Over the past several quarters, cash has dominated condo purchases in Las Vegas. There are a couple of reasons for this. One, many of these condominiums are attractive to investors for cash flow and the other is that it has been extremely difficult to obtain financing for these projects. It looks like that is changing.

 Source: GLVAR.

The information below is courtesy of PHH Mortgage:

PHH Mortgage has made some changes as of late to help financing on condos become a reality.  I will break down each segment  of the market (Conventional, FHA and VA and Homepath) to share with you what PHH requires of your condominium communties.   

 Conventional financing- Borrowers buying primary residence, second home or investment property.

If there is a FNMA 1028 approval (see attachment), it does not matter if primary/second/investment home, we DO NOT obtain a condo questionnaire or verify owner occupancy.  For example, Newport Lofts has a FNMA 1028 approval that expires 7/31/2010, a person buying one of these units as a primary/second/investment property would be subject to the same lending guidelines as someone buying a single family residence. 

What has changed?  Before if you had a condo on this list, we would not send a condo questionnaire but WOULD verify that the development has over 51% owner occupied.  No longer is this the case. 

 FHA Financing- The attached link is to FHA approved condos in the state of Nevada - the simplest way to search is to search by zip code as community names vary from tax records and assocaition name in comparison to this list.  For a client trying to purchase a condo utilizing FHA financing and the condo is on this list, the ONLY thing we will verify is that the owner occupied ratio is 51% and over.

 https://entp.hud.gov/idapp/html/condo1.cfm

 VA Financing- The attached link is to VA approved condos in the state of Nevada.  For a client trying to purchase a condo utilizing VA financing and the condo is on this list, the ONLY thing that VA requires us to verify is that the condo complex is 100% completed and 70% of the units are sold and closed.  That is it!

 http://condopudbuilder.vba.va.gov/2.2/frames.html

 Homepath Financing- If the property you are trying to buy is homepath eligible, the ONLY thing we will verify is that the project is not a condotel. 

Now you can start looking at condominiums. PHH is removing the roadblocks and opeing up a segment of the market that has been dominated by cash. First time homebuyers buying an $80,000 condo will recieve an $8,000 tax credit. Time is running out on the tax credit. Remember, the tax expires on November 30, 2009, which means buyers should be in escrow by mid-October at the latest.

Ray Melton and Dave Reichert

PHH Mortgage

While some of the voices that called for a potentially large decline in the housing market during the boom were not heard, there were a few standouts. Interestingly some of them are buying homes. One of these gentleman was Paul Krugman, who has been famous enough for people to listen to. According to a recent Wall Street Journal Article, Timing the Market: Krugman, Baker Buy Homes, Krugman has purchased an apartment in Manhattan. Baker, who observed the out of trend levels of housing prices early on, had sold his home five years ago. He bought recently but without attempting to perfectly time the market, stating (this quote from the Los Angeles Times)

Baker said he's psychologically prepared for his house to fall 10% more in value.

That rise, he said, was offset a bit by the 4.25% mortgage rate he obtained and an $8,000 federal tax credit. he also emphasided that a house isn't just a financial instrument but something one might decide to spend money on for enjoyment.

"I really value having a porch, a yard, other things like that," he said, and he's willing to pay a price for them - just not any price.

We have been noting the trouble with market timing for some time and have previously mentioned the psycological benefits of homeownership. We would not encourage anyone to buy an overpriced home but we have been finding that in Las Vegas there are a lot of homes that cost near or less than equivelent rent and that makes the financial part of the decision a lot easier. Further, as we have stated in this blog several times, keep an eye on the interest rates because that could effect your decision. I always advice folks to go with what they know rather than what they hope. You know that rates are low by historical standards so hoping they go lower is not my favorate strategy.

By the way, I am the Director of Research, not the movie star quality guy in the videos...I am camera shy.

Source:

http://www.latimes.com/business/la-fi-bubble-timers17-2009aug17,0,6997492.story?page=2

WSJ: http://blogs.wsj.com/developments/2009/08/19/timing-the-market-krugman-baker-buy-homes/tab/print/

We have been noting the returns that are being realized for rental properties in the Las Vegas area . Cap rates for rental property have moved up as rents have been fairly stable for many home types while purchase prices have declined. We do apply a higher vacancy rate to properties due to the amount of supply but even with an amplified vacancy rate as part of a sensitivity analysis, many properties pencil out very well.

Now we are not the only ones saying this as Forbes has recently noted similar figures (see table). The article can be found here.

Median days on market continues to decline in Las Vegas as well as other cities as sales have remained strong. We are still seeing multiple offers on REO homes and many listings go under contract within the same month they are listed.

Las Vegas is still on the lower end of the marketing time spectrum and listing inventory is being quickly absorbed. REO listings are still dribbling out onto the market and we are noticing both investor and owner occupied buyers in nearly equal proportions. Luckily a lot of the investor owned homes are being placed in the rental pool and are cash flowing so they are fullfilling some organic demand rather than being purchased in speculation of any short-term appreciation. Many investors we deal with indicate that their plans are long-term and are looking for cash flow.

There are still dark homes in a many neighborhoods so a lot of inventory has yet to be listed for sale. We will continue to monitor the speed at which homes are being absorbed and we are awaiting population forecasts for a re-basing of our demand expectations. The known unknown being the degree of cohabitation going on (moving in with family and freinds to save on costs). On the supply side, we monitor the levels of trust deeds and deed-in-lieu of foreclosures as well as the notices of default, which are displayed in our home synopses.

 Source: Altos Research.

We've gone through a couple of seasonally strong months and have seen significant home sales, more so than what is often reported nationally about what is happening in Las Vegas. Looking at pending sales, it looks like we should see another strong month. Currently we have had nearly 1,500 single family closings and expect many more as we have another business week to go and closings often pile up around the end of the month.

A lot of new listings entering the for-sale inventory receive significant attention, many going into contingent status within the same month the property was listed. Now about forty-percent of the inventory on the MLS is in a contingent status. As a proportion of the listed inventory, pending sales stay pretty consistent between fourteen and sixteen percent of the market for the past several months. So, if that proportion stays the same, if we had more REO inventory to sell...we could sell it.

This is a little longer than the typical blog but since we have had some questions concerning leasing we are posting here as well:

Transactions are happening across the board in the commercial real estate market, however, downward pressure remains constant. “They are not even close to the pace of deals in 2008 yet deals are getting done”, explains Ron Opfer, CCIM.  “There are many more incentives involved in these transactions, such as higher TI allowances, shorter leases, and lower rents.”  A look at the overall commercial leasing market shows industrial deals as low as 25 cents per square foot (sq.ft). per month, retail deals as low as 60 cents per sq.ft per month, and office deals as low as 55 cents per sq ft/mo. Not all deals were done at these prices, but, “there are not many tenants looking to expand. Tenants are looking for the best deal possible and not moving fast to find one”, says Opfer.  “Most tenants are experiencing downward pressure on their business from the economy.  They simply cannot afford to pay the rents they used to pay.”

Elle Gaensslen’s experience in the market is similar. Gaensslen notes, “Most businesses are downsizing to smaller square footages and lower rates to alleviate the financial pressures during these market conditions. As noted, deals are happening. “I have a retail client that is expanding into the Las Vegas market from California to take advantage of the lease opportunities and to secure prime space for less,” said Gaensslen.
 
Most economic indicators reflect a lot of downward pressure on the economy.  During the 2nd quarter of 2009 we saw vacancy rates across the board increase.  With unemployment still rising we can expect to see even more vacant spaces in the coming months.  “I don’t see signs of a turnaround coming soon.  That means there are great deals out there for those looking to expand in Las Vegas,” stated Opfer. “Take U-Swirl Frozen Yogurt for example.  They are a fast growing company.  They will open 10 stores in Las Vegas in less than 1 year.  Not to mention their franchise locations opening in other states.  The change in market conditions has proven to be a big positive in their expansion plans,” explains Opfer.  “The same goes for the medical profession” added Opfer.

Another adjustment in the market is the terms of leases. Gaensslen notes, “landlords are agreeing to shorter term leases because they don't want to be stuck with discounted leases when the market stabilizes.  Tenants want shorter term leases due to uncertainty with their respective businesses, anxious about Vegas as a market to stay in long term, and some feel the market will slide even further, giving them the opportunity to secure an even better deal in 2010.” Much of the recent leasing activity has been between one and three years.
 
Further pressures are expected to come as banks are expecting more commercial defaults during the remainder of 2009.  “This could be a great opportunity for those with cash,” said Opfer.  “It may be that the deals of the not so distant future will resemble those of the RTC (Resolution Trust Corporation) days,” added Opfer.  Property values have had downward pressure and are in need of a price re-set.  “The LTV’s are no longer in balance and when the banks complete their re-appraisals, they will be in need of moving those underperforming assets”, explained Opfer.

The properties on the market today are being sold to raise capital.  Large real estate holding companies like Weingarten and General Growth are selling some very good properties.  Some will pay down debt and others to expand.  Sonic, the restaurant franchise, plans on doing sale-lease backs on several of their properties to fuel some of its western growth plans.  Whether it is a bank, growth oriented company, or a debt heavy REIT, properties are on the market for sale and investors are underwriting the properties and making offers.

“There is a bit of a disconnect between how investors and sellers value properties.  I still see seller proformas valuing their property on last year’s lease rates assuming full occupancy, when the center is 20% vacant.  Investors are looking at the rent rolls and assigning the tenants in risk categories.  They are assuming re-tenanting the centers on what they think lease rates will be 6 months from now and are assuming a lot of incentives will be needed to attract tenants.  That all has an effect on the price they will offer for the property”, said Opfer. 

 “We are in the midst of some amazing real estate opportunities.  The affordability factors of owning commercial real estate are very favorable for those with cash.  This is going to be looked at as a highly opportunistic time to buy commercial real estate,” concluded Opfer.

A recent survey by Coldwell Banker LLC reveals some non-obvious differences between how the different genders purchase a home and provide quantitative evidence for some other features we intuitively know.

The highlights of the survey are summarized here.

After financial turbulence in 2007 and credit spreads leaping upward illustrated the need for greater liquidity facilities at the Federal Reserve Bank, TAF (Term Auction Facility) was introduced to alleviate the tightness occuring in the credit market. The Ted spread, which sounds like it belongs in a discussion about Betty Crocker or the Food Network, gave us a picture of how drastic things were. The Lehman bankruptcy in 2008 saw the spread responding by jumping even higher, making the early bounces look like a trip to Six Flags.

So now that spreads are down from some of those stratospheric levels, what can we attribute that too? In some part, a recent paper by a Fed econonomist explains that their policies did have a measurable effect. If you follow Libor (London Interbank Offered Rate) or are interested in the functioning of the credit market, this is a short read by economists standards. Click here to enjoy!

From a recent U.S. News and World Report article we find that Las Vegas is considered to be undervalued by 41%!

Las Vegas. After a dizzying run-up in prices, Sin City has become a cautionary tale for real estate investors everywhere. Since its 2006 peak, Las Vegas home values have plummeted by more than 50 percent. And today—at $77 a square foot—existing homes are actually priced below the cost of building materials, says Steve Bottfeld, the principal of Las Vegas-based Marketing Solutions, which specializes in real estate economics. "That's truly undervalued," he says. Although the market may be depressed today, several factors will support strong housing demand in Las Vegas over the long haul, Bottfeld says. The opening of MGM Mirage's CityCenter, which is expected later this year, will bring new jobs. The city's enviable climate—hot summers and mild winters—and its exciting downtown district will continue to attract residents. And the best-in-class architectural design of area properties will appeal to would-be buyers. "We are on the bottom of prices at this point," Bottfeld says. "There is no question that the residential market in Las Vegas is undervalued." The median single family home price in Las Vegas was $140,000, in the first quarter, which IHS Global Insight considers 41 percent undervalued.

We continue to see a frenzied pace of sales and buyers are realizing how attractive real estate values are in Las Vegas.  One of our neighbors from SoCal purchased their second home in our community (one is for an investment and the other will eventually be a 2nd home).  Even with the reduction in values in SoCal it shows that Las Vegas remains for affordable.  Here's some fast stats as of today:

• 12,331 active listings with 40% short sales and only 21% REOs (more REOs are on the way) 
• 13,599 pending and contingent sales with more than half (7,110) being short sales 
• Nearly 13,000 sold in the past 90 days.
  

For the complete article and the list of the top 10 most undervalued cities in America: http://www.usnews.com/articles/business/real-estate/2009/07/16/americas-10-best-undervalued-places-to-live.html

Our second quarter Real Estate Report is out. Last quarter saw a lot of changes, some of which we have mentioned in the blog, such as homes selling for greater than list price, the increase in sales and prices and we provide further details on those matters. In addition, we hit up other relevant topics that our both useful to folks in the real estate business and for potential homebuyers and investors.

Topics Include:

• Key Resale Data
• The Mortgage Market Update
• Residential Pricing
• Sales Greater than List Price
• Commercial Real Estate
• Recap of Recent New Stories
• New Home Sales
• Graphical Recap of last quarter's sale, prices, financing and days on market

If you would like a copy, just email us at info@cbprds.com