Making sense of the complicated Las Vegas housing market can be a bit like assembling a jigsaw puzzle. There are a lot of pieces that fit together, and others await in the box to find their place in the picture.
Still, a panel of six local housing experts gave it a shot Thursday night at the Las Vegas Review-Journal’s 2013 Las Vegas Housing Round Table at the Gold Coast.
At the two-hour event, the experts fielded questions from nearly 200 homeowners, real estate agents and brokers, lenders and new-home builders. Major discussion topics included the rising prices of resale and new homes, the unknown number of bank-owned homes or “shadow inventory,” short sales, programs available to help homeowners and recently enacted state laws that will affect the housing market.
Experts careful in describing recovery
Panelists were cautious when describing the current housing recovery.
Rocky Cochran, 2013 president of the Southern Nevada Home Builders Association and the vice president of construction operations at Pardee Homes, described the market as “optimistically, cautiously improving.”
Dennis Smith, CEO, president and founder of the local firm Home Builders Research, said he doesn’t think the market is in a bubble that will pop suddenly. Still, he said he doesn’t see a “true recovery” because the housing inventory is being manipulated, job growth is struggling at about 2 percent, the current unemployment rate is standing at about 9.5 percent and not enough people are moving to the area.
Marcus Conklin, associate director of the Lied Institute for Real Estate Studies at UNLV, said housing happens in cycles, but this market is different and more complex than it was 20 years ago. Instead of homebuyers competing with other homebuyers, who are building their communities and raising their families, today’s Las Vegas buyers are competing with investors who treat homes as a commodities “like gold, oil or Florida oranges,” he said.
“I’m optimistic,” Conklin said. “Do we have a long way to go? Yes, we do. But we have certainly turned a corner. There are fundamentals in the marketplace that are moving us in the right direction, but we also have to recognize that it is a different market than it was in 2005, it’s a different market than it was in 2000, and it won’t be the market that it was in 1980. It’s different.”
Rising Prices, short inventory
Smith said he “could guarantee” that new-home prices will go up next year given that the price of land has “more than double and almost tripled in some areas of town.” His company has reported that land prices for residential development run about $400,000 an acre, depending on location. That is compared with $150,000 for the same acre this time last year. He said that cost will be reflected in next year’s new-home prices.
Cochran agreed new-home prices are up, but he said he didn’t know how much more they would increase. Smith’s Home Builders Research said the median price of a new home in June was $266,921, a 37 percent gain in the past year. This compared with $338,560 in 2007.
Cochran added that besides rising land costs, the cost of labor and materials have added to new-home prices. Construction workers, the second-largest labor force in the state behind gaming, moved away or entered new industries during the downturn six years ago.
“Some are a little reluctant to return” to Las Vegas because they have not seen a substantial drive in the local housing market, he said.
Dave Tina, 2013 president of the Greater Las Vegas Association of Realtors, said the median price of a resale home is $175,000, compared with $315,000 from 2005 to 2007. GLVAR has reported prices up more than 30 percent in the past year.
“We have tons of room to grow,” he said. “We are more in a stable economy than a bubble economy.”
Longtime Las Vegas real estate broker JC Melvin of Keller Williams Realty Southwest specializes in short sales. He said he thinks the resale market has “hit its sweet spot” and will continue to grow slowly.
Melvin said investors have heated the market by bidding on the few resale homes available. He said for the past two decades until about three years ago, the percentage of cash buyers in the market was 9 percent to 10 percent. Most of those transactions, he said, were made by retirees moving to the area, with only about 4 to 5 percent of them investors.
For the past 12 months, though, the market has had nearly 60 percent cash buyers, many of whom are large corporate hedge fund investors. He said these hedge funds are parking billions of dollars in Las Vegas real estate because they can make a 6 percent to 8 percent return on their money — a much higher return than they would get leaving dollars in the bank.
However, he said, this segment of investor buyers are shrinking.
“I could put a property on the market three months ago and I would have 20 offers within 10 hours, and 12 of those offers would be from investors and hedge funds,” he said. “That is already slowing down. Some of the hedge funds have already packed their bags because the juicy returns (are gone).”
The Shadow Always Knows
Tina compared the “shadow inventory” to a 1930s comic strip called “The Shadow,” which became well known as a crime mystery radio show with the famous line: “The Shadow knows.”
He said the banks are strategically holding back inventory to get the highest prices. But he said he doesn’t think the number of held-back homes is as big as others have stated. He said the number of foreclosed homes has dropped because some people, because of rising prices, have chosen to short sale their homes.
Still, he said the market can expect more foreclosures because people have been living in their houses for years without paying the mortgage.
“Eventually those will be foreclosed,” he said.
Smith said there’s a lot inventory out there.
He said the utility companies report 20,000 to 22,000 homes without power. Realtors have said there are 40,000 empty homes in the valley. Smith said investment companies have told him there will be 70,000 homes that will go to market in the coming years.
“I don’t think they (the banks) will dump them,” he said. “I don’t think they have the staff to do it. They will release them when they are ready.”
Tina said utility service may not be the best way to gauge the number of foreclosures on the market. He said there are 7,500 to 8,000 homes in short-sale escrow that do not have utilities turned on. Also, he said, snowbirds, seniors who live part time in the valley, often shut off utilities to save money.
Short sales: It’s A BIT complicated
Three years ago, short sales made up 40 to 50 percent of the market, GLVAR data show, but today, less than 10 percent of the available homes on the market are short-sale transactions. About 10 percent of the market consists of foreclosures. The remaining 80 percent of the market consists of traditional sales — homeowners selling their homes.
Several readers had questions about the passage of Senate Bill 321 and its “arm’s length” reference, which makes it easier for sellers to stay in their homes. There has been a lot of advertising on television and on billboards touting that this law allows sellers to short sale their home and then buy it back again.
Melvin said it’s true: buyers can buy back their short-sale homes. There is a provision in SB 321 that allows a nonprofit group to buy the home and let the seller rent it for a time, usually three years, and then let the seller buy it back for more than the nonprofit paid for it.
However, he warns, sellers the process is complicated and may not work for everybody.
The nonprofit groups fund the transaction through an investor, and he said some of these may be “less than trustworthy.”
“If it were the banks carrying the paper I would feel a lot more comfortable,” he said.
Michele Johnson, president and CEO of the Financial Guidance Center, said sellers considering this process should exercise “extreme caution.”
“You may be paying rent on that home for three years and end up continuing to be a renter.”
Programs for homeowners
Many event attendees asked about federal, state and lender programs. Many were confused about which ones were still in effect, and what the requirements were.
Johnson’s nonprofit organization, formerly known as the Consumer Credit Counseling Service, provides resources and counseling to Nevada homeowners.
She said Nevada’s hardest-hit fund has been on hiatus since December, and what kind of provisions it will offer is unknown.
She said there is a lot of free assistance out there for homeowners. The Financial Guidance Center is an administrator for the Home Again program, which is funded from money the state’s attorney general’s office received through the national mortgage settlement. By calling the center at 855-457-4638, homeowners can be directed to the agencies that may be able to help them.
“It’s the best-kept secret,” she said. “All of this can be done at no cost to the homeowner.”
Melvin called Home Again a “great resource” since much of the information online is outdated, and programs have changed or ended since the beginning of the housing crisis.
State Laws Affecting Homeowners
Conklin ran down a list of recent laws passed by the Nevada Legislature that will affect homeowners. Overall, he and other speakers said, it will take a long time for the laws, which go into effect this summer and fall, to affect the market. Some of the bills make it easier for banks to foreclose and return the homes to the market, clearing the shadow inventory.
Smith said in the scheme of things “Nevada is a bug on the windshield” to big banks, which are still dealing with a nationwide mortgage mess.
“It will take some time for the banks to figure it out,” he said.
Good time to buy now?
Tina and Johnson said it may be a good time to buy a new or resale home, depending on why you are buying it. Both pointed to historically low interest rates on mortgages, which are hovering around 4.5 percent.
“If a buyer is buying a home and not an investment it’s a good time to buy,” Tina said. “If you are a flipper, I might say, ‘Uh-oh, be careful.’ ”
“Is it a good time to buy a new home in Las Vegas? Yeah, because prices are going to go up next year,” Smith said.