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November 22, 2009

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‘More pain to come in this Vegas land market’

Values plummeting with no end in sight

By Brian Wargo (contact)

Sunday, March 1, 2009 | 2 a.m.

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Some Las Vegas residential land has no underlying value, and it’s only going to get worse, one land expert says.

The slowdown in home construction that saw builders close on 284 homes in January and fewer than 10,000 in 2008 is depressing the market to the point some residential land in essence has no value once improvements are excluded, says Craig Cherney, director of Western operations of Philadelphia-based American Land Fund, a private equity land acquisition group that buys raw land and gets zoning and other government approvals.

Cherney is seeing finished residential lots sell for $25,000, which is a 20 percent to 30 percent discount of the underlying land improvement costs. That means finished lots are trading at a discount and the underlying land at many nonprime locations for residential development has virtually no value in today’s distressed market, Cherney says.

“Until the valley works off the immense overhand of foreclosures of resale properties, I see no reason why residential land demand would improve or otherwise increase in value,” Cherney says.

In addition, the large public homebuilders only add to the problem with their new-home inventory, which must be discounted and priced to levels that can compete with foreclosures, says Cherney, who calls it the perfect storm.

“If you’re not in the marketplace every day, it may be tempting to believe that this is only a temporary problem,” Cherney says. “To the contrary, the land market is far from finished with respect to wringing out the excessive speculation and greed that put us into this situation to begin with.”

Cherney says he wouldn’t be surprised by another 50 percent decline from current market values. Declines of that magnitude are happening in Phoenix, where finished lots are trading for as little as as $11,000 — less than half the price in the Las Vegas Valley.

“The last I checked the median sales prices of homes in both Phoenix and Las Vegas were very similar in the mid-$150,000 price range. If houses are more or less selling for the same amount in both markets, why should Vegas finished lots be priced at twice or more of the values trading in Phoenix?” Cherney says. “The answer: They shouldn’t be.

“There is more pain to come in this Vegas land market. The fundamentals of supply and demand are alive and well and will ensure further declines into 2009. This washout is far from over.”

Most land loans coming due relate to inflated transactions that occurred from 2005 to 2007. Any equity that had previously existed in these land assets has been wiped out compared with today’s drastically reduced prices, he says.

A version of this story appeared in this week’s In Business Las Vegas, a sister publication of the Las Vegas Sun.

Discussion: 16 comments so far…

  1. By jfnance32
    3/1/09 at 6:50 a.m.
    Suggest removal

    Land and housing/office prices will continue to fall until employement and business growth returns.

    We are not done with this current cycle of layoffs and falling revenues.

    It will continue until at least fall 2010.

    After that prices will finally stabilize.

    But there is extreme danger ahead.

    When all these Obama massive spending Fed. bonds flood the market then interest rates will start to tick up at a quick pace. Eventually, the $1-$2 trillion deficits will trip a tipping point in the bond market and the Feds will print money at extreme pace because a significant percentage of the bonds will not be purchased.

    We will say hello again to the Carter days of stagflation and to days when housing mortgages were at around 15%.

  2. By homer
    3/1/09 at 8:59 a.m.
    Suggest removal

    jfnance,Your points are valid, but lets not forget what eight years of no oversight,irresponsible spending,followed by denials that the economy was failing by Bush. Will Obama's plan work? Who knows. One thing is certain somebody had to do something and this is a world depression not just America's. Chris Cox, the SEC chairman looked the other way as the people who were in charge looted Americas markets,banks,insurance companies, and corporations.

  3. By Babyboomer
    3/1/09 at 9:13 a.m.
    Suggest removal

    Homer is right...something had to be done.The dust hasn't settled yet...so it's hard to see through to the other side...but its there.

  4. By lasvegas4us
    3/1/09 at 12:22 p.m.
    Suggest removal

    I am amazed that no one discusses the root cause of the deepening foreclosure crises in Las Vegas which is marketing these foreclosed properties. The way that these foreclosed properties are marketed in Las Vegas
    I have discussed these problems in few articles two of which are:
    Las Vegas foreclosure (REO) agent who never answered my offer on a Las Vegas foreclosed home for sale he listed
    and
    What will happen to Las Vegas homes and condos for sale pricing?
    I have discussed in the above articles that the problems with marketing foreclosed properties in Las Vegas hurts everyone as the real estate prices in Las Vegas will not stop falling until banks make it easy for the public to buy their properties. What is going on in the current Las Vegas real estate market is just the opposite.
    While it is estimated that 150,000 real estate agent nationwide are qualified to handle foreclosure listings and at least a couple of thousands of them are my fellow Las Vegas Realtors, only less than 6,000 Realtors have sold more than 1.7 million foreclosed homes and condominiums nationally.
    The same small number of REO agents in Las Vegas with thousands of listings can legally sell their own listings, (dual agency) and everyone has put up a web-site for their own listings. They make twice the money on a deal while representing no one and it is not in their interest to cooperate with buyers agents and they don't.
    If you want to motivate a few REO agents in Las Vegas to market their listings properly
    OUTLAW DUAL AGENCY IN NEVADA NOW. AT LEAST FOR THE FORECLOSED PROPERTIES, ACTUALLY OUTLAW DUAL AGENCY BY THE SAME BROKER.
    Doing so doesn't cost a penny
    Masoud Saberzadeh at www.lasvegas4us.com

  5. By getalife
    3/1/09 at 3:11 p.m.
    Suggest removal

    Funny how nobody was mad at Bush when prices were going through the roof.

    I get a feeling all you greedy pinheads lost your a$$eS on stupid come-bets and now just want to be pissed at someone.

    Get pissed at Obama he's sinking our country faster than an iceberg took out the Titanic.

  6. By spartacus84
    3/1/09 at 6:48 p.m.
    Suggest removal

    Obama didn't create this mess, but he is trying to do something about it. Bush, on the other hand, was too preoccupied invading a country for WMDs that were never found at the steep price of American lives and money. Want to blame someone? Blame your bank CEO, your credit card company and the real estate business to start. Many got caught in the "flip this house" craze that has once again led to ghost towns in the West.

  7. By azsk8fan
    3/2/09 at 6:40 a.m.
    Suggest removal

    And don't forget the appraisers who had to come up with bogus values so people could get the bank to give them 400,000 on a house that was really only worth about 250,000 - they ALL had a hand in creating this mass chaos -

  8. By laniac
    3/2/09 at 8:54 a.m.
    Suggest removal

    wow - let's see who gets the blame

    1) Idiot homebuyers who have no idea how a mortgage works, or what the terms ARM or "neg am" mean

    2) Anyone who believes the values of houses, stocks, tulips, or dot com stocks can only appreciate exponentially regardless of their underlying worth

    3) Any lender who would write a loan with no money down and no income verification

    4) All real eastate agents who fueled this mess to line their pockets

    5) appraisers

    6) Any financial insitution that would buy these loans without understanding the risks involved

  9. By jfnance32
    3/2/09 at 9:12 a.m.
    Suggest removal

    I think you have to add Bush, Clinton, almost all major Democratic House and Senate leaders, most of the Republican House and Senate leaders who pressured financial lending institutions to weaken their lending standards so that minorities can own more homes.

    You also have to add the mortgagees to that list.

    Some were lying about their income.

    Some were lying about where their down payment funds came from.

  10. By californiagrl
    3/2/09 at 1:37 p.m.
    Suggest removal

    let land values fall, most vegas employees make minimum wage or just slightly above it, no person should have to compete with corporate america for land to own a home, in other words, the casinos jacked up land prices so high most people could not afford a home much less rent. this was bound to happen, law of mathmatics! no one on this planet should compete for land with a large corporation, perhaps some lied, but most were taken advantage of by realtors/lawyers/and mortgage lenders. housing prices increased while wages did not! and now they want us to lend them bailout money, shameless hustlers, if they don't have money they need to leave, Vegas used to be such a nice town.

  11. By DevalXVI
    3/2/09 at 2:06 p.m.
    Suggest removal

    Brave new world. The way we knew life in America will never be again. More austere, less grandiose. It may end up being a better life in the long run.

  12. By OhSee
    3/2/09 at 4:58 p.m.
    Suggest removal

    http://www.lasvegassun.com/news/2009/mar...

  13. By 9ballguy
    3/2/09 at 6:06 p.m.
    Suggest removal

    As a Realtor I have to beg to differ with those who think we are partially at fault for the current housing crisis. My job is to find a home for a client that meets their needs and desires at a price they are willing to pay. I am NOT a financial advisor.

  14. By perry161492
    4/12/09 at 7:17 a.m.
    Suggest removal

    my mortgage lady goes on trial sept.30 7.30 am justice court 11 on mortgage fraud i can only pray the district attorney do there job. i have two way get out of this loan that she made. new bankruptcy bill and her conviction. i offer my check stub to her and my w2 she never accepted it. never saw my loan application until i ask indymac and gmac for a copy. when i did i file complaint to the district attorney. there alot loan out there like this please people get a copy of your application don't look right let the district attorney know

  15. By perry161492
    4/12/09 at 7:20 a.m.
    Suggest removal

    i see a big jump of foreclosure if this bankruptcy bill doesn't passed. if this doesn't passed you will never see this economy in this city get better you will see west coast DETROIT

  16. By formervegas76
    4/12/09 at 7:35 a.m.
    Suggest removal

    realtor, you also have a moral job to make sure someone can afford that home, but then again morals have gone out the window,

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