Some clients are questioning why they have to put in an offer greater than list in order to get an offer accepted. "Shouldn't I offer less than the list price? Prices are going down right?" is a typical question. Banks are often listing homes below what the comps are and are receiving multiple offers, bidding the price higher. Recent sales show that good quality homes within the sub $250,000 ranges are in high demand. We know this because we have not seen sales rates like this for several years. We also know that a lot of homes are seeing significant traffic. Real estate agents often leave cards in the kitchen of homes that they have shown and it is not uncommon to see a dozen or more in some of the better homes. Less anecdotal, as in the past post about contingent and pending sales, we know that there are a lot of homes under contract.

We compiled a White Paper on the subject that breaks down this phenomenon by zip code. The exhibit below shows the maximum amount that someone paid over the list price. Some of these numbers are pretty significant. In some of the weaker zips, no sale was made over list but as you can see this was true for most zip codes.

Recently Recruiting Nevada and Restrepo Consulting Group released the details of their 1st Quarter Nevada Job Seekers Survey. 68.1% of the respondents seeking employment in Nevada originated largely from 10 States (NV,CA,AZ,MI,NY,TX,IL,OH,FL,UT). The top 5 employment categories were nursing, construction, mining, instruction and construction management. As the study notes, there are vacancies in nursing and that is great, however, construction has sluffed significantly.

Interestingly, there also appears to be a good supply of educated job seekers. Individuals with degrees made up 47.6% of the respondents. This may mean a couple things; that soft employment has caused a lot of educated folks to be jobless, or that educated job seekers view Nevada as a good place to work. I think a lot of this stems from weak employment, as 42.2% of these folks were senior level job seekers.

On the homebuying front, it is interesting to note that 51% of job seekers plan to ultimately buy a home. It doesn't appear to vary much by education level either. As expected, a lot of people plan to rent, than buy (34%). 19% would like to purchase a home directly after obtaining employment.

We periodically look at some other valuation measures besides only looking at price series. The exhibit below illustrates inflation adjusted S&P/Case Shiller and median household incomes. This uses the lowest price tier. In April, the average home under $151,160 was about 1,400 sq.ft. This segment is selling briskly. With the price adjustments away from those ridiculous days of 2006, values have returned to where they seem to make sense for a lot of people. Currently, the price-income ratio has returned to 1994 levels. That seems like a pretty deep correction and it is. However, this is not the whole picture since we understand that there is a relevant over-supply condition and some demand side factors such as credit availability. Further, income may turn out to be weak in 2009 (the latest available is 2007 as 2008 numbers should be released this summer) and this will help elevate the ratio. While keeping in mind these factors, we still have somewhat of a gut check that tells us that while values may slide further, they are no longer absurd and that it may make sense to buy within these levels if you plan to own for the long-term.

In a different industry but related theme, I noted key differences between fundamentals traders and technical traders in futures and options and stocks. One of these differences was that the fundamental traders took a position based on evidence like size of supply and historical demand and related factors that they collected which provided a thesis for trade. I tend to agree with fundamental traders in a lot of ways. Technical traders, often called chartists, looked at patterns and formations in the price series themselves, often employing tools such as Fibonocci series or moving averages. I tended to disagree with the utility of a lot of these methods. However, I witnessed a lot of fundamental traders crash and burn because the stuck to a position that was failing and would not admit that their interpretation of the fundamentals was flawed. Technical traders, while there thesis appeared weak to me, seemed to have better money management skills. They often had pre-established entry and exit scenarios and as a consequence of a failed prediction, once their parameter was met, they were out. Settling on your risk appetite, finding the entry and exit points and sticking to it carries over to real estate as well, only with a far longer time horizon.

At some of the price points offered in the current market, I don't care if I hit the exact bottom or even that near it. At some of these price points, I figure I know how much I am going to loose, that way if I am wrong about the upside, I can live with my mistake. I am happy that I did not buy anywhere near the peak and would be happy to buy on the other side of the trend.

We have reported heavily on residential valuations, finding that some of the smaller Las Vegas homes are selling at 1996 median prices. The Case-Shiller indices appear to be at 2001 levels for the lower price tiers and 2002 levels for the aggregate index. For a lot of us, this is good news. I can buy a home at values of almost a decade ago, however my income is far higher than it was back then. But our attention turns to another aspect of the real estate market, commercial.

Commercial transactions are fewer and further in between. As far as I am aware, there is no serious index to measure price trajectories in the Las Vegas MSA. The closest thing to it are the Moody's/Real Commercial Property Price regional and national indices. The latest release was today and is found at http://web.mit.edu/cre/research/credl/rca.html.

The national index, which is a composite of all property types, appears to be at 2005 levels. The West Region's office index, so far the most beaten down asset class in commercial that we are seeing, also reset to about 2005 levels. The most recent quarter had a pretty steep decline. These values punish bank balance sheets and landlords are often in a tough position. For end users and some tenants, its been a lot better, they can negotiate with an upper hand. The issue at a local level is, without recent transactions, where should prices be? In our experience some owners are unrealistic about the values of their properties and surveying commerical broker comments, they are giving a similar story. One thing that we must keep in mind is that end users or investors don't care how much you invested in the property you are trying to sell, rather they look at how it pencils now. Users have to back-into a number based on their specific requirements.

For-sale inventory has been declining and bank owned homes are coming onto the market very slowly since the end of the foreclosure moritorium. Many market participants understand that there is further inventory on the horizon and this effects current prices. But the price levels of a great number of homes on the market are very attractive to first-time buyers and investors and the mortgage payment on a bank owned home sold for say $115,000 (very common now), is just over $600 per month. This is either in line or less than many apartment rents.

As a result of these prices, along with the quality and recent age of a lot of these homes, purchasing interest has jumped and we see that show up first in contingent sales. As of the middle of May, single family home contingent sales are over 6,000.

Looking at the exhibits below, you can see clear trends in contingent, pending and closed sales. Currently, contingent and pending sales are taking up a large chunk of the listed inventory (totaling 46%).  Finally, in the last exhibit which is based on year-to-date averages, we have some indication of what we can expect in terms of sales. Of the single family homes that go into contingent status, 28% become closed sales the following month. Fifteen percent close in the second month and 6% close in the third month. Based on the number of contingent sales and their chance of closing, sales in May and June should keep up the strength of the past several months and until banks start turning out more homes for sale, the home that you were wishing would come down and price may get sold.

The acronym for the past couple of years has been REO. REO's (bank owned homes) have been a dominant component of the Las Vegas Valley for-sale housing inventory. Currently, short sales, or homes where the expected sale price is less than the loan balance, dominate the for-sale inventory. REO's are typically easy to purchase and have been selling extremely well in recent months as pricing has returned to where it meets the parameters of a great number of buyers. Short sales see far fewer closings than REO's. If you want to purchase a short sale you really need an agent who knows what they are doing and have familiarized themselves with bank procedures. Otherwise your probability of a succesfull transaction is very poor. Also, in order to receive the $8,000 tax credit, one needs to close by November so getting things in order as soon as possible is imperitive. There are some great short sales out there so they are often worth putting offers on.

Sometimes we get into some pretty technical or industry jargon articles here, but a map is pretty easy to understand. I plotted and color coded home prices per-square-foot for sales since the beginning of the year. I used the average home size for that period as the basis of the analysis since larger or smaller homes can skew some areas. Larger, often more expensive homes can have lower prices per sq.ft because, like other goods, the more you have of something, the cheaper it is per unit. The average is about 1,800 but I used 1,500 to 1,800 to obtain a nice sample. While those of us who work in this business and live in Las Vegas, we know these price distributions well, however, for outside readers, perhaps this is compelling. If it is hard to see in your browser, hitting ctrl on your keyboard and pushing the wheel on your mouse forward will show it with greater clarity.