is put into escrow, an REO transaction will take at the very minimum 45 days and a short sale will drag on for at least 60 days.

Our current inventory breaks down like this;

20,595 Homes/Townhomes/Condos for sale of which 5,645 are bank owned and 5,645 are short sale homes.

Of the 7,007 homes in contract, 3,589 are foreclosed properties and 2,064 are short sales.

This shows a pretty clear picture of what is "selling" in our market

56% of homes for sale are owned by or dependant upon banks or lending institutions

81% of homes in contract are owned by or dependant upon banks or lenders.

This does not bode well for anyone hoping to sell a "non-distressed" property or to have a purchase happen in anything resembling a timely manner.

A normal transaction between buyer and seller takes typically 3-5 days of negotiation, then 30 to 45 days to close.

A typical REO/Foreclosure transaction takes 14 to 21 days of negotiation then an additional 45 to 60 days to close.

A typical short sale transaction will take 14 to 60 days of negotiation with an additional 45 to 90 days to close.

To put it simply, a foreclosed property is going to take at least a month longer to sell and a short sale will take at least 3 months longer to sell than a regular transaction.

This is the point where I have to ask WHY!!!!!!!!!!!!!!!!! Why should our market be forced to stagnate like this. Shouldn't the banks have an interest in moving the inventory to improve market conditions and create an environment with good consumer confidence? The attitude I see from the banking and lending industry is one in which they will do things in their own sweet time. I believe we have all heard of "bankers hours", I just don't understand how they can drag on for weeks and months at a time. Especially when all that needs be done is to look at the bottom line, and decide yes, no, or how about this price instead. The same way a non institutional seller would. Perhaps the institutions haven't seen the need to designate a decision maker in this process that can actually make a timely decision.

As is I write this, I currently am working with 6 clients buying homes. Between them we have 9 offers on properties on the table. I have had a response from 3 of those offers, one took over a month, 2 responed in 7 to 10 days, the rest are unanswered and are in limbo. Then once my clients have responded back to the institutions, they disappear into the black hole from whence they came and do not correspond until the groundhog sees his shadow, the stars align, or the most common answere, "Monday for sure". My clients are frustrated, and like me are wondering why it is so difficult to get a simple affirmative or negative response.

This is a situation where the Real Estate Division needs to enact a mechanism that would streamline this process with institutional owners. It is blatantly obvious that the institutions themselves have no inclination to move in a timely manner. I am not one that likes a lot of government intervention in the market place, but in a situation like this where our market, is unnecessarily being put through a prolonged period of stagnation due to nothing more than a cavalier attitude towards the situation, I feel it is time for a little intervention. If institutions were to be fined an monetarily for not responding to an offer in a timely manner and that fine were given to the real estate division in the state in which the property exists, there might be a little more attention paid to making a timely response.

I do not suggest that institutions should flatly accept whatever comes down the line, I'm asking for a simple yes, no, or how about this price. This would speed up the time these distressed properties are on the market, would actually benefit the institution holding the note due to the fact that they would be off of their books that much faster, and would also end the stagnation. With inventory being absorbed back into the market at a quicker rate, less product would be on the market (lower supply) and prices might actually have a chance to increase as buyers have less to choose from (higher demand).

I'm not even asking for an unreasonable amount of time, perhaps 5 business days to respond on initial offers and 3 business days to respond to counter offers, as well as setting a 2 business day time limit on final signatures of approval at close of escrow. It is understandable that an institution might need a bit more time in making a decision to accept, reject or counter an offer, but to take weeks and months to respond exacerbates our current situation, by unnecessarily increasing the amount of supply in our marketplace.

2007-08-21T12:38:00.001-07:00

Countrywide's Increasing Stupidity

I am completely astounded by a recent transaction that fell apart on a Countrywide owned foreclosed property. Most REO (bank owned) properties will require a pre approval letter as well as addendum's prior to presenting an offer, but countrywide requires a pre approval letter from a countrywide branch office...not a countrywide program that a mortgage broker can provide, but someone who is directly on the Countrywide Payroll. If this isn't a blatant example of a large institution trying to steal loans from smaller lenders, I don't know what is.

Its bad enough that in addition to the lengthy purchase agreement commonly associated with a purchase, Countrywide requires the buyer to agree to a 15 page "addendum" that is actually a purchase contract that rewrites every element of the original contract to the benefit of Countrywide, or that the buyer has to agree to verbal counteroffers that aren't binding until the bank decides whether they want to sell the home...all of which takes an inordinate amount of time, usually 1 to 2 weeks to just get an answer.

A normal transaction has every offer and counteroffer in writing with time tables that have to be adhered to. BUT in addition, if Countrywides loan officer doesn't have a program that will qualify the buyer for the purchase, they wont consider the offer. It doesn't matter that a perfectly good loan and buyer is now going to purchase a home from someone else, for more money than Countrywide will approve them for, and that most likely they will buy from a private party instead of considering a foreclosed property because the Countrywide experience was such an incredible pain in the butt.

Perhaps Countrywide hasn't been watching the news...or maybe they enjoy having more foreclosed properties on their books than any other lending institution. Or, of course there is the fact that our government will spend our money infusing cash available for loans into the economy to make sure lenders like Countrywide have enough money to lend to get more mortgages, so lenders like Countrywide have the ability to be as selective as they want...where is the incentive to actually sell the properties! Of course when you originate 1 out of every 7 loans issued in the US and have borrowed over 14 billion dollars to bail yourself out from the bizarre variable rate interest only mortgages you were issuing to any mammal with a pulse a year ago, I guess normal intelligence and operating procedures just go out the window.

The really ugly thing is that the longer they sit, the worse they get and eventually Countrywide will have to come down even further to get their repos to sell, which in turn will lower the property values of the homes surrounding the home they were too shortsighted to sell to a good buyer.

I mean is it just me, or do other people see that there is maybe something wrong with this picture. I understand their desire to give an incentive to keep the loan in-house by requiring the buyer to qualify with them, but it just doesn't seem right to discriminate against a buyer or a lender they "don't trust". Seriously, isn't that what an earnest money deposit is for? So if the buyer fails to purchase, the seller has some recourse? Why not require a higher earnest money deposit? Or hey here's a novel idea, accept backup offers until closing. Require weekly updates from the lender until closing.

I am trying to imagine what would happen if a private party required all interested buyers to qualify for a loan to purchase their house from the sellers cousin Bubba of Bubbas Loans & Beer Emporium. I wonder what kind of Fair Housing Lawsuit would be brought up if ol Bubba didn't like the lender that the buyer was using and because his bank account was a bit low and his program wasn't able to work for the buyer that Bubba and his cousin with the house said "naw we don't trust that you can close, sooo you can't have this home"...

Maybe I'm just pissed because my client lost a deal and is now discouraged to the point where they feel buying a home is just too much of a hassle...

...or maybe there is just something a bit wrong with a seller be it a bank or a private party being able to dictate who a buyer can use as a lender...

For my part, from this point on I will make sure all my clients know that if there is another option besides a Countrywide owned property they would be very wise to avoid the hassle of dealing with a short sighted organization that is more interested in trying to steal loans from qualified lenders then they are in actually selling houses.

2007-08-21T12:38:00.000-07:00

Discount rate doesn't mean discounted consumer loan rates

I recently had a buyer ask why their projected apr wasn't being adjusted down by their lender on a pre approval letter. They had heard about the "Fed cutting the rate" and assumed that meant that loans were going to immediately have lower rates as well.

The rate the fed cut, was the "discount rate" the rate that banks are charged by the federal government. The one to keep an eye on that has direct impact on consumer loans is the Federal Funds Rate. What has recently happened will create a bit more stability in the economy as a whole and may make loans more available, because banks will have more liquid assets to work with. The fed may actually lower the federal funds rate when they meet again in September, but they have held steady now for the last 9 sessions. If they do however decided to drop it, look for a quarter to half percent drop.

2007-08-08T09:10:00.000-07:00

Encouraging Statistics for Las Vegas
The annual MLS statistics for homes sold through the Multiple Listing Service (resale homes) shows average prices are up, even though volume is still down. The stats actually show that while peaky, volume in general has increased.

This could be due to investors finally realizing what a great time it is to buy in Las Vegas. Especially if you don't have to SELL an existing home in this market to get the job done.

It is also very nice to be able to point to statistics that clearly show that our market isn't sliding back as far as pricing goes.

We will still see spikey sales prices, especially as more foreclosures come onto the market, but as a whole it seems the Las Vegas Housing Market is reflecting the good health of the Las Vegas Economy as a whole.

I firmly believe that those who see the potential right now and pick up investment properties will really benefit greatly in 2009 when the $30 billion dollars worth of construction is finished on the strip. When you consider that for every hotel room added, 1.5 to 1.8 jobs are created there is going to be a demand for housing and not just home ownership, but rental housing as well.

Again, it's a great time to buy!!!!

2007-07-24T13:50:00.000-07:00

Looking for the burst bubble

I have heard and keep hearing about the "housing bubble" followed quickly by "the burst housing bubble"...I've pulled the statistics for Clark County, (basically Las Vegas and Henderson) and I definitely see a rapid increase between 2003 and end of 2005, but I'm having a tough time trying to find the rapid decrease, or that "burst" thing. What I found surprised me, because even though I've never bought into all of the doomsday rhetoric, I have noticed a slow down and a drop off in prices...here's what I found statistically;

I looked up the year end median sold price of detached SFR and Condos;

(Definition: Median is a mathematical result that indicates that one half of the group is higher and one half lower. Median price of 101 sold homes would be that price which is lower than 50 of the prices and also higher than 50 of them.)

Clark County SOLD Median Price

year end 2004

Single Family Detached-$275,000 Condo/Townhome-$170,000

year end 2005

Single Family Detached-$312,500 Condo/Townhome-$204,000

year end 2006

Single Family Detached-$306,100 Condo/Townhome-$196,000

June of 2007

Single Family Detached-$306,000 Condo/Townhome-$194,250

I think if you look at those statistics, you will also be a bit confused about that whole bursting thing...I mean when I eat too much and I "burst" out of my jeans, there is usually a loud ripping noise as the button blows off and of course the inevitable flow of protruding gut over my belt line...what I'm seeing above just makes me think of a slight bulge of gut still trapped behind my jeans after I've eaten a little more than I should. In other words something pretty obvious...picture Rosy O'Donnell in Paris Hilton's bikini...(now that would be a bursting)

Of course generalizing our market like this doesn't necessarily give a clear view for individual areas. There are subdivisions in Las Vegas and housing types that have actually gone up in value this year. The Spanish Trail subdivision is an example of a sub that has gone up, but where we are seeing strong sales right now is in High rise and mid rise living. As a whole though Las Vegas/Henderson has seen big slow downs in SALES VOLUME and a slight decrease in values. The averages I've seen are anywhere from about 2% to as high as 14% depending on sub.

Again, I'm just tired of hearing about how prices have dropped off so dramatically...subdivisions that had incredible increases, will also show more dramatic fall offs, but as whole over the last 4 to 5 years, values will be up. Unfortunately we live in a world where people stand in front of microwave ovens screaming, "Hurry Up, I want in NOW DADDY!!!!" (pardon the Verruca Salt reference) Real estate is an investment that you have to hang onto for about 3 to 5 years, usually, to see dramatic increases in value...Of course if anyone can show me statistical information supporting this bursting thing in Clark County, I'd love to see it....

2007-07-17T13:44:00.000-07:00

Low balling

Most buyers in Las Vegas are under the impression that sellers will take a hand full of pocket lint and a smile to get out from under their mortgage. While there is quite a bit more room to play and sellers are definitely having to take the short end of the stick at this time, they aren't "giving away the farm". I'm always surprised when a home may already be under value and a buyer offers $20,000 less than the sold comparables for that house, along with closing costs, warranty's, inspections, appraisal and hey by the way could your kid come mow my lawn for life. Obviously its a buyers market and asking for closing costs or a lower sales price are expected. If however you are asking for closing costs and a lower price, keep in mind the closing costs usually come to around 3% of the sales price on the buyers side of a transaction, so if you are looking at a house valued at $300,000, and are asking for closing costs, you are already asking for a $9,000 price reduction. If you then offer $280,000, you have effectively asked the seller to entertain dropping the price roughly $30,000.

Too many times, buyers low ball with an offer that does not have the possibility of being accepted and in some cases won't even be countered...see above....

The best way to make an offer in any type of market...buyers or sellers markets is to first look at the SOLD COMPARABLES. Especially if you have good comps within a 6 month range...this gives you an idea of what a house will appraise for...just offering $20,000 below the asking price without checking comps could still put you in the position of overpaying. Also, if a comparable of a home you are looking at sold for $20,000 above the list price of the subject property, its highly unlikely you will get another $20,000 off. Most likely another buyer will see it is already undervalue and make a good offer that leaves the "low ball" offer in the rejected pile.

There is nothing wrong with taking a shot at a seller right now, but base it on something other than a "hunch".

You want to write an offer that can either be accepted as is, or will at least get some concessions in the counter offer. If you write a ridiculous offer, expect a ridiculous counter offer to come back. Additionally, if the offer is too low or asks too much, the seller may decide you aren't serious and refuse to negotiate with you at all. If they reject your offer outright and you are forced to write a completely new offer, you will lose some of your ability to bargain, because the seller now sees you have an attachment to the house and are unwilling to walk away.

This is definitely a time that favors the buyers, but that doesn't mean that sellers are willing to just bend over and smile.

2007-06-26T08:59:00.000-07:00

Rents are rising in 2007

It shouldn't be too much of a shock that rents will be going up again. If you consider the number of apartments that were converted to condo's last year, along with sub prime loans restrictions getting tighter, there are fewer rental units available, a growing population in our market and fewer people able to buy, the demand will be higher in the rental market with fewer units available. Think exact opposite of what is happening in the Las Vegas real estate sales market. Throw in the number of people having to get out from under their mortgages either through foreclosure or selling their homes for less than they owe (short sales), rents could get a bit dicey.

Fortunately in our market the residential rental sector should offer some relief in number of available units, but don't expect the prices to be coming down anytime soon. More and more investor owners of real estate are coming to the conclusion that it will cost them less in the long run to eat a few hundred dollars a month to keep a tenant in their home, than to take a big hit all at once just to bail out. Again, good news for those that don't have the ability to buy. I am also seeing my clients that are interested in buying a move up property, or just getting into something new, choosing to look for a good tenant, pulling some equity out of their current home for down payment on a new or new re-sale home and keeping both. The market is great if you are buying, and for those with the ability to turn their existing home into a rental while waiting for the market to get back to an even playing field (this should be about a year away) they are able to really get into something bigger, nicer, or with a pool. The key is to find a tenant that won't destroy the existing home and pay enough in rent to cover most if not all of the mortgage on the property they occupy.

An example of this would be someone in a 3 bedroom home wanting to move up. They pay a current mortgage of $1200.00. They have $90,000 in equity in the current home and pull an additional 40,000 out of the equity for down payment on a new home, costing an additional $266.00. They find a home listed at $410,000, offer $400,000 and require the seller to pay all closing costs. The new mortgage for $360,000 $2,275.44 P&I + the $266 from the equity pull for a new monthly P&I payment of $2,541.44. The old house is rented for $1,000 a month, $200 shy of paying the entire mortgage on that home. Over a 2 year period based on this level, keeping the first home will cost an extra $11,184.00. If that home had been valued at $300,000, selling it would have cost $18,000 in broker fees alone + the sellers closing costs and most likely the seller in our current market would have had to pay the buyers closing costs, ($8,000) as well as probably having to offer the house for below value to get a buyer interested. Now looking at the market in two years when there should be better conditions to sell and with minimal increase in value of 3% per year, the $300,000 will have a value of $318,000. Even with making up the difference from the rent not covering all costs, holding the property in the long run will have actually cost the seller less than selling the property in current market conditions.

Okay back to rents going up, as more and more residential rentals come online, large scale investors will see the need for apartments and we should see new construction begin on those types of properties, but the relief these will provide in lower or at least in rents not rising is a year to 18 months off.

1st time home buyer programs are another alternative for putting your money to better use. If you look at the benefits to owning, whether its increase in equity in the home, tax benefits, or just better quality of life you'll see why getting that first home is so important. Currently the state of Nevada has several 1st time home buyer programs that offer lower interest rates and even in some cases forgivable loans, and down payment assistance. Combine that with the current state of our market being so favorable to buying its definitely something to consider. That will be something to explore on a later post.

If you want more information about the first time home buyer programs, drop me a line at rob@robturney.com and I'll get you the information.

2007-06-19T09:15:00.000-07:00

Real Estate is a LONG TERM Investment

The new PMI report on risk factors came out recently

http://biz.yahoo.com/prnews/070619/aqtu143.html?.v=7

rating Las Vegas as having one of the highest risk factors for reduced home prices over the next two years. One of the factors used in determining the risk factors is job growth, and while we just went above the national average in unemployment, I dont think the new hotel jobs that will begin coming online in the next 8 to 12 months were factored into the report.

What the report does remind me of is that Real Estate is a LONG TERM INVESTMENT. Its one of the reasons its such a good investment. The get rich quick flip that house days are over...at least for a while, in our market anyway. By the same token, you can count on real estate eventually going up in value...its not like we have more land being magically created...unless of course you live on an active volcano...but that has its own drawbacks...like catching on fire by getting too close to the lava fields....my point is that home ownership is still an excellant long term way of getting a return on an investment.

The PMI report while confirming that the market was volitile in its expansion and is now settling back down, just means that you have to buy your home smart and choose a good loan product to do it with. The national average for a first time home buyer to live in a home is 4 to 5 years. For move up buyers is 3 to 5 years. In other words even if the market declines slightly, in 5 years that will have changed and most likely the market will have once again shifted to either an even market or back to a sellers market.

Using the right loan product is very important. Interest only loans, or less than 5 year arms are probably not a good choice right now, but interest rates are still at a historically low point and now PMI can be written off like mortgage interest on a residence, so the tax advantages are still very good.

Look the report over, but dont let it freak ya out!

2007-06-13T08:54:00.000-07:00

A Great Time To Invest, Buy, Scoop Up, Grab, Gobble, Get Some... REAL ESTATE!

I can't tell you how sick I am of the media and their gloom and doom reports about how "horrible" the real estate market is today. Yes, I understand it is difficult to SELL right now. Sellers can't squeeze every possible penny out of a property, nor can they show a property "as is". It actually takes a bit or work and a realistic attitude about pricing to sell a home right now.

Buying a home however is a no brainer. Even with guidelines being tightened on sub-prime "B paper" loans, this is one of the best times in the last 30YEARS to BUY property.

According to the Federal Reserve historical data on Conventional mortgages, www.federalreserve.gov/releases/h15/data/annual/h15_mortg_NA.txt

the annual conventional mortgage rate has only been under 7% 7 times in the last 30 years. In addition, the average mortgage rate over the last 30 years was 9.74%, with the highest rate occurring in 1981 at 16.63% and the low being 2003 at 5.82%. \

When you combine that with the amount of product on the market, be it new construction or re-sale homes this is a "Target Rich Environment". I have never, that's not almost never, or hardly ever, but NEVER seen Builders and Re-sellers offering so much to begin with and being willing to negotiate so much to sell a home in all the time I've been selling real estate. Everything from swimming pools being offered by builders to closing costs and drastic price reductions from re-sellers.

Buyers can pick from a historical high water mark of homes on the market. Buyers hold the keys to the city today, just the same way Sellers held the keys in 2004, 2005, and just like then, things will change.

The key is buying low and selling high...just ask Eddie Murphy and Dan Akroid...the peak on selling came in 04, 05. The people that bought their homes prior to the spike picked up an investment that they lived in for several years, then SOLD it when the time was right. So if you are a seller, is this the perfect time to sell, no. If however you are going to sell and move up, you are going to be able to take advantage of being a buyer, the same way the buyer that purchased your home took advantage of the buyers market when purchasing yours.

Ideally what you want to do right now, if you have the means, is to pick up some investment property. Property that already has a tenant in it, and yes they are very easy to find right now. Your tenant pays most if not all of the mortgage on the property, and as the market increases in value, which it will eventually do, you get to take advantage of the increase in market value, as well as the equity created by paying down the principle...

Another variation is to buy a move up home and rent the home you are currently in. Again, put a tenant into your home to pay all or most of the mortgage, and move up into a new home.

Or if you are buying without having to sell or rent out another property, this is YOUR TIME!!!

With any of these scenario's you have to be realistic about what you can afford and with income property you have to count on the fact that when tenants move out, you'll have to cover a vacant period as well as getting the property back to pristine condition for the next tenant. Which is why its important to make sure you've got a good tenant to begin with, that doesn't have a history of taking a chain saw to the kitchen cabinets, or cooking up meth in the bathtub...property management companies help here, but require a piece of the monthly rent...usually 10%, but that is negotiable with the management company.

The point is this is not a 'HORRIBLE MARKET"...its awesome if you are buying, its difficult if you are selling, but with interest rates still well below historical averages, more buyers can "buy" those tough to sell homes, and buyers are in hog heaven!!!!

Its kinda like when the salmon run...kinda sucks for the salmon but its a great time for the bears...and hey not all the salmon get gobbled before getting to "do their thing"

2007-06-04T09:29:00.000-07:00

What to do when your mortgage adjustments breaks your budget

Unfortunately, this scenario is popping up more and more. Buyers had either speculated that they would have had their home sold before this happened, or they'd be able to re-finance in a position where the mortgage was no longer in the position of needing Private Mortgage Insurance or a less than 80% loan to value, or even worse, their financial situation has changed. With the market slow down and the interest rates coming back up and the lending industry tightening their reins, home owners are finding themselves more and more in the position of being strangled by their homes.

The problem is also made worse by the fact that no one really wants to acknowledge they are in trouble until its things are horribly wrong. I have received several calls recently asking "How fast can you sell my house?" My answer, "2 days if you want to sell it for belly button lint and candy wrappers..." Usually most home owners regardless of their situation still see their home as being worth what the highest priced comparable of their home sold for. In a slow market like ours, that doesn't equate to a "quick sale". Also, if a homeowner has only been in their home for a short time they may be upside down in their home, (owing more than the home is worth), and if re-financing is not an option or doesn't fix the problem, then selling the home for less than it is owed becomes the only option, either by paying off the bank the extra owed amount or by proving an inability to pay off that amount and getting the lending institution to accept a "short sale".

The first step is to find out what your home is really worth, not what you think it's worth or what your neighbor Bob and Susan sold theirs for 6 months ago, but a realistic look at its value under current market conditions. This can be achieved by getting an appraisal, usually around $350 to $400, or get a real estate professional to provide you with a comparative market analysis. This requires a real look at the home, not a computerized average found on one of the many Internet sites.

Next you need to estimate what your closing costs would be based on the value obtained by either of the aforementioned processes. If you've used a Realtor to create your market analysis ask them also for an estimated net sheet based on a sale at appraised value, as well as at values $10,000 lower than appraised value. These costs will vary market to market, but in Nevada in addition to brokers fees the costs you will be expected to pay are

1/2 of the escrow fee

Title insurance

re conveyance fee to pay off existing loans

if you are in a Home Owners Association, there will be document and transfer fees

NV transfer tax, $5.1 per thousand dollars of sold value ($300,000 sales price, $5.1 X 300)

County recording fees

Once these have been tallied up, along with the amount currently owed you will find out how much you will either have to pay to get out from under the mortgage and start over, or how short the sale will be, or if a new financing option may be a better choice.

If you are in a worst case scenario, and refinancing is not an option, nor is there any money for paying off the short amount, a "short sale" may be the only way to go besides foreclosure.

Short sales are a better option for lending institutions, because in the long run, it keeps the property of their books (REO) and it is much quicker...sort of like ripping off the band-aid quick. This doesn't mean that the lender is going to be "happy about it". They are going to want to make sure you aren't able to cough up the remaining money, which means proving your inability to make the payments. If you show a $1,000 a month payment for a new 911 Turbo, they may want you to get rid of the car payment and give it to them instead...short sales are not an easy way out...nor are they quick fixes. They should be considered a last option before the "big ugly" foreclosure....

The steps to getting a lender on-board quickly is to contact the lender, or have your Realtor, with a signed notice of permission to discuss your financial information contact the lending institutions short sale department. Find out what they need to see to approve a short sale. If you have more than one loan this will be required of each lender.

Next get your financial information together, along with the reasons why you are no longer able to make your payments. If this is due to an exploding interest rate, it may make more sense for the lending institution to renegotiate a lower rate rather than risking the possibility of a short sale or foreclosure. The lending institution is going to want to see all of your assets and obligations, if you own a cabin in Big Bear, they are most likely going to suggest you sell it to pay what you owe, again, this is not an easy way out. Having this available for the institutions instead of waiting to see what they "really require" will save time. This process can take between 1 and 6 months, so have as much information readily available as is possible.

At this point, if your home isn't already on the market, the institution may require you try to sell it at a price high enough to cover costs, they may want to negotiate with the listing agent for a lower commission. This may happen again once an offer is presented on the home that is less than what is owed. The lender doesn't have to agree to a short sale, so if you receive an offer that is less than what you owe and have to pay it off, make sure you've listed in your counter offer that "bank approval" is needed for the sale. Otherwise the buyer can still enforce the contract regardless of what it will do to you.

Other things to consider is the tax burden. The IRS sees the amount you've been forgiven on your debt as taxable income, (ya I know, don't shoot the messenger) so if you have $50,000 in debt forgiven, Uncle Sam is going to squeeze you for income tax on that 50 grand.

The lender may require you to sign a promissory not to make payments on the remaining debt as well. This at least gets you out from having to pay the IRS...

This also may be a time that the lender looks at the information originally submitted for the loan in the first place. If they find fraudulent information was provided to obtain the original financing they may take a good hard look at whether or not you participated in loan fraud.

The most important thing in all of this is to be realistic in the first place. Don't count on future market conditions to enable you to make payments. If you see your situation is about to change for the worse, re-work your budget to make sure you can make your payments. If you aren't going to be able to, start the selling or re-financing process as soon as possible.

Talk to professionals about all of this as well. You wouldn't expect to be able to jump into a race car and drive it as well as someone that races every day would you? Talk to Realtors, Lenders and Tax professionals that run this race on a daily basis...it'll keep you off the wall.

2007-05-25T10:09:00.000-07:00

New homes sales volume up as prices come down

National sales volumes are reported as being as high as 16% in April due to the drop in prices builders are accepting according to the Real estate journal (part of Wall Street Journal) article posted by Jeff Bater. The report shows that the builders are continually more interested in moving product than having it sit.

Very reminiscent of how in Las Vegas in 04, 05 the builders drove the prices up by limiting the number of available units. Don't get me wrong, they were cranking out houses faster than a target maker at a Rosie Odonnel shooting range. They did however have a minimal unit release per phase, allowing them to increase prices more rapidly and more often. Now this is not to say the builders were the only cause of the increase in median prices at that time of over 40%, (again speaking specifically to Las Vegas/Henderson, 2004, 2005), but the re-sale home sellers also jumped right into the feeding frenzy as well.

Oh how the tables have turned!!! Now we are seeing the builders dumping inventory with offers of $20,000 in incentives, paying closing costs and yup, dropping prices...though the tactic we see in Las Vegas is more of the massive incentives and upgrades, along with offering the general real estate agents they didn't want to see in the 04, 05 days higher commissions for bringing in their clients. For the re-sale seller its pretty tough to compete with those terms. Re-sellers are once again having to follow suit and drop prices, or offer incentives. Above all, any home on the market has to be immaculate since the buying population seems to be staying quite cautious.

Re-sale stats in Las Vegas to this point don't reflect the National New Home sales stats at this point. As of today, in the Las Vegas/Henderson market, re-sale detached single family volume is off by about 8%, but the average sales price is up about 5% from $389,626 to $409,646. Condo/Townhome is up slightly in volume, but down in average prices about 4% from $259,819 to $249,648...these are incomplete numbers for May, check back at the beginning of June for the actual run down.

Have a great memorial day weekend!!!!

Thanks to all the vets and active service personnel for the sacrifices you make and have made for all of us!!!

2007-05-21T08:39:00.000-07:00

Writing off the mortgage interest

I was talking with a client over the weekend and she that told me, "she still didn't get how that tax thing worked". I was a bit surprised, considering that was one of the reasons she wanted to go from renting to owning a home. I suppose it's one of those things that you know is good for you and you just accept, sort of like not sticking your tongue on a frozen pole.

Okay, so here goes, and remember to always talk to an accountant or a tax preparer before entering write offs on your tax forms. So having given my official disclaimer...the lawyers are happy now...here's how it works.

In simplest terms the money that you pay toward your mortgage interest, can be deducted from your gross income, the same way you would deduct the cost of a harpoon if you were a whale hunter...and in no way do I endorse harpooning whales, again the lawyers make me say these things...

So if you're wanting a real world example of how this works or how it can influence your decision between renting and owning, lets set up an example. A home with a value of $200,000, where the seller paid your closing costs and an apartment that rents for $1,000 a month

Rent $1,000/month

Mortgage payment principle and interest on a $200,000 loan is $1,199

of the $1,199 principle and interest payment, $1,000 is mortgage interest.

Over the course of a year, $12,000 has been spent on rent, with no tax benefits, its just gone.

Over the course of a year $14,388 has been spent on mortgage principle and interest of which, $12,000 has been spent on mortgage interest. Unlike with paying rent, you can deduct $12,000 from your gross income, meaning you "never made that money and don't have to pay taxes on it" In other words the savings comes in not having to pay taxes on $12,000.

If you are in 15% tax bracket that is a savings of $1,800.

again, if you couldn't deduct mortgage interest you would owe the IRS an additional $1,800

In addition to the tax savings, you've knocked down the principle on your loan by $2,388. So instead of oweing $200,000 you now owe $197,612. If your house has gone up in value by even as little as 1%,(Las Vegas traditionally has gone up in value on average at about 6%-8%, with the exception of 04', 05 where we jumped like 43%), but at 1%, ($2,000), your homes value is now $202,000, you owe $197,612. This means you now have an equity position in your home of $4,388.

Okay back to comparing the rent vs own thing.

Rent end of year cost $12,000, no tax deduction no equity position

Own end of year cost $14,388, tax savings of $1,800, equity position of $4,388

You paid $2,388 more to own your home over 1 year than to rent, but that $2,388 is now equity in your home, (you get it back when you cash out your equity) in this example the home also went up $2,000 (again money you get back when you cash out) and you saved $1,800 in taxes. (money you didn't have to pay).

Okay, now this gets real interesting if you hang onto your home for a few years. The average for first time home buyers before selling is 3 to 5 years...lets call it 3 years.

3 years renting-$36,000 (if by some miracle your rent stays at $1,000/month)

3 years owning-(1% increase in value, 200K initial purchase price, $200,000 loan amount

6% int/ 15% income tax bracket

year 1- $200,000 principle loan amount/$1199/mo. P&I payment- $12,000 to interest $2388

to principle.

$1800 tax savings/home value to $202,000/$2,388 principle reduction.

year 2- $197,612 principle loan amount(original value less principle reduction)/$1199 P&I/mo

$11,820 to interest $2,532 to principle
$1773 tax savings/home value to $204,020/$2,532 principle reduction.

year 3- $195,080 principle loan amount(yr. 2 principle less principle reduction)/$1199 P&I/mo
$11,700 to interest $2,688 to principle

$1755 tax savings/home value to $206,060/$2,688 principle reduction.

End of 3 years

Renting- $36,000 out of pocket, no return on money spent, no tax deductions.

Owning- $43,164 out of pocket

Total tax savings over 3 years-$5,328

Total principle reduction over 3 years-$7,608

Total increase in value of home over 3 years-$6,060

In simple terms, renting over 3 years has cost $7,164 less then owning. Owning has saved you $5,328 in taxes and has created an equity position in your home of $13,668.

Owning over 3 years at 1% increase in value of the home created $11,832 return on investment and provided a roof over your head.

So back to the original reason for this post, how is mortgage interest written off of my taxes? The money you pay for your mortgage insurance is tax free. Again, check with your accountant for your specific situation.

2007-05-12T09:44:00.001-07:00

60 Minutes Takes A Shot At Realtor Commission

60 minutes recently ran a piece about how Realtors have a set 6% commission and how discount online brokerages save sellers money. If you think about it, is this any different than an owner that decides to sell their home themselves? The online brokerages are offering a form of advertising to the sellers of real estate for a fee. Some online brokerages offer lock boxes, signs and fliers, but as with most "on-line" services, you lose a lot of the hands on support. Algorithms and programs take the place of an actual market analysis for pricing. One needs only to look at how a site such as Zillow averages a number of homes in a given area regardless of builder, sub-division or upgrades. In a market such as ours, where prices vary greatly by subdivision, the money saved on "doing it yourself" may not be such a bargain.

The crux of the 60 minutes piece revolved around a "set commission", apparently they didn't realize that there is no such thing as a "set commission". Commissions by law are negotiable and can not be set as a standard. Reducing a commission has become part of doing business in the market today. The CBS story didn't mention the fact that the commissions and Realtor income have been declining steadily since 2005. This means only one thing, full service Realtors have been discounting their listings and providing their services for less money. Discount and online brokerages make up less than 10% of the National Association of Realtors membership, yet commissions have decreased 25% over the last ten years. It would be impossible for a segment that small to have effectively reduced commissions that much. Again, the concept of a discounted commission structure is nothing new, but it was an excellent marketing technique to convince consumers that full time Realtors don't earn their keep, as well as a good angle for a bit of a smear piece by 60 Minutes.

Paying a commission or a flat fee for listing services is obviously up to you. Just like making improvements to your home, you can build a patio cover yourself if you have the know how, or you can even get the information on how to build one. The difference is that if you hire a licensed contractor, you wont be swinging the hammer, you'll have someone on-site that has built hundreds of patio covers before and that most likely will be able to save you money on materials and in time. Most importantly you'll have someone involved that understands the ordinances and codes and how to get the proper permits. Using a full service Realtor isn't that different than using a licensed contractor. A full service Realtor doesn't just get clients from the internet, though the internet has become a wonderful tool for marketing properties to consumers, but they work in the communities in which they sell homes. In other words, they know if your home is in a sub-division that is worth more than a house of the same square footage across the street. The Realtor puts together a proven multi faceted marketing plan to sell your house, that include a lot more than a web site and a sign in the yard. Unfortunately the internet is not the be all and end all of advertising. It is an incredible informational tool that can help shape decisions, but as a marketing tool it is only one facet of available marketing avenues.

I have routinely saved my clients money in more ways than offering a discounted commission. I have seen things that seem harmless on the surface in an offer, that equate to loan fraud and could have cost my client money from fines as well as possible criminal charges. Catching a mistake by a home inspector because I'm on-site during an inspection such as, "The HVAC system is broken and needs to be replaced", this was fixed when I showed the inspector to the vacation switch in the off position. A silly mistake that would have cost at least a service call fee or worse the sale of the house from the buyer assuming the house was in bad shape. I have been able to dispute low appraisals by supplying comparable homes the appraiser missed, as well as showing differences in subject properties based on upgrades. Mistakes are even made at closing, because the contract wasn't followed exactly. These are all examples of what having a Full Service Realtor brings to the table, and the great thing is that there is no "Set commission". You can negotiate what you think is fair and get an on-site, full service Realtor that doesn't just rely on the internet to sell your home.

Another thing the CBS story failed to highlight was the cost and liability a Realtor takes on when taking a listing. The internet marketing, the flier creation and production, the newspaper advertising, the postcards and direct mail advertising as well as the cost for the print advertising all come out of the Realtors pocket BEFORE the house is sold and the Realtor receives a commission. Additionally, if a buyer that does not have a Realtor wants to view the home, the listing agent has the ability to pre-qualify the buyer to ensure the individual isn't just casing the joint. Also, a Realtor can be liable for the cost of a home should there be litigation involved in which the Realtor is found to have been at fault.

What I tell my clients is that in hiring me, you get expert on-site advice, proven marketing and advertising to sell your home in the quickest way possible, many years of experience in selling real estate and someone that has a vested interest in getting you the most money for your home.

The 60 Minutes piece also tried to make it sound like there was a conspiracy against on-line or discount brokerages. Real estate is a competitive business, but conspiring to put another brokerage out of business is ridiculous.

For a response to this I will quote directly from Blanche Evens of the Realty Times she refers to Leslie Stahl in her editorial as well as Redfin online brokerage and erealty online brokerage.

Redfin makes a strong case that other brokers and the real estate associations are trying to put the company out of business. As proof, Stahl dredges up Steve DelBianco, who helped co-found eRealty in 1999.

"No sooner than they were up and running, the local agency in Austin that regulates the industry adopted a new rule that effectively barred e-realty from listing houses for sale on its website," said the CBS report.

"They sued us for breaking the rule they created to shut down eRealty's ability to compete," Delbianco whined to Stahl. Commissions were "the only objection," DelBianco told Stahl. "Realtors embrace the idea of some automation and some use of the Internet. But the minute it cuts into their pocketbooks, well, all hell broke loose."
eRealty's venture capital dried up; the company lost $33 million and went belly up, sums DelBianco.

Is this revisionist history? Realty Times remembers the story a little differently.
What really happened was that eRealty took the Austin MLS feed without permission and put it on its website as a lead generator. While technology allowed them to do so, they didn't have permission from other brokers, which is why they got sued. The suit was settled out of court and eRealty immediately made a deal with Yahoo! to give it MLS listings in exchange for being the exclusive broker. Now, other brokers don't share their listings to give others a competitive advantage; they share to get the listings sold, which was NOT eRealty's first agenda. Their agenda was to create a marketing advantage using other brokers' listings as lead generators.
eRealty didn't go belly-up, but was sold to Prudential. Their CEO Russell Capper works for Prudential today.

Why didn't Stahl do a little fact-checking to find out if DelBianco were telling the truth? Anyone at the Austin Board of Realtors or the Austin MLS would have been happy to explain their side of it, except for a little problem -- they are under a gag order by the court, the same one that eRealty and its principals are under - except when they talk to CBS.

Here's the thing, if you want to try selling your home yourself, then by all means give it a shot.

If you want a discounted listing, then don't feel like you can't ask for one. There is no such thing as a "Set commission"!!!

2007-05-12T09:44:00.000-07:00

Las Vegas homes sold through April 2007

Las Vegas continues to see high inventory and slow sales. The Greater Las Vegas Association of Realtors reports that as of April there were;

Inventory (listed homes)

22,242 re-sale Single Family Residential homes listed in the multiple listing service, (this statistic does not include the number of new homes being sold by builders). This figure shows an increase in SFR of 4.5% from March and an increase of 25% from April of 2006.

6,178 re-sale condominiums (again does not include new construction) up 3.1% from March and up 62% from April of 2006.

Closed (sold homes)

1,381 SFR homes sold in April, down 14% from March and down 39% from April of 2006

296 Condominiums sold in April, down 13.2% from March and down 45% from April of 2006

Median Sold Price

SFR median sold for April is $305,000 no change from March, but down 1.6% from April 2007

Condominiums medial sold for April is $202,000 up 1.1% from March and up 0.5% from April 2007

As I mentioned above, these are statistics from The Greater Las Vegas Association of Realtors and do not include any new homes. The increase in median pricing of Condo's has to be considered a good sign. This increase of .5% in spite of the fact that the inventory has risen 62% since 2006.

Depending upon which source you site, Las Vegas is growing at a rate of 6000 to 8000 new residents a month. This of course does not take into account the number of people leaving, but it does make a pretty firm statement that Las Vegas is still an attractive place to call home.

Unemployment statistics as of March is at 4.2%, with job growth at 3.3%, (the national average is 1.4%). The Nevada Workforce Informer posted the following statement in the March Nevada Economy in Brief;
Nevada has gained nearly 270,000 jobs since March 2002, a period that saw the construction of only one mega-resort in Las Vegas. With the Palazzo, Encore at Wynn Las Vegas, Project CityCenter, Echelon Place, Cosmopolitan and other projects taking shape, the Las Vegas Strip is seeing its first major resort construction cycle since the late 1990’s. These projects will create tens of thousands of permanent jobs once they are completed. Those workers will need new homes, schools and places to shop. Growth of the southern Nevada economy has traditionally been sparked by resort construction, and the biggest construction cycle on record is under way.

2006-08-24T16:32:00.000-07:00

An interesting look at the effect of vertical housing in Las Vegas and its affects our market. This was taken from a report created by Larry Murphy of Sales trac.

While it is critically important to understand that the Las Vegas housing market performed badly in July, it is even more important to understand why. Most analysts point to a variety of negative economic factors. And, in large measure, they are right. But, the impact of vertical construction on housing sales, prices and especially inventory in Las Vegas -- and Nevada -- appears to be consistently underestimated. Almost unnoticed on the canvas of the Las Vegas housing picture are nearly 38,000 high and mid-rise homes in various stages of development. They paint a very different portrait of every aspect of the market-- sales, prices, and -- again -- especially inventory. Indeed, in large measure, the trend to vertical is a powerful contributor to a number of the negative changes occurring in the market that have been widely -- and sometimes incorrectly ---- publicized. Certainly the recent notation that Nevada ranked sixth highest in the second quarter's national housing sales slump would be part of that publicity. Virtually every story about that subject in the national media this month correctly interpreted negative economic conditions. However, virtually all of those stories failed to mention that Las Vegas is also undergoing a dramatic transition in housing development. As of July 1, 5,058 vertical units had closed escrow. Another 11,734 were under construction (of which 90%+ are in escrow). Still another 11,620 are actively being sold. And, 19,326 -- a number which grows almost daily -- are being actively pursued.
WHY PRICES CONTINUE TO RISE
The most easily understood impact of the Vertical "trend" is in the price of new homes. While July new home prices plummeted 11.3% to $299,152, they are still 3.2% above last July and ahead 11.3% for the year. The impact of 282 vertical sales -- generally at much higher per square foot prices than single family -- helped keep the median price of new homes up. Not surprisingly, as the cost of land becomes more and more expensive, resale prices have continued to rise. Indeed, in July resale prices reached an all-time high of $289,000 -- a 3.2% increase over last July and 7.1% ahead year-to-date.
WHY SALES APPEAR TO BE DECLINING
There is no question that economic conditions have impacted sales of both new and resale homes. But, sales of both new single family and resale homes are also being siphoned off by vertical construction. The problem is that these sales are neither being shown as closed escrows or, in Wall Street terminology, as new orders. As of right now, there may be as many as 14,000 such sales. Why don't we know about them? 1. Because it takes from 2-4 years to build a high rise and anywhere from 10 months to 2 years to build a mid-rise. 2. And, as of right now, no one is actually measuring these sales, although that may change within the next few months. The number of resales has remained relatively constant, declining 35.1% from last July to 3,400 -- but dipping only 16.7% for the year thus far. But, the number of new homes closed in July fell to a 30 month low -- the first time new home sales have been below 2,000 since January 2004. July over July sales dropped 41%, to 1,808, bringing the total for the year into negative territory (.3%) for the first time. In part, that is certainly a result of economic conditions in the market. The conflict in the Middle East may have put some buyers off. But, what is being completely overlooked is the impact of the second home/investment buyer. NAR estimates that 40% of all US homes purchased last year were second and/or investment homes. Our own research over the last decade shows one in four to one in five NEW homes purchased in Las Vegas were second and/or investment homes, reaching a peak in the second quarter of 2004 (38%). Last year, however, the market saw only 4% second and/or investment home activity in the "new home" sector here. The first half of the year showed scant improvement to 8%. In other words, virtually that entire portion of the market is economically challenged and/or being siphoned off to vertical construction -- particularly over the last 12-18 months. Interestingly, the only study by a local firm on vertical buyers (conducted in 2005) showed nearly 37% of the purchasers were locals (i.e., Las Vegas buyers).
HOW THIS AFFECTS INVENTORY
Beyond the standard economic theories, the Vertical "siphoning" effect increases inventory in two ways: 1. Those who are purchasing vertical as a primary residence now have a home to sell. Inventory increases. 2. Those who purchase vertical product as an investment put units back on the market almost immediately after they close escrow. Inventory increases. That last statement includes both condo-tels and purely residential product. The number of new home subdivisions reached an all-time record high of 515 in July. At the same time, the number of new home permits (down 41% July over July and 13.3% for the year) are decreasing. Market conditions are just now beginning to slow inventory growth in the new home sector EXCEPT for vertical. The number of resale homes in inventory has been bouncing around the 20,000 level for several months, reaching a record 20,609 in July. But, no matter how you look at it, Vertical will continue to expand inventory in the short run.
THE BOTTOM LINE
Let us be very clear here. We are NOT saying that the trend to Vertical Construction is the only reason this market is experiencing difficulty. But, beyond the standard economic explanations, one key to understanding July's statistics is that -- unlike other cities -- Las Vegas is in a major transition to vertical construction. Whether that transition takes a decade or two decades is immaterial. The impact of that transition is being felt now. From the average sale per subdivision (3.51, the lowest in the six years) to a major increase in the number of units in final map (+34% this year), vertical is impacting virtually every facet of the Las Vegas market. And, because Las Vegas accounts for 71% of the population of the state of Nevada, vertical here impacts statistics for the State as well.

Respectfully submitted,Larry Murphy Steve Bottfeld SalesTraq Marketing Solutions

2006-08-10T11:23:00.000-07:00

The Fed Finally Takes a Break

The federal reserve finally has stopped raising rates, leaving the short term interest rate at 5.25%. About time, considering the fact that they've increased it 17 straight times. There has been a definite correlation between higher rates and lower sales in my opinion. Hopefully people interested in buying homes will see this as a good sign and start getting serious about purchasing before the end of the year. The latest rates I've been seeing are around 6.5%, down a bit from the 7's we were starting to get into.

2006-08-07T14:46:00.000-07:00

The Las Vegas and Henderson Real Estate Market is an excellent opportunity for investors again.
The Las Vegas & Henderson resale home market has some of the highest inventory totals we've seen in a while and the builders are offering everything but their first born to get realtors to bring clients into their subs. To sellers, this news is about as much fun as Fiberglass underwear, but it's great news to investors. Sellers are willing to pay closing costs, buy discount points for buyers, not to mention the fact that dropping the list price is just expected now. We are even seeing buyers having the ability to bargain with builders...that was about as likely to happen a couple years ago as walking unharmed through a cage of rabid rottweillers smothered in meat sauce. I mean one builder is actually offering a free swimming pool with purchase.

This isn't the buy and flip investment of 03 and 04 though...nooo you have to actually commit to the investment for longer than 10 minutes before cashing in...ya I know what a buncha #%$#!!!
This is the old scenario of putting a tenant in to cover all or most of your mortgage, allow the market to continue to create equity, and then in a couple of years either pull the equity to buy more investment property, 1031 into something commercial, or just sell it outright when the winds start blowing from the sellers side of the campfire...

There are always things to be aware of though, make sure the HOA you are buying in allows for rentals in the complex. How many rentals are currently in the complex, what are the comparables renting for, how much work will it need, and most importantly are you going to do the property management or have someone else handle that aspect.