The Moodys/REAL Commercial Property Price Index for the western region continues to post declines, which have accelerated in 2009. A lot of these values are back to 2004 and 2005 levels. For Las Vegas, there are so few commercial sales transactions its hard to construct an index. We can make some assumptions however and we view some property values to be back to values before 2004. As we have noted in previous posts, such as the "commercial value disconnect" some sellers believe what they own is worth more than what we know buyers are willing to pay. There are companies that want to acquire commercial real estate (CRE) but they have to factor in greater uncertainties in rents and vacancies. Further, a lot of CRE is stuck, either by banks that can't take the ratio hit or by the FDIC which is determining how to sell the assets. Meanwhile there is some guesswork in CRE valuation.

Cities like Las Vegas, Miami and Phoenix saw disproportionately large increases in prices during the bubble years but have corrected extremely fast. Now, according to sources sucha s Forbes, that velocity of price declines has put Las Vegas at the bottom faster than other large metros. The bottom does not mean "recovery" but if the assumption about a bottom is correct, its surely a welcome sign, especially in light of improved affordability. Currently prices, combined with low mortage interest rates, makes home ownership realistic for normal households. Now the bulk of the price distribution for homes better matches the income distribution for Las Vegas families. To check out the Las Vegas Sun article, Click Here.

The Las Vegas Review Journal had an article today employing the Coldwell Banker Home Price Comparision Index (HPCI). The article notes that Las Vegas is in the median for affordable homes in the nation. They noted that the average (not median this time) is back to 2003 levels. That's about right for the aggregate but you have to excavate throught the strata of the market to make more striking conclusions. I can find you homes in some segments that are in the 1990's and many of these are being scooped by investors, usually with cash. After a period of prices that were detached from long-term fundamentals, it really appears to be back to realistic price/income and price/rent levels. The data confirms Bob Hamrick's statement in the article that "This is true affordability".

This HPCI is a neat tool. I ran a comparison for several cities using $200,000 for a house in Las Vegas (This would typically get you over 2,000 sq.ft).

A similar house in La Jolla, CA one of my favorite towns, would cost $1,983,051. Hmmm...I may have to delay my purchase out there.

A similar home in Tuscon, AZ would cost $213,559. That is closer to Las Vegas levels.

Bozeman, MT might be the surprise here. A similar home would be $383,051. The views are often very nice though. Unfortunately the median income up there is lower than any of these comparison cities.

Check out this tool at Coldwell Banker .

For the Las Vegas Review Journal article, Click Here

United Van Lines, the popular moving company, records its moves and lucky for us, releases them to the public. According to its mid-year 2009 report, Nevada remains a high inbound state. 57.7% of the Nevada related moves were inbound to Nevada. We have no solid way of knowing whether this sample is representative of the population but it may represent the households that we need to absorb housing inventory in Nevada and particularly Las Vegas.

We don't have a perfect method of determining who or how many families are moving here. We are awaiting the population estimates performed by Clark County and the other Valley municipalities. They are said to be employing the same method of estimation as last year. The wild card is the degree of cohabitation due to a shaky job market. Secondly, we will have to wait a while for the IRS migration statistics that will reflect 2008 moves. The most up-to-date stat we have for migration is drivers license counts, which is down from last year but up slightly month-to-month. Unfortunately we don't know outbound migration from those numbers.

One of the untouched issues in the employment realm is the amount of temporary vs. permanent workers. If the United Van Lines sample is representative, I think this boads well for long-term housing stability as these families are moving all of there belongings accross state lines.

For the press release by United Van Lines Click Here

Here is a two page article that takes a deeper look at the commercial property market in Las Vegas. It describes the real estate cycle, current sales prices and some reasons why sellers and buyers have rarely had a meeting of the minds in this part of the cycle. On the upside, lessons can be learned from the residential market.

The unemployment rate is an often discussed figure; however the discussion normally leads to how many jobs were lost. What we often forget is the other component of the rate and that is the labor force. Aside from a few dips, the labor force has been growing. While the number of folks desiring employment is substantial, take a look at the exhibit below and look at the growth in the labor force. We don't really know all of the underlying circumstances that makes up the labor force growth since we cannot really measure net migration with any precision. We also don't know precisely if these folks entered the labor force do to reaching working age or if some were re-entrants. Nevertheless, the reason that many folks had come to Las Vegas was the long track record of job growth. There were good, fundamental reasons why people initially came to this job market. After weakness in the construction sector and turbulence in Leisure & Hospitality, many jobs were lost. The good news is, Nevada has, according to my research on taxation and economic growth, fewer rigidities in the system, making starting (or reformulating) new businesses easier. Long-term, I find that this feature makes me a long-run bull on this area.

None of this is earth shattering new knowledge but I think its worth pointing out again as I find that the context of the unemployment figures gets distorted.

 Source: Nevada Department of Employment, Training and Rehabilitation.

Corus Bank Closure Could Help Establish Bottom for Condo Values

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Corus Bank financed this condo project at 441 Stuart in Boston that sold in foreclosure auction in May 2009.

The Deadline for the First Time Homebuyer Tax Credit is Looming…

We are fast approaching the deadline for the First Time Homebuyer Tax Credit – per previous emails do not depend on this tax credit being extended.  Move now to get your buyers under contract by no later than the middle of October – ladies and gentlemen that is NEXT MONTH.  Now is the time for urgency; create this with your buyers and within yourself this tax credit is not guaranteed to be extended.  Your transaction needs to be closed by November 30, 2009.  Not in escrow CLOSED by November 30th.

Ratios to be cognizant of…

55% is the maximum allowable Backend Debt To Income Ratio.  Your backend debt to income ratio (DTI) is determined by your monthly debt (debt that appears on a credit report; credit card minimum payments, car payments, student loan payments etc.) and your proposed new home mortgage payment divided by your gross (pre-tax) monthly income.  If your backend DTI exceeds 55% your buyer is not approved to purchase…period.  It is imperative that if your buyer is using any lender that is either an out of state lender or worse an internet lender THEY ARE NOT AWARE OF OUR REAL ESTATE TAX ANNOMALLY!  By that I mean recently an agent was driving around a potential buyer who was pre-qualified through an out of state lender the lender had this buyer pre-qualified up to $150,000 purchase price.  The fatal flaw was that the lender had them qualified on a tax rate of just $1,312 per year.  We all know that the tax rates in Las Vegas have a way to go before coming back in line with the old .875% tax rate estimates of the past (.875% was an industry standard estimate prior to the boom and ensuing bust of home values).  Be sure to give PHH a second look to make sure even your “qualified buyers” the once over to save you time and gas or just to point you in a more accurate price range.

Funds to Close…

The recently passed Nevada Funds to Close bill requires that ALL funds be cleared through the title company’s bank account PRIOR to recordation.  Cashier’s checks, while typically considered guaranteed funds still take roughly 48 hours or longer to actually deposit into an account.  Title companies typically only send bank deposits once a day (for obvious reasons) and this will cause your buyers to not be able to take possession of their homes as fast as they should.  Urge your buyers to wire the funds as this process is as close to instantaneous as possible. 

Attention to these details and dates will assist all involved with a smoother transaction and a faster close of escrow.

Dave Reichert and Ray Melton

PHH Mortgage

The Joint Center for Housing Studies at Harvard report "Forced Sales and Housing Studies" describes some similar features of foreclosure sales that we have found in studying the Las Vegas market. Their study finds foreclosure discounts average of 28% lower than non-distressed sales. The authors also explain some of this disparity as a difference in the liquidity of the asset, which we have discussed in the blog titled Liquidity Adjusted Pricing. We also noted this in our January 2009 White Paper on the difference between REO and Non-REO sales. Further, most of the REO homes in Las Vegas are sold as-is, so the price reflects the lack of symetric information about the property, differing from owner occupied homes that may allow for longer inspection times and possible concessions or new homes, which usually have warranties. 

Check out the study (caution, may only be suitable for econo geeks): Click Here