Southern Nevada home sales jump for 12th straight month

Sam Morris

For sale: A home on Vegas Valley Drive is shown May 3.

By Brian Wargo (contact), In Business reporter

Fri, May 8, 2009 (2 a.m.)

Existing-home sales in March reached their highest level since August 2006, raising the question of how close the Las Vegas housing market is to recovery.

March marked the 12th consecutive month in which existing-homes sales increased on a year-over-year comparison. The 3,626 sales were 86 percent higher than the 1,954 recorded in March 2008, according to SalesTraq.

Consulting firm Applied Analysis reported the number of homes waiting to close at the end of last month spiked to 10,976. Inventory declined by more than 2,600 units in five weeks to nearly 18,000 in April — a 22 percent decline from April 2008.

First-time homebuyers and investors are driving the sales, according to Realtors and analysts.

“These are the two groups you expect to be buying to get the market back on track,” said Ken Perlman, vice president of the Sullivan Group Real Estate Advisors. “It is definitely a positive step that first-time homebuyers are buying these units in what is likely to be a first step on the road to recovery. There are some positive signs, but I don’t know that we are ready to declare a recovery.”

Despite the upswing in sales, many remain cautious. Investors will pull out once foreclosure inventory dwindles and prices rise, and that will shut out some first-time buyers as well. Many potential buyers are worried about losing their jobs. Others who want to buy are having difficulty selling their higher-priced homes and obtaining financing to buy another one.

Prices need to rise for banks to be more comfortable lending, and with a large number of foreclosures in the pipeline, prices may keep falling, analysts said.

“I prefer to say it is a sign things stopped going down, and the market is trying to pull itself up,” said Dennis Smith, president of Home Builders Research. “But it is going to be a longer recovery than a shorter recovery because prices have to show signs of stabilizing or increasing.”

Investors enter a market when they think it is at or close to the bottom, Smith said.

Steve Bottfeld, executive vice president of Marketing Solutions, said that when prices start to rise, buyers will jump in because they don’t want to miss an opportunity. But the credit crunch is limiting sales for those who aren’t first-time buyers, which would increase sales even more.

“We have yet to begin the recovery,” Bottfeld said. “The question is not whether we are on the bottom, but how long are we going to stay on the bottom?”

Many first-time buyers were priced out during the housing boom when prices rose rapidly. But the median price has fallen 53 percent since June 2006 to $134,900 in March, and doors have opened for many people who buy homes, build equity and move up to a larger home, Perlman said.

“They are replenishing the buyers we haven’t had in the marketplace in a long time because they couldn’t afford to get in the market,” Perlman said.

Las Vegas hasn’t seen this level of affordability since 2001, and low interest rates and a recently approved $8,000 tax credit for first-time buyers are giving people impetus to buy.

San Diego-based DataQuick reports Federal Housing Administration loans — a popular form of financing with first-time buyers with a 3.5 percent down payment, accounted for 49 percent of March’s purchases. Absentee buyers, who are primarily investors but may include second-home buyers, accounted for 36 percent of March’s sales.

Buyers are focusing on foreclosed homes, which accounted for 66 percent of the closings in March with a median closing price of $127,500.

First-time buyers are realizing they can make house payments that are cheaper than rent, said Linda Reinberger, former president of the Greater Las Vegas Association of Realtors.

With prices down more than half, investors are invading the market because for the first time since 2000, they can “cash flow” homes and condos, Reinberger said. That means they can charge more in rent than they pay a month in mortgage, insurance and taxes.

It’s gotten to the point where there are four to five offers on some properties with the winning bid going to those who go over the list price and have the best credit, Reinberger said. Six months ago buyers were asking lenders of foreclosed properties to pay closing costs, but they may lose out on the bid if they do that now, she said.

The investors are coming from California, Europe and Canada. Because of the difficulty in getting financing, many are buying homes with cash taken out of the stock market, analysts said.

“They are thinking that if they have something in the stock market, it might disappear,” said Robyn Yates, broker-owner of Windermere Prestige Properties. “In real estate, you will always have a piece of property. It won’t disappear.”

Prospective buyers are facing obstacles entering the market. Many are underwater on their current homes and have trouble finding buyers for the prices they are asking. Getting conventional loans remains difficult even for those with good credit and in many cases they need a 20 percent down payment.

Lenders are reluctant to loan money to those who already own a home in Las Vegas, Yates said.

“The lenders are worried that people will walk away from their first house and buy a less expensive one,” Yates said. “People have been doing that, and banks have been catching on.”

Many are expecting a spike in foreclosures this summer will add even more inventory that will be attractive to first-time buyers and investors. But once that inventory dwindles and prices rise, investors will stop buying and first-time buyers will be priced out again.

Investors who pay $50,000 in cash for a condo are getting a 9 percent return on their money. Those who put down 20 percent on the same condo are getting an 18 percent return, Yates said.

Mark Stark, CEO of Prudential Americana Group, said 37 percent of his transactions are cash. Normally, 7 percent to 10 percent of deals are cash, he said.

Yates and other analysts called the investors savvy people who are interested in holding the properties long term, earning the rental income and then selling when it appreciates. These aren’t people who are coming in to flip properties as happened during the housing boom, and got stuck with them.

“These aren’t craps dealers on the Strip,” Yates said.

Bottfeld said there are three classes of investors in Las Vegas today. There are the investor groups from places such as California that are buying 20 to 50 homes at a time. Foreign investors are a second group and mom-and-pop investors are the third, he said.

Despite the boost in the existing-home market, new-home sales remain weak. There were about 3,200 fewer closings in the new-home market compared to existing homes in March. The reason is new-home price are about $85,000 higher than existing homes. Builders are making their homes more affordable, but can’t compete against foreclosures.

Discussion: 6 comments so far…

By judgesmales

5/8/09 at 3:49 a.m.

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Disregard any Brian Wargo story that quotes compromised, non-credible sources such as Steve Bottfeld, a "housing consultant" who hasn't gotten anything right about the housing bubble from the start. Including his denial of the bubble in the first place.
By markp

5/10/09 at 4:51 a.m.

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i dont believe the bottom is near, it is still a long way off... even when the bottom hits prices wont jump they will stay static for a few years
By future_resident

5/11/09 at 8:33 a.m.

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I agree with this story. We're trying to relocate to Las Vegas, yet every house we make an offer on is counter offered and then sold to another bidder (for sometimes higher than the original price)

This is proving to be frustrating, we don't want one of those little matchbox houses that you can pick up for $100,000 or less. We're looking in desirable family neighborhoods (those with not a lot of foreclosures/ruined homes) and even though we're coming in with almost all cash, we keep getting outbid.

Our realtor has told us to be patient, that we'll find a home, but it IS discouraging, just when we get our hopes up and find the place that we think we can get, it gets snatched away or already has several offers on it.

We're determined to move to Las Vegas, the time is right, but we thought the homebuying process (the search and buy) would be a lot easier and quicker.

Bottom line is that the more desirable/bigger homes in nice neighborhoods are being bought first leaving all the crappy small/damaged stuff out there by the thousands. I'd rather rent a year and wait to get something better than those types of places.

We just might have to.
By Nick

5/11/09 at 1:32 p.m.

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Future Resident: Don't give up, you will get a great deal. I bought a few weeks ago too. Like you, I had a lot of competition. I paid cash and that helps but I had to make offers on several places before I got one to stick.

Good Luck.
By its2hot

5/11/09 at 8:06 p.m.

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Sales in Las Vegas will only get better, be patience because they will only get better. Don't buy yet. If you're not getting a 1-percent or better on your investment in return don't buy. Buy when you will make money, not the agent, banker or some other scam that lied to you in the first place. This includes developers, owners, and all the other people that sucked us dry.

Real Estate Agents along with their brokers are in this only for the money. They will take you to the cleaners if you allow them do to so. Make your offer and stick to it, if the agent tells you you're being outbid, sobeit. They're driving up the price to increase their commission...

Keep in mind, it is these very people that help create the financial problem America is facing in the first place. They are liars and work solely on commission sales so they have no desire to lower the price to what the actual vale of the home is worth. They will feed you a line to entice you to buy, it is a line. Think of this as your greatest investment, they are not looking out for you, themselves only.

Do not buy a tract house for more than 65.00 a square foot. Developers, RE agents, and appraisals will lie, cheat, and steal your money to increase the commission. They're crooks just like Wall Street, Bankers, and Politicians.

I speak from experience, I built my various homes and I do buy homes for rental and one to live in. During this economic crisis don't fall preys to the scammers who work on retail not cost. Who cares are the neighboring property that sold, it is your money. Appraisals and appraisers are scammers; they're in this for the money, not you the consumer. For years I've seen stupid, we're not stupid, don't you be stupid.
By Bettinac

5/12/09 at 9:40 a.m.

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The real truth is that lenders nowadays do not give loans that easy. Whoever tells you that appraisers, mortgage brokers and realtors are in only for the commission, regardless of the client is not absoultely true. Right now closing a loan takes a lot of more work than 5 years ago, lots of restrictions and inquiries to be met. Appraisers cannot increase the value just because, they have to document their values very carefully. Nobody can pressure you to offer more for a house because it might not appraised after all.