Home prices key to economic turnaround, economist says

By Brian Wargo (contact), In Business reporter

Fri, Mar 6, 2009 (2 a.m.)

Real Estate in Crisis

Report: 58.2 percent of Las Vegas homes have negative equity (3-4-2009)
‘More pain to come in this Vegas land market’ (3-1-2009)
New-home sales plummet again with no signs of improvement (2-27-2009)
Las Vegas counts on Obama housing rescue (2-27-2009)
Report: Las Vegas home prices at July 2003 levels (2-24-2009)
Economist: Vegas housing market to recover in 2010 (2-23-2009)
How Obama's mortgage relief plan pencils out (2-21-2009)

The steep drop in home prices and newly approved $8,000 tax credit for first-time home buyers will help pave the way for a recovery of the Las Vegas housing market in 2010, according to the National Association of Realtors’ chief economist.

Lawrence Yun says he expects foreclosures will continue at their elevated level in 2009, but is optimistic that inventory will be whittled down because of the increase in existing-home sales in Las Vegas over the past several months. Only Nevada, California and Arizona have seen big jumps in sales.

In 2008 Las Vegas had 38 percent more sales compared with 2007, Yun says.

“You have gone through some very tough times, but a further decline, if any, would be minimal,” Yun says of median prices that have fallen $138,000 in the past two years to $150,000 in January. “Given $150,000 is very affordable for such a dynamic metropolitan region, once the economy recovers, you are in good shape. But it is just getting over the short term.”

During an interview, Yun says he sees Las Vegas prices stabilizing in the second half of the year and by the fourth quarter they could be higher than at the end of 2008, when the median price was $157,250, according to SalesTraq.

Yun says he wouldn’t be surprised if prices appreciate more than 5 percent in 2010, but adds one caveat to his prediction — although the long-term outlook for the housing market looks good, it is hard to make short-term forecasts. If there aren’t any buyers for the foreclosures that will be coming online, prices could easily fall another 10 to 15 percent, Yun says.

“But I have been hearing more examples of where foreclosure properties are getting multiple bids,” Yun says. “If they are discounted heavily or buyers are fighting over them, I think we are getting close to the bottom.”

If local and national prices continue to decline by another 10 percent, that will further weaken the balance sheets of banks and delay the recovery of the economy. The housing market troubles have been a driving force behind the economic woes and financial meltdown, he says.

“Home prices are key to the economy turning around,” says Yun, who adds he fears any further drops and their effect.

If that happens, he says, Americans won’t have the will to spend another $700 billion on a bank bailout and that could lead to a deeper recession.

Yun, who appeared Monday at the National Association of Realtors’ Rocky Mountain Regional Conference at Green Valley Ranch Resort, says he thinks the tax credit will be a “major influence” in getting buyers off the fence because first-time buyers make up 40 percent of a market during a year. The previous $7,500 tax credit wasn’t as much of an incentive to buy because it had to be repaid, he says.

“It will also open up the trade-up buying,” Yun says of the new tax credit. “Many are not trading up because they cannot sell their homes. There will be some domino impact.”

Homes sales nationwide are where they were 12 to 13 years ago, but the population has grown by 3 million a year since then, Yun says. The tax credit could add about 300,000 buyers: People on the margin where essentially cutting the price by another $8,000 in a market such as Las Vegas will push them to buy, he says. Falling prices caused by foreclosures have sparked sales, he says.

“Areas where we have seen strong turnaround in affordability are the markets that are showing an increase in sales,” Yun says. “The prices have come down here and many of the people who had been priced out during the boom are now realizing they can begin to qualify. It is much more stringent, but those people who can qualify understand the value proposition.”

Yun says it is hoped the economic stimulus plan also boosts the economy, creates jobs and helps stabilize prices.

“The continuing price decline is leading to collateral economic damages, banks are continuing to bleed and the consumer spending has contracted because people have lost value,” Yun says. “We hope this begins to turn the economy around and improve bank balance sheets as well as the housing equity situation, which will improve consumer spending.”

Yun says an increase in the federal loan limits for California from $625,000 to $729,000 should help boost sales in that state and that in turn will give people equity to purchase homes in Las Vegas. The $8,000 tax credit won’t make as much as impact in California because home prices are so much higher there, he says.

As for the foreclosure plan unveiled by the Obama administration, Yun says the biggest concerns he has about it is over fairness of who qualifies for assistance. Despite that, he says it will help lessen foreclosures.

“I think it is a net overall positive in terms of lessening the inventory that reaches the market,” Yun says.

Yun says the concerns over fairness has to do with how people who put nothing down when buying their home are more likely to qualify for foreclosure assistance than someone who put 20 percent down. The reason is the person who put nothing down has a larger loan obligation, he says.

“The fairness issue is those who overstretched themselves rather than buying a starter home are more likely to qualify than those who were more responsible,” Yun says. “It is a complex more hazard issue that is arbitrary.”

Only those who had their loans bought by Fannie Mae and Freddie Mac are eligible for help, Yun says, adding that most people don’t know who has their loan and that includes himself.

“Anytime there is unfairness, it arouses emotions,” Yun says.

The reason for doing that is Fannie Mae and Freddie Mac are government controlled, and it is easier to modify the terms of loans they hold, Yun says. But that can be addressed by giving immunity to mortgage service firms so they don’t have to worry about lawsuits in modifying terms of other loans, he says.

The other policy that could be enacted is using the Federal Reserve to buy mortgage-backed securities to bring down interest rates to help everyone, Yun says.

Despite the program, Yun says there is a concern about the next wave of foreclosures coming from people who can otherwise afford their payment, but will choose to walk away because the value of their homes has fallen well below what they owe. That is a difficult issue for many homeowners to deal with along with the concern of taking a hit on their credit score if they walk away.

“But a lot of people don’t want to look like a fool and continue to make payments when they are underwater,” Yun says. “That’s why it is important for homeowners to see home prices stabilize and turn upward. It could give them light at the end of the tunnel.”

If people are only 10 percent to 20 percent underwater, they are more likely to have hope of a turnaround than if they were 30 percent to 40 percent underwater, Yun says. Those people are more likely to walk away.

Brian Wargo covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at wargo@lasvegassun.com.

Discussion: 16 comments so far…

By odog

3/6/09 at 5:09 a.m.

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Realtors and their accomplices are always trying to blow smoke up our rears. They want to convince us that everything is getting better.

With the steady increase in unemployment, foreclosures will continue to increase at a rate faster than home sales. That along with the declining stock market, home prices will continue to drop.
By MrVincent

3/6/09 at 5:37 a.m.

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Why does the media continue to quote shills for the real estate industry from the NAR?

The article title is correct - home prices are key to recovery. The more they fall, the more people will be able to afford them.
By judgesmales

3/6/09 at 6:05 a.m.

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This article is a journalist embarrassment in so many ways, but let's list a few:

1) It's a one-source story.

2) Yun is such a compromised source -- his trade organization is all about selling homes -- as to be unquoteable by any self-respecting reporter or news organization.

3) You could have at least held Yun's feet to the fire by making his back up his claims with more than "he's optimistic" and "he thinks." Some metrics, please.

4) The story does not take into account the fact that foreclosures/evictions by Fannie and Freddie have been on hiatus for at least three months now, and that has been extended. Where does Yun think that inventory is going to go when the foreclosures resume?

Shall I go on? Just because this clown Yun comes to town for some conference is no reason to rush over and give him and the NAR a free advertisement. The Sun allows itself to be "used" by sources more than any publication I've ever seen.
By gotjobs

3/6/09 at 6:40 a.m.

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NAR has the credibility of car salesmen.
By CactusJack

3/6/09 at 8:02 a.m.

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Housing prices are dependent on the foreclosure supply. Prices are not going up any time soon.

I cannot believe Yun has a shred of credibility. Anyone else tired of all the dishonesty?
By gqbossing

3/6/09 at 9:27 a.m.

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I don't think prices overall are bound for a recovery, but certain types of homes sure are.

I finally just got a contract on a house (1st one I've owned in my name since 2005 when I was priced out), and I lost 4 bidding wars over houses in the past 5 weeks!!!

The first one was listed for $235K, my bid of $245K and paying all closing wasn't enough...

The second one was listed for $207K, my bid of $225K and paying all closing wasn't enough

The third and 4th ones were both listed for $214K, my bids of $235K and paying all closing wasn't enough and was actually told illegally that I needed to bid $250K to have a chance at winning. That's almost $35K over the asking and me paying all closing costs.

Luckily the last one the bank took my offer the same day without letting it sit on the market waiting for a bidding war, but I can assure you good homes with good lots and upgrades are going for well over asking.

The problem I see now is homes with zero lots over the homes sq footage, homes in the north and homes that are destroyed. If you have a well kept home which has a yard/pool you can pretty much bet you can get the Zillow range estimate on it, which wasn't true 6 months ago...
By judgesmales

3/6/09 at 11:01 a.m.

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Congratulations gqbossing, you just got taken to the cleaners. ... Zillow range estimate? Bidding wars with this much inventory? Now that's funny stuff. Comedy gold, I tell ya.

Are your hands bleeding? Because you just caught a falling knife, or you're here to shill for realty. Good luck with that.
By LasVegas2009

3/6/09 at 1:01 p.m.

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gqbossing: I purchased in October and I can tell you this I didnt pay half of what they had listed for It was listed for $171,000 I paid $80,000 anyone paying list or anything near is losing money on the deal. Bedding wars? Are you nuts? Who is having bedding wars in Las Vegas for houses now? You my friend have been played by your realtor. Anyone looking at buying do your homework! Make and offer and if they dont take it walk away from the deal. If someone suggest you make a better offer RUN AWAY! gqbossing you got played by the realtors! www.zillow.com and offer half!!!!
By nightmare

3/6/09 at 1:46 p.m.

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Come on folks. Take it easy on the personal attacks here. Bidding wars (not bedding wars) are not strictly a function of inventory levels. To say that there should not be a bidding war due to high inventory is nonsense.

If I put my house on the auction block starting at $1, then there is definitely going to be a bidding war, even if every other house in my neighborhood is up for sale.

Similarly, the concept that buying something at half its asking price is necessarily a good deal is also jibberish. If I list my house at $1 million, you are not going to be getting a good deal for buying it at $500k.

So lets quit bashing people here when you know virtually nothing about what the real value of the deal is. I too have seen houses go above asking price that I would say were good deals, and I've seen houses that I wouldn't pay one-third of the asking price.
By stevem

3/6/09 at 3:05 p.m.

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As I have said before, "journalism" like this makes me sad to be a Realtor.

This guy and Steve Bottfeld have been saying "We're close to the bottom" every month for EIGHT months now.

And not ONE "journalist" has the stones to ask "Now you have been saying that for 8 months. Why have you been wrong each time you have said that?"

This just shows that NOBODY can predict the bottom or top of the market until it has already passed.

When we get 3 or 4 months in a row of REAL home VALUE increases ( not just sales VOLUME ), we can safely say we have reached the bottom. We won't know that has happened until 4 or 5 months AFTER we hit bottom because it takes at least 3 or 4 weeks AFTER the end of the month for the numbers to really shake out.

What if we ( God forbid ) have a terrorist attack next week and planes can't fly into Vegas for a few days? What if there is some kind of natural disaster? What if MGM lays off a bunch of people?

There are SO many factors that go into the housing market.
By enlatarde

3/7/09 at 12:21 p.m.

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Bedding wars! Like Obama says a real op. exists in turmoil. Now is the time to change your zoning building requirements so undesireable building practices like undersize lots, oversize houses and dense housing without public spaces can be eliminated. I'm obsessed with Nev.and Vegas and so are many people I know. We'd love to live there but don't want it COMPLETELY ruined like L.A. area is. So I'm hoping for you!
By SlumpDog

3/8/09 at 11:53 a.m.

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I'm with enlatarde. LV is real dumpy just outside of the strip and downtown areas. Should be an all out amusement park with rentals and hotels. I always wanted to live in Six Flags. Those that need an isolation box with attached parking have plenty to choose from, and room for parks, too, if they knock down a few houses... I mean might as well knock down a few houses already.
By winorgohome

3/12/09 at 4:53 p.m.

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bidding wars on properties in vegas... i think you could offer the banks whatever you want to pay... i plan on offering way below any asking price... there are over 700,000 properties nationwide fannie mae and other big lenders are holding out of the market... and vegas being #1 or #2 in forclosures tells bankers they need to get rid of toxic assets... if you buy a house now for 150,000 who's to say it won't drop when they release those properties... unemployment is at 10% ... who is coming to vegas again??? americans are on a saving spree... the lower the house you buy in this market the better... less exposure... i'll let everyone know how i do... take care...
By manthonycarr

3/24/09 at 4:35 a.m.

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What part of "sales up 38%" are you missing here? The market in Las Vegas IS near the bottom - but it looks like it may already be there. The way you measure bottom is when sales turn because prices have bottomed out. Watch for your pricing to level (which it looks like it has already.)

Also - real estate drives more of the economy than anything else. It's a proven stat that when a person buys a house, they go out and buy refrigerators, carpeting, furniture, on and on. You don't do that with a car or a bag of groceries. Housing comes with residual purchases.

If you live in LV, you better buy now, because those bidding wars on dumpy properties are what's affordable now. Once the foreclosures are gone and seller-owned properties start arriving on the market, then the bidding war REALLy picks up.

We're already seeing it here in Northern Virginia. If it's nice and priced right it sells for tons more than the foreclosures and only to those with plenty of cash to buy it.
By manthonycarr

3/24/09 at 4:44 a.m.

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Just read more of your comments here.

A: Read zillow.com's value disclaimer -- they allow themselves a 10% margin of error! Come on. FIRE YOUR REALTOR if they try to sell your house witha 10% margin. It ain't gonna work!

B: Wake up and smell the coffee -- a recovery ALWAYS begins in the hardest hit foreclosure markets first. Florida, California, Washington DC, Detroit, Las Vegas -- the sales in all these markets are up in the double digits because the prices have hit the level where a median income person can now buy a median priced home.

The naysayers are going to "embarras" some people into waiting and then they're going to miss out. Look at the data - not your feelings (this isn't Star Wars!) and THEN make your decision.

Prices Leveling Out
Pending Sales Up
Sales Up (38% -- that just kills me!!)
Bidding wars?? Higher than asking price??

What part of bottom do you now see here?

All aboard?
By perry161492

4/12/09 at 7:32 a.m.

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i am joe smo i know all those so call realtor are full of s^^^ more foreclosure are comin on board. if the new bankruptcy bill doesn't passed you see more foreclosure on top of current foreclosure. may god save this city.