real estate column:

Investors take advantage of Las Vegas housing deals

By Brian Wargo (contact), In Business reporter

Fri, Oct 2, 2009 (3 a.m.)

Real Estate in Crisis

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Investors in local housing don’t seem to be going away, but analysts are waiting to see if the biggest decline in sales from July to August carries through the rest of the year.

Absentee buyers bought 40.2 percent of all Las Vegas homes in August, the most for any month this decade including the 39.3 percent in November 2005 during the height of the housing boom, according to MDA DataQuick of San Diego.

Investor activity in Las Vegas is slightly less than Phoenix’s, where investors bought 41 percent of the homes in August.

An analysis of public property records shows that 45 percent of the Las Vegas buyers in August used cash, a further reflection of the level of investor interest, the company says.

The high level of investor interest indicates bargains are out there, says Larry Murphy, president of SalesTraq, which tracks the housing market.

Murphy cites U.S. data that show prices have overcorrected and Las Vegas is undervalued compared with the rest of the nation.

The August index shows the annual growth rate of home prices since January 2000 is 0.22 percent in Las Vegas compared with 4.1 percent for the U.S., Murphy says. Since January 1991, the Las Vegas growth rate of home prices is only 1.31 percent compared with 3.8 percent nationally.

Investors are buying homes in Las Vegas to rent them out, analysts say. The low prices allow them to pay the mortgage and insurance and still make a profit.

These more savvy investors differ from speculators who bought homes during the housing boom to flip them. They lost when prices stopped appreciating, analysts say.

“Investors aren’t that dumb,” Murphy says. “When they see that resale homes cost less money than it would cost to duplicate them, it represents value. When you buy it and rent it out and get a positive cash flow, that represents value.”

Murphy says another correction is coming with prices increasing this time barring another national economic crisis. Las Vegas prices will move closer to the national average at some point, he says.

“I think in a year or two, those buying now are going to look like geniuses,” Murphy says.

Andrew LePage, spokesman for MDA DataQuick, says the investor activity in Las Vegas is all about the prices and that even fledging investors understand that it makes sense given what they can get in rental income. The focus remains on foreclosed homes, he says.

“The numbers work for a lot of people, and a fair number of them are making more money than they could elsewhere in the short run,” LePage says.

DataQuick reports 68 percent of the homes and condos sold in August were foreclosures. That was down from nearly 70 percent in July, but up from 63 percent in August 2008, LePage says.

Foreclosure sales peaked in April when they were 74 percent of sales, LePage says.

DataQuick uses public records to track investor sales, which it technically refers to as absentee buyers because at the time of the sale, the property tax bill will be sent to another address, he says.

“It is hard to believe there are too many second home buyers in that number because financing is difficult, and that’s not a trend we are seeing elsewhere,” LePage says.

Investors have had to rely on cash because there are restrictions on how many loans they can get to purchase numerous homes, LePage says.

It remains uncertain how long these investors will keep the properties and whether they will flip them within two years, LePage says.

He says he thought the number of investment purchases would dwindle, but that hasn’t been the case and doesn’t know how many investors are looking to buy.

What could slow the purchases is the lack of foreclosure inventory, which is declining in Las Vegas and elsewhere in the West. That’s why Las Vegas sales fell in August, he says.

The firm reports that sales of new and resale homes and condos fell a record 11.2 percent in August compared with July. Since 1994, the average change in sales from July to August had been a gain of 6 percent, LePage says. Sales in that period have risen 12 of the past 16 years, he adds.

“Buyers are no doubt finding that prices aren’t what they expected and that there are fewer cheap foreclosures on the market,” LePage says. “There was no doubt there were some disappointed people over the summer.”

Those people looking to buy and live in a home were facing multiple offers and lost out to cash buyers, he says.

“With dwindling foreclosures, buyers get discouraged.” LePage says.

LePage says he doesn’t know how big the foreclosure pool will be in the future, but says if it remains small it will dampen sales. The firm reports the 2,860 homes and condos repossessed in August in Clark County were down 22 percent from July and 14 percent from August 2008.

“This is still a lousy economy,” LePage says. “Even as we are climbing out of this recession, there has still been a lot of jobs lost and the strength of the sales has been built on cheap foreclosures. The demand beyond that for those looking for a deal of a lifetime could be pretty limited given the state of the economy and job market.”

Some say that could force more people to look at new homes, but median prices remain well above existing homes.

Brian Wargo covers real estate and law 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: 10 comments so far…

By judgesmales

10/2/09 at 7:12 a.m.

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"I think in a year or two, those buying now are going to look like geniuses," Murphy says.

No, they won't Larry. They'll look like idiots and you know it. We are in a deflationary spiral that can't be stopped, no matter how much the gov't pumps into the economy. The gov't simply doesn't have enough money to counteract the deflation. The Fed is only hoping to bring it in for a reasonably soft landing. Ain't going to happen.

All those supposed bargains aren't going to pencil out so well in 2010 and beyond. Not when the "value" of these $120,000 homes are dragged down to $100,000, and then $90,000 and then $80,000 by all the foreclosures on either side of it. And why would any smart buyer jump into the market for a $100,000 home when he supposes it's going to be $90,000 next month? Might as well wait. All of these current buyers are going to wish they had, even with the $8,000 tax credit.

And that, my friends, is why deflation is just as destructive as inflation. That's a lot of "value" going up to money heaven, never to return.
By azbycx0918

10/2/09 at 10:48 a.m.

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judgesmales,

By your rationale the price of a home in Las Vegas will ultimately go to zero, and then maybe even negative values so that we will have to pay someone to buy our house. Is that right? I mean you said it yourself, we're in a deflationary cycle that can't be stopped.
By fogcity

10/2/09 at 10:50 a.m.

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If there are more available rentals than people with jobs looking for a rental, it seems that rents will have to drop to attract renters. This will affect the return on investment.
By burnemandturnem

10/2/09 at 3:16 p.m.

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Fogcity is right! You need job and population growth to sustain rental levels. We also have stupid low interest rates right now (relative to historical average). When rates go up, where do house prices go? Look out below!
By wizardofOz

10/2/09 at 11 p.m.

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Just. What. WE. Needed.

More. ABSENTEE. BUYERS.

Yep, straight from the story above.

(we spell it: A-B-S-E-N-T-E-E...R-E-N-T-A-L-S)

Pimps. Drug Dealers. Swingers Clubs. OH MY!
Dead Landscaping. Car Body Shops. Car Repair Shops. OH MY!
Midnite Limo Services. Unlicensed Daycare Drops. Cars parked on the Lawn. OH MY!

Aren't we "ABSENTEE" enough...already?
By leftiebob

10/3/09 at 2:54 a.m.

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The unemployment rate of 13.5% is at depression level (defined as over 10%) not recession level. Investors who buy to rent out need to have a market of employed workers. The rental market here is troublesome.
There are magazines available for free with listings of apartments for rent. These days they are the size of a small telephone directories.
I've heard that Las Vegas is "emptying out".
An absentee owner has the two condo units next to me. Six months ago both tenants moved out. They remain vacant. I've noticed one showing by the landlord.
So you come into town and buy cheap, maybe invest a smidgen to fix it up, and then pay someone to try to rent it out and if it sits vacant all you've done is spent money with no return and perhaps seen the value depreciate even further.
By jsayler

10/3/09 at 6:15 p.m.

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Homes are meant to be a lifetime investment for families. They should never have been abused by a system that ran the costs up so far as to let middle class people think they were sitting on gold mines and they had to sell so they could take advantage and buy up (bigger and more luxurious)--like everybody else.

The whole system lacked fundamental logic but the noise of truth was overpowered by those all-powerful bankers and agents who kept saying we could have it all and more.

They lied!
By KalihiValleyBoy

10/4/09 at 8:52 p.m.

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I just put in an offer for a 3 bdr condo under $50,000. It's currently being rented and would have a positive cash flow.Even though it might not appreciate in the near future the positive cash flow will be a lot more than the interest I receive from any bank. Crossing my fingers so I can come back to Vegas to sign papers (and write off my trip again). I am by no means rich. My yard service grossed less than 20k last year.
As far as vacancies, I use a property mgmt company. In any economy there is always someone making lemonade.I chose to make lemonade instead of sucking on lemon and have a sour face.
BTW while in Vegas I hit a 4 team parlay week 3. Went with all the News. New Eng,New Orleans, and both New Yorks.Viva Las Vegas!
By bam1969

10/4/09 at 11 p.m.

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Larry Murphy, the same guy who in the spring of 2007 announced to a packed house of Realtors that the market had "officially hit bottom" and got a standing ovation. If anybody listened to him back then they've lost a ton of money by now. This guy is a joke and lacks any credibilty. Why anybody takes him seriously is a mystery.
By VegasWholesalehouses

11/2/09 at 12:21 p.m.

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Investors help the real estate markets...if they didn't come in and buy these homes, they would continue to depreciate. When homes sit vacant for long periods of time, taxes usually are not paid and the community as a whole suffers (schools, fire, police, county employees). Las Vegas needs more investors to get the housing demand back up so the prices start coming back up.

This market is definitely one of the most unique I have ever been a part of. As an investor, I have a certain niche that I stick too...but with the prices dropping as fast as they are, even I have had to slow down and evaluate every single deal more thoroughly. Like "leftiebob" mentioned, people are leaving the city to find jobs elsewhere and "investors" are getting stuck with properties they cannot rent.

Real Estate is not as glamorous as the author of this article is making it sound.

my 2 cents.

htt://thelasvegaswholesaler.com