A quiet boom in the housing market

With record unemployment, forecasts of fiscal doom from the political class and the ridicule of think tanks and pundits everywhere, you'd think Las Vegas would be the last place anyone would put his money.

But if this valley's economy is going the way of Detroit's, why are thousands of investors rushing into town to bet some of their fortunes on a recovery?

Whatever action is lacking in Strip casinos has shifted to the housing market, with cash buyers snapping up hundreds of single-family homes every week.

In many ways, the local real estate scene is every bit as frenzied as it was in 2003 and 2004, with buyers engaged in bidding wars, properties going into escrow a day or two after being listed, and Realtors and title companies emptying voice mail boxes hourly. In October, there were more than 3,500 home sales, a 5.3 percent increase from September and nearly triple the activity of just 21/2 years ago.

The differences between today and five years ago, however, are sobering. Sellers aren't getting rich, and buyers aren't commando "flippers" expecting rapid appreciation. Two-thirds of the homes sold are bank-owned properties, with short sales -- homes sold for less than what lenders are owed -- becoming more and more common. The median resale price climbed less than 1 percent last month to $139,100, according to the Greater Las Vegas Association of Realtors.

For many foreclosure-ravaged neighborhoods, the distress of watching vacant houses fall into disrepair and finally be sold for one-half to one-third of what they fetched a few years ago is being replaced by anxiety that renters will soon be moving in up and down the street.

It's hard to say the housing market has stabilized -- let alone that it's rebounding -- when Deutsche Bank estimates that 81 percent of the valley's mortgages are underwater, and that by 2011, as many as 90 percent of borrowers will owe more than their homes are worth. The local unemployment rate, already at a surreal 13.9 percent, is expected to go higher next year. More job losses certainly will lead to more foreclosures.

And yet this valley's real estate agents are throwing out above-list-price bids from well-to-do clients as soon as foreclosed properties are thrown on the market.

"When the bank-owned properties list, you'd better have your offer in on Day One, or you're done," said Andrea Harris of Coldwell Banker Premier Realty.

"There are more buyers, more sales, record-low interest rates and low prices. It's a perfect storm, really," she said.

There are so many investors racing to buy foreclosed homes that banks can't keep up with demand. Month by month, the number of foreclosures sold in the valley is exceeding the number of foreclosures added to the housing inventory. As foreclosures make up a smaller and smaller share of resale properties, the less their discounted prices will impact home values. That's one reason why, at least for now, home prices seem to have bottomed out.

This housing mini-boom isn't making much noise around the valley because so few people are part of it. In the middle of this decade, you couldn't walk through a grocery store or sweat in the gym for five minutes without overhearing someone talk about how much his home had appreciated. Today, nearly everyone is stuck in a house they can't sell or fighting to keep up with payments.

So why should the average Las Vegan be excited that investors are back in the game?

For starters, because most of these buyers are paying cash, there's no chance their properties will be foreclosed yet again -- there's no loan to default. Second, these new owners plan to keep their houses as long as it takes to get a good return on their investment. That shows incredible confidence in a city so many are willing to declare dead.

Think about that: Thousands of investors believe Las Vegas will maintain enough of an employment base to supply renters for their homes, and that in five or 10 years' time, home prices will appreciate to the point that they can sell their properties for a solid profit, if they so desire.

They could buy homes and land at depressed prices just about anywhere. Last month, at an auction in Detroit, hundreds of properties were offered for a minimum bid of $500 but had no takers. Many homes sold for less than $20,000. The cheapest house isn't necessarily the best deal.

Another group of investors -- homebuilders -- also sees great value in Las Vegas real estate. The Review-Journal reported this month that major builders are buying finished lots in master-planned communities from their bankrupt or hibernating competitors. They're convinced that one day soon they'll again be able to make money building new houses here.

The coming few years will present a lot of obstacles to a full recovery. Banks are holding back many thousands of foreclosures, and they're taking months to process -- and in most cases, reject -- short sales. A national survey of real estate executives by the Urban Land Institute and PricewaterhouseCoopers released last week predicted a commercial real estate crash in 2010, and it ranked Las Vegas second to last among 50 major markets for anticipated commercial investment and development. Any number of other economic setbacks could scare away the valley's crush of eager home buyers.

Like tax increases. Tax hikes at the state and federal level, especially those that feed class warfare by targeting "the rich," will discourage all kinds of investment. Michigan answered hard times with tax increases, which led to more hard times, which led to more tax increases ...

If Nevada follows that path, Detroit will start looking better every day.

Glenn Cook (gcook@reviewjournal.com) is a Review-Journal editorial writer.