Las Vegas real estate market faces gloomy future, panelists say
VEGAS INC coverage
A panel of real estate analysts has offered another grim outlook of the Las Vegas Valley residential real estate market, which is proving attractive to cash-rich investors and home buyers who had been priced out of the market for years.
Panel members said housing prices could return to 2002-03 levels within a decade, but only if the market would begin steadily producing an annual appreciation rate of 3 percent. Meanwhile, current sales volume for residential units is being driven by cash-rich investors snapping up homes, 80 percent of which are vacant.
Seventy-five percent of all residential resales are distressed, or in some state of foreclosure. Fifty percent of those homes are bank-owned.
“The distressed properties define the market today,” said housing analyst Larry Murphy of Las Vegas-based SalesTraq, who predicted the market would continue “bouncing along bottom several more years.”
Murphy joined Realtor Devin Reiss of Coldwell Bank Premier Realty and Nasser Daneshvary, director of UNLV’s Lied Institute for Real Estate Studies, to discuss residential market trends during a panel discussion sponsored by VEGAS INC. A group of 40 Realtors and business executives attended the breakfast gathering Friday at P.J. Clarke's at The Forum Shops at Caesars Palace.
The numbers remain stunning for even the most experienced market watchers: 5,500 new homes were sold in the region last year, for instance, compared with 36,000 new units five years ago at the height of the housing bubble. The median price for a new home hovers at $200,000, down from about $320,000 in 2006. The median price of a resold home sits at $100,000, down from about $280,000. Four years earlier, both new and used homes hovered around the $200,000 mark.
“We’re seeing folks who were priced out (of the market) now priced in,” Reiss noted.
Despite tight mortgage markets, some potential buyers are arranging financing, although the money comes with caveats. A significant percentage of foreclosed homes require repairs before financing can be arranged. Assessors, many of whom since have been criticized for questionable practices during the boom years, are reluctant to value homes at desired levels. Potential buyers plagued by credit troubles often fail to meet lending requirements, while demands for down payments sometimes approaching 50 percent of the purchase price of a unit have further thinned the market of potential buyers.
Yet, it’s those cash-rich investors — domestic and foreign — who continue to drive sales of about 4,000 units per month, Murphy noted. “Sales velocity is tremendous ... cutting through toxic inventory ... (amid a) continued depression in prices.”
Meantime, an all-too-familiar dilemma continues for a significant percentage of the region’s population, with many pondering whether to continue to pay their mortgages or simply walk away from homes on which they owe more than the units are worth. An estimated 100,000 homes have been foreclosed upon within Southern Nevada during the past four years. This year has experienced a slight decline in the foreclosure rate, with lenders taking action on 20,000 homes.
“Somebody in this room has asked ... ‘Should I sit tight and do nothing or should I do something?’ ” Murphy said. “A lot of people are saying this is not a moral decision. This is a business decision.”
Days before President Barack Obama used a Las Vegas neighborhood to illustrate the need for a new program providing aid to homeowners who are underwater in their mortgages, the panel members agreed Obama’s previous mortgage relief program failed to grasp the depth of the local housing market meltdown and provided little help to tens of thousands of homeowners. Republican presidential front-runner Mitt Romney has spoken in recent days of simply letting the marketplace resolve the problem.
“This is a complex problem, and it can’t be solved with sound bites or a cute headline,” Murphy noted.
Daneshvary said that what has been largely missing, particularly when it comes to the news media’s coverage of the issue, is an in-depth analysis of what caused the housing collapse — readily available mortgages to buyers who lacked the necessary income, inflated home assessments, record low interest rates, Realtors and mortgage brokers who drove sales simply to earn commissions, homebuyers who agreed to loans they could not afford, lenders who repackaged those loans into collateralized debt obligations that were overvalued by the major credit ratings agencies and then sold to foreign investors, who assumed record financial losses, driving much of the world financial crisis and the nearly four-year recession.
Nonetheless, Reiss, a true salesman, offered a pitch when asked what he would say to a residential real estate investor with lots of cash: “Get in my car. I have a place to show you.”