Developer Services Blog

Expansion in REIT values expected

2010-03-12T09:01:14-08:00

Ernst & Young recently released its Global Real Estate Investment Trust Report 2010: Against all odds. For U.S REITs, the report notes several key components that factor into their outlook. Firstly, after a horrible 2008 and a choppy 2009, REITs have been able to raise significant capital, mostly through the sale of shares. Another aspect of this sector is deleveraging, although many REITs still have significant debt. I would guess that many of these REITs will have to pay down some more of this debt before they can't begin aquiring more property.

Ernst & Young believes that in the 1990's commercial real estate had an excess supply problem. That is, myopic builders overestimated demand for commercial properties and way to much space was available based on current demand. In the current period, demand simply evaporated, causing an exodus. We saw this in our local market, Las Vegas as well. Not long ago we had record low vacancies in industrial and retail, almost to the point where only the obsolete space was left (one could argue that office was overbuilt). Now we have high vacancies in each main sector, office, retail and industrial. Ernst & Young believes that with a rebound in the U.S economy, absorption should be absorbed quickly. I think it will take a fairly broad national recovery before we see significant absorption in the Las Vegas Valley.

The next big feature of REITs today is the targeting of distressed assets, although some companies have been hesitant to purchase other firms with "legacy" issues like large debt obligations. In addition, banks have been slow to write-down values and dispossess themselves of commercial assets. Its not always that they don't want to, it is that they just can't. it will hammer their ratios too much and they need to raise capital to offset the loss. Nevertheless, M & A activity may increase as another avenue to acquire assets, along the lines of Simon Property Group's attempt to acquire General Growth Properities.

It's not all about distressed assets however, as performing properties are sought as well. Even these appear to be on sale, especially by foreign investors as noted by Reuters:

We see a pretty significant amount of interest by foreign capital into US real estate -- not necessarily foreign REITs, but private equity, sovereign wealth funds," Roth said. "There is a general belief that after the significant decline in values that now is the time if you have capital to (chase) risk-adjusted returns." (Reuters: Global REIT values to grow in 2010-Ernst & Young, March 2010).

So far in Q1, we've seen a lot of genuine interest in assets in the Las Vegas Valley, not so much by REITs (although General Growth has a lot of exposure here) but by foriegn investors big and small, as well as by hedge funds and schooled, large investors raising money in private channels. If Q1 is any indicator for the rest of 2010, its going to be an interesting year.

For the Ernst & Young Report Click Here

For the Reuters article Click Here

Fundamental Values

2010-03-01T11:46:55-08:00

We've discussed trends in median prices and Case-Shiller as well as IHS Global Insight's view that Las Vegas is the most undervalued large metro area but fundamentally, where are Las Vegas home prices? While fundamental values are unobservable, we can use proxy indicators such as the price-to-rent ratio. One can think of this like a price/dividend ratio in stocks.

As the exhibit below demonstrates, the recent price/rent ratio is far below the baseline, which we've established based on the 2001-2002 years before the ridiculous run-up in prices. We have experienced severe declines in prices, driving the ratio down. The mechanism of the market can bring this ratio back into line by a combination of rent and price adjustments, which we are seeing now. Rents appear to be declining due to the amount of available inventory as well as weak employment and diminished household formation. However, rental prices have been quite sticky. Home prices have not been sticky and we saw massive adjustments.

Currently we have been settling and have observed median prices bounce between positive and negative on a month-to-month basis. Based on the price/rent measure, it is reasonable to expect that when employment rebounds and in-migration resumes with force, we will again see home price appreciation and a return to fundamental values. When could this happen? Thats difficult to say. When prices were above our measures of fundamental values it was pretty easy to make a forecast. For a monthly forecast, as long as it was in the single digits and had a negative in front of it, that was a reasonable forecast. Now that prices are undervalued but you still have underlying economic weakness, its difficult to forecast. Monthly forecasts have not been what our investors are looking for however. A typical strategy (not by flippers of course) is to hold with the expectation that you will own it for at least five years. What do you think will happen in five years? Ask yourself that, frame it in the context of your risk tolerances and carry costs and take a look at some of the residential assets in the market today. It might be very worthwile.

For a slightly academic discussion of price-rent ratios Click Here.

Source: Mlxchange, Coldwell Banker Premier Realty.

S&P/Case-Shiller Update

2010-02-26T00:00:00-08:00

The S&P/Case-Shiller home price index came out this morning. Unfortunately it is so popular that the site crashes and I have just obtained the data. We do observe seasonality in prices in Las Vegas so I like to use the seasonally adjusted indices. Interestingly, the most current observation, December 2009, registered a month-to-month increase in all price tiers. A positive change has occurred for both November and December. Was this a purely organic increase? Probably not. The tax credit has been a relevant motivator of purchases and we have probably brought some demand forward. Nevertheless, pricing has appeared to reach an inflection point away from declines. This is encouraging, even if we do skip along a bottom characterized by positive and negative month-to-month changes.

As we have noted before, there are several encouraging characteristics of today's market that point to a good time to purchase homes. The tax credit does provide a lot of folks the necessary financial buffer to make the downpayment outlay hurt less. Yes, you fork out some cash now but if you are qualified you get a check in several months. Further, the tax credit buffers any posible price declines. If you buy a $120,000 home, that home could decline in price by 6% a are still net positive. But that is not a reason to buy but is an offset in risk. There are other reasons to buy. Mortgage rates are low, however many mortgage market observers are predicting rates to increase, especially after the completion of the Fed's program of purchasing mortgage backed securities (if they spiked prices could decrease, however a massive spike is unlikely). Go with what you know and not with what you hope. You know rates are historically low so wishing for lower rates is probably going to lead to disapointment.

In addition, you can often buy cheaper than you can rent. The decision to buy may not be a consideration for everyone since some households are still in a transitory position, unclear of their job prospects or where they would like to spend a significant portion of their lives. But for households that choose to make Las Vegas their home for a longer-term, purchasing may be a reasonable option.

Another feature of the Las Vegas residential market is the high returns that you can get on rental properties. Returns this high should not be sustainable and implies that sale prices are way out of wack. While we see a softening rental market, sale prices and rental prices should move to where these returns are lessened. Part of that will likely come from appreciation. Significant appreciation may not happen tomorrow or even months from now but for investors; they can get positive cash flow, then appreciation later on. Would I tell everyone to buy a home? No, because renting make sense for some people. However, for stable households or investors, the data points to a really opportunistic time for buying. Buying this far below trend is another attribute that makes this era encouraging for home purchases.

Source: Standard & Poors.

Bond Market and Inflation

2010-02-16T09:22:35-08:00

Seeking Alpha has a good article today regarding bond market expectations of inflation. The author notes that 4.7% yelds seem massive in todays low interest rate environment but 30 year bonds are still selling poorly. The weak investor appetite for these bonds implies that market participants are expecting inflation since 4.7% yeld in a deflationary market would be supurb.

If this author is correct about inflation expectations, what does that mean for real estate? My take is at these low interest rates, I would not mind owning more real estate, especially income producing. Something that could be expected to rise with inflation but still covers costs like taxes and insurance, with enough left over for that sometimes elusive feature called positive cash flow. If you buy smartly, this can be done. Factor in your purchase price a much higher vacancy rate and lower lease rate and if it covers the note at those levels, there is good chance you have preserved some upside for yourself. As always, there are no certainties and you must do your homework. Nevertheless, opportunities are abundant. Also note: The Fed's program of buying MBS is near conclusion. Higher mortgage rates could be on the horizon. Click for the article cited

The Fed, Inflation Expectations and Real Estate

2010-01-28T10:00:32-08:00

Recent remarks by the Federal Reserve suggest that they believe that inflation is likely to be subdued for some time. The committee stated yesterday that they will continue the target range for federal funds at 0 to ¼ percent. Naturally, since not all indicators point to a full economic rebound, the Fed has to be careful not to prematurely apply the brakes.

However not everyone in the world markets has this same view on inflation expectations. Many bond traders have the view that inflation will not be subdued in the coming years. Many observers prefer to use gold as an indicator of inflation and gold recently hit highs in several currencies, especially the dollar.

In an recent article in the Wall Street Journal, Tom Lauricella notes that investors do not believe that the Fed will be able to reverse its giant money infusion without instigating inflation. He describes that Treasury Inflation Protected Securities (TIPS) are a good measure of gauging investor’s inflation expectations. Nice readings can also be obtained from the 5yr5yr breakeven which employs the 10-year TIPS to guess about inflation 10 years hence. An excerpt from the article:

Barclays Capital's 5yr5yr measure now reads 2.9% aso on a par with levels in late 2003. Then, "these measures increased because the Fed was keeping rates low" as it's doing now, says Michael Pond, inflation market strategist at Barclays.

What's causing this? Not expectations of rapid economic growth. "Investors appear to be concerned that the Fed may not have the right tools to put quantitative easing into reverse or get the timing right," says Jeffrey Schoenfeld, co-head of fixed income at Brown Brothers Harriman.

Still a tough call on inflation and it really depends on the strength of the rebound because we do have flat or declining prices on a lot of things people use, especially housing. Further, I see hidden inflation in many products. Have you bought a candy bar or some other food goods lately? I think they’ve gotten smaller. I also notice poorer quality in a lot of stuff. I wish I could grab a caliper and measure candy bars from the same company but in age differences of 10 and 20 years. Perhaps some well stocked bomb shelters from the 80’s will have some candy bar artifacts. I’m guessing that there is a noticeable decrease in size.

Anyhow, with the sheer size of the Fed money injections, if the velocity of money does increase, I am a mild hawk on inflation. Perhaps not this year and maybe not even next year but I don’t see how this can be unraveled smoothly. That’s why I still like residential real estate and some well bought commercial properties. Just imagine having a fixed rate of 5.16% o a mortgage when inflation is 7%.

WSJ article

Case-Shiller for Las Vegas...Up

2010-01-26T18:25:15-08:00

Today the Standard & Poors Case-Shiller home price indices were released. There are always a lot of articles that come out after this release. Many are focused on year-over-year changes and few consult the seasonally adjusted figures. Further, many people don't know that Standand & Poors also calculates tiered price indices. These are homes grouped by price tiers, that way we can make even better comparisons. Like granny smith apples to granny smith apples versus comparing granny smith to Blenheim (yeah I had to look that one up). While they are all apples, each variety of apples tastes different. That's one reason I like repeat sale indices over median indices, which are less robust given the different mix of homes in each sample, often like calculating a median of apples and oranges.

I find that residential real estate prices do exhibit seasonality; therefore I think it’s appropriate to use seasonally adjusted indices. The interesting thing about the seasonally adjusted Case-Shiller indices for Las Vegas is…it confirms flattening in each price tier. In fact the October to November observations showed an increase in the low and middle tiers. After months of month-to-month declines (since 2006 and 2007 actually) you would think this would somewhat newsworthy. Further, as you can see from the trend I’ve drawn for the low-tier index, prices are deeply below trend. The trend I drew does not incorporate appreciation from the 2000’s either, even though the early 2000’s did have some organic price increases due to heavy inbound migration and a booming job market. Further, we ignore the whole bubble period; therefore my trend line is really not that generous for long-term appreciation. Nevertheless, the low-tier index appears to be 28% below trend.

Overshooting on the downside from a bubble is not a surprise since a lot of assets have exhibited this in the past. You can see the arcing in each series for the recent few months observations and that is the flatting I mentioned. Hopefully this is an inflection point and that prices will at the least remain stable (although I am curious about how the finality of the tax credit will impact prices, I’m still comfortable around the prices we’ve been seeing). Below trend can be good for several reasons. Take the reverse scenario of buying above trend. Often prices return to long run trends, implying a bad decision in purchasing above trend. Buying below trend is a lot easier case to make if you’re not emotional. Additionally, these below trend prices often result in a lower mortgage payment than rent (can be thought of like a low P/E ratio in equities). I also find it curious that folks who bought way above trend during the bubble don’t think it’s a good idea to buy now even though we are way below trend. One last note, low interest rates should not last indefinitely and this should be a factor for many potential buyers.

Source: Standard & Poors.

Seasonally Adjusted Index

Investors, the flip rule and FHA buyers

2010-01-22T11:33:00-08:00

House flipping was made popular by some cable tv shows during the boom and its occurring very often today too. But many buyers are also aware of the flip rule for FHA, where the resale of homes to FHA buyers could not occur until after 90 days. The rule was initially meant to prevent fraud, similar to what Tony Soprano did in the third season of the Sopranos. However, the rule made many of the “flipped” homes nearly unobtainable for a lot of buyers. A rule reversal is scheduled for February 1st (other stipulations will be in place for sure). This should help a lot of buyers compete for some of these flipped homes.

House flipping can really be a socially beneficial exercise. While the process became the Gordon Gekko of boom years and from those cable tv shows, the players today are using their own money to purchase these homes and hire their own crews to rehab them. Many lenders would not finance a purchase of these homes so these individuals are the conduit from the courthouse steps to the end user and there is value added along the way.

Below is a chart depicting the type of financing sold for the primary financing types. You can see that cash and conventional together make up a lot of competition for FHA buyers. Nevertheless, a lot of FHA deals are getting done.

Source: Mlxchange.

Case-Shiller Update Las Vegas

2009-12-29T12:35:00-08:00

Today the Case-Shiller October numbers were released. It takes a couple months to process the data for these indices, hence the December release of October data. Importantly, the measure is confirming what we have felt at the ground level with many homes receiving multiple offers and inventory levels falling to less than four months. We have seen median prices bouncing between positive and negative month-to-month changes for several months. Now one of the most watched repeat sale measures is also demonstrating flattening.

How organic is this price leveling? Some measures we employ attempt to gauge where prices are relative to fundamental values. This includes, price/rent ratios, price/income and the amount of homes present in the Valley relative to the employed population. Employment is a wildcard, although we believe a lot of this is already baked into current prices. So should many of the vacant homes on the market and the amount of homes in default, although significant guesswork is involved. By these measures, home prices have returned to fundamental values (locally, though nationally it looks like some more room for decline). When prices are at levels that make sense, it makes it difficult to forecast. Last year, we had good predictability in house price declines. Currently thats hard to say.

The other primary ingredient in recent months has been the tax credit. This probably has served to hold up prices. Thats not a very organic component. What we need long-term is greater household formation.

Nevertheless, we see that based against the long-run, pre-bubble trend, prices are deeply, deeply below trend, embodying a serious correction and probable over-correction. There still is a potential for further house declines as information often arrives randomly and can quickly alter behavior. But many believe we will have higher interest rates staring us in the face in 2010. That implies that there is a pretty good chance that this is one of the best opportunities to seek out residential real estate, even though there are some artificial ingredients in the recipe for housing prices. The key is to buy smart and if possible below where you think the market is. Then you have a built in buffer on a downward slide or built in equity if prices flatten or bounce up.

Source: Standard & Poors.

December Newsletter

2009-12-22T11:07:00-08:00

Closing out 2009 with an eye towards opportunities in 2010. Click here to read the latest newsletter and see valuable market statistics for the Las Vegas Valley. Expensive to compile but free to you! Yes, even analysts will post stuff in the spirit of the holidays...

Commercial Property Indices

2009-12-21T11:32:29-08:00

The Moodys/REAL commercial properties indices were released today. Looks like the industrial and apartment sectors continue to post declines. Office displayed a bump but I am not sure what is driving that. I suspect it is not a change in trend but just a temporary blip. The levels have appeared to reset back to 2004 and early 2005 levels.

Source: MIT, Real Capital Analytics, Real Estate Analytics, LLC.

House Flipping Making a Comeback

2009-12-20T00:00:00-08:00

Check out this recent article in the Wall Street Journal. Las Vegas is seeing more sales activity at the trustee auctions and will most likely be a viable source for investors in the next few years, particularly in 2010. http://online.wsj.com/article/SB126022588878780861.html

Forbes List of Overpriced U.S Cities

2009-12-16T09:08:00-08:00

According to a recent Forbes study, here are the most overpriced U.S metro areas.

1. Orlando-Kissimmee, Fla.
2. Miami-Fort Lauderdale-Pompano Beach, Fla.
3. Jacksonville, Fla.
4. Baltimore-Towson, Md.
5. Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
6. San Antonio
7. Denver-Aurora, Colo. (tie)
7. Tampa-St. Petersburg-Clearwater, Fla. (tie)
9. Indianapolis-Carmel, Ind.
10. Austin-Round Rock, Texas (tie)
10. Nashville-Davidson-Murfreesboro-Franklin, Tenn. (tie)

Naturally, Las Vegas, after having deep price declines, now far below long run trend (excluding the bubble) is not in the list. They do mention Las Vegas however, noting, "In Las Vegas, it looks like homeowners are pricing homes to clear the market," says Delores Conway, a visiting real-estate economist at the Simon School at the University of Rochester." This is true, after an incredibly weak late 2007 and early 2008 where sales bottomed, we have seen re-ignition of interest in Las Vegas homes as several segments appear to be a bargain. The chief wildcard being how fast employment can bounce back. Conway is right that sellers are more realistic and we have seen very strong sales.

http://realestate.msn.com/article.aspx?cp-documentid=22857795&GT1=35000

Four CCIMs Receive Grant for GIS Innovations

2009-12-08T00:00:00-08:00

Ron Opfer, CCIM with Coldwell Banker Premier Realty was recently recognized with three others. ESRI, the CCIM Institute and the CCIM Education Foundation announced the first recipients of a $1 million grant program. Grant money will be distributed to up to 50 recipients per quarter through next summer. The first quarter recipients are:

Benjamin R. Baldwin, CCIM (Innovation) — Baldwin will design and implement a geospatial mapping and data subscription service for Socialserve.com, a North Carolina 501(c)(3) with a mission to increase access to information about affordable rental housing.
David L. Bode, CCIM (Workflow) — Bode will identify trends and forecast the impact of the potential loss of Harley-Davidson in his community with the ultimate goal of empowering individuals, businesses and community and government organizations to make informed decisions that produce stable economic growth and minimize the impact of a potential economic downturn.
Ron Opfer, CCIM (Workflow) — Opfer will develop analytical tools to help bank officials and credit risk managers analyze distressed commercial real estate, thereby providing value to their overall goals for property management and disposition.
Ben Poh, CCIM (Innovation) — Poh will improve processes for quantifying the gap between supply and predicted demand for senior housing products for different income segments by analyzing demographic data and trade areas for different product types.

CityCenter

2009-12-04T14:45:30-08:00

This was taken last night. I just had to get the shot with the Las Vegas Blvd sign in it. It was the top destination last night. After becoming familiar with the project just after it was conceived and watching its construction almost weekly, its really cool to see it lit up.

Freddie Mac: Rate at 38 year low on 30 year mortgage

2009-12-04T12:17:00-08:00

According to Freddie's weekly mortgage survey, rates are at 38 year lows, averaging 4.71%. This is good news for homebuyers today, although not everyone will obtain that rate. Many will get something lower (remember the 4.71 is an average). However, as we have said in prior posts, this may not last forever, especially as the Fed winds down it's program of purchasing mortgage backed securities. Further, as reported in the Wall Street Journal, if the Fed's expanding balance sheet creates "froth" in the markets, the Fed may need to raise rates more aggressively. Hard stuff to forecast but but we know a couple of things. One, rates are historically really, really low, and second, the probability of rate increases in the coming years is greater than one. If you think housing prices are in line with your expectations, you might want to consider a purchase fairly soon.

WSJ source article click here

Homebuyer Workshop

2009-12-02T15:38:00-08:00

Folks who may be first-time homebuyers or even those who may have owned homes in the past are recognizing that low interest rates, combined with low home prices, makes home ownership very desirable. Purchasing a home involves a lot of questions and one really needs to get these answered in order to make a wise decision.

Workshops are being offered at three Las Vegas Valley locations which will detail the whole homebuying process, from getting qualified to finding the right home. This will even be helpful for those who have owned homes before but had challenges, including credit issues.

Click here to see the times and locations of these informative workshops and to register for the events.

Interest rates are at historical lows...for the time being

2009-12-01T16:38:28-08:00

Dave Reichert Mortgage Advisor PHH Mortgages

There (still) hasn't been a better time for a person to purchase their first home or move up to a bigger home. 30 year fixed interest rates are below 5% again with no points. A point is a 1 percent of your loan amount. Qualified borrowers can borrow money for less than $5.45 per $1,000 financed. Compounding the good news is that home prices in Las Vegas are still at 5 year lows making for a perfect time to purchase. The administration extended and expanded the homebuyer credit to first time homebuyers and now move up buyers (meeting certain criteria) can also benefit from an income tax credit through the spring of 2010.

These features of the market are coupled with the fact that there is less competition during the holiday season. We have seen in recent months that you were up against anywhere from 2 to 15 other offers when attempting to purchase real estate in Las Vegas; historically people wind down their search for a new home because they either don't want to move during the holiday season or are spending their disposable income in malls, shops and restaurants. Reducing the field of competition exponentially.

Additionally, the Fed is winding down their purchase of Mortgage Backed Securities (in my opinion the single most determining factor for why rates are so low in this tumultuous economy) and when they no longer are a buyer of these securities it will be up to a gun shy global community to buy what has been a bad investment for them in the recent past. We can safely assume that the appetite for these securities will diminish. Simple economics tells us that if no one is buying what you have to sell; you are going to have to reduce your price to make it an attractive purchase to your customers. When you lower a price on a security like MBS' you HAVE to increase the yield; read INCREASED INTEREST RATES. The timeline on the wind down is March of 2010. So rates will start to creep up leading into March and after March it's anyone's guess how high rates will go from their without good MBS auction participation.

Buying and not waiting should be on everyone's mind right now. Even if we see a slight depreciation in the coming years to quote a famous quote "this too shall pass." It makes sense over any 15 year period that you analyze the net outcome for real estate is appreciation (at least in nominal terms). Now more then in a long, long time it still makes sense to get into the Las Vegas Real Estate Market.

PHH is funding loans and with a diminished pipeline usually attributed to the Holiday season funding and service are increased...

If you have buyers ready to purchase allow me the opportunity to give them great service coupled with a great rate today!

Conventional

30 year fixed

4.965% with 0 points

4.85% with 1 point

No Lender cost loan

5.125% with 0 points

4.942% with 1 point

Inventory Update

2009-12-01T14:39:00-08:00

Its hard to believe but another month has gone by. Reviewing the current single family inventory being marketed, we are posting about 1,800 REO homes and 3,700 short sale homes that are not under contract. Relfecting on the year so far, we have witness abrupt changes in the marketplace, from slow sales at falling prices to strong sales at leveling prices. We have observed a switch in the inventory levels from REO's dominating to short sales dominating the inventory. Inventories in both categories went cliff diving in the spring and have leveled off since this summer. We expect short sales to continue to be an increasing proportion of sales, partly a function of what is available and partly due to refined processes accellarating the approval times.

Source: Mlxchange. Coldwell Banker Premier Realty.

We are still seeing a large amount of inventory under contract. There is as many single family homes under contract as there are on the active market. Many of these are awaiting short sale approvals. Not all of the sales for November are in, so we should see an increase in sales throughout this week, however preliminary numbers indicate that sales remained strong into November. These months are traditionally slower so these figures are reassuring. Pending sales remains flat but elevated so December may enjoy above average sales as well. The ratio of homes sales to active inventory is slipping a little, but we expected that for the winter months.

Source: Mlxchange. Coldwell Banker Premier Realty.

REITs and Distressed Assets

2009-11-29T14:49:00-08:00

In the November/December issue of Real Estate Portfolio, REITs and some of their respective positions towards distressed assets is examined by Lynn Novelli. As we have been observing commercial real estate assets fall in price, REITs, many with fresh capital, are beginning to aquire distressed real estate and debt. John Paulson, the noted hedge fund manager is quoted as saying "distressed assets offer the best investment opportunities this year." We agree that many of these assets do represent an excellent opportunity and more should be arriving in 2010.

As Novelli finds,REITs that had been previously overleveraged have cleaned up their balance sheets significantly and will now be ready to pounce on these assets as they become available. Listed RIETs have raised over 22 billion in equity this year. As we have noted multiple times, some of these assets have yet to come to market. Investors are teed up and ready but the product offerings have been sparce. Eventually it will happen however but patience is a virtue, especially for getting greater clarity on what a reasonable price to pay for these assets are. On the horizon, it looks like 2010 might be an exciting year where we can actually see some sizeable commercial transactions occur.

Real Estate Portfolio article click here.

Clark County Population

2009-11-25T09:47:11-08:00

We have been very curious to see where population was going in the Las Vegas Valley. This November the Southern Nevada Regional Planning Coalition Board approved it's estimates performed by the member entities (valley municipalities and Clark County).

The population increased from 1,986,146 to 2,006,347. Thats an increase of 20,201 persons or about 1%. This is below the growth rates of the recent decade, although an improvement over last years numbers. Nevertheless, it is an estimate and the degree of cohabitation, which may effect the estimates is not known. These are probably the best estimates we will get however and I have seen the methodology and a lot of the numbers that lead up estimate.

For housing, we need increases in population to absorb current housing supplies. At 2.5 persons per household, this represents about 8,000 households. Growth like this at least takes a small chunk out the vacant housing supply, which is estimated at around 50,000 homes.

A Quite Boom in the Housing Market

2009-11-15T00:00:00-08:00

A good article from today's Review Journal showing the resiliency of the Las Vegas real estate market. Investor activity continues at a brisk pace and expect more investor activity in the year ahead, especially as larger investment groups begin to purchase distressed residential and commercial assets.

Click here for the article http://www.lvrj.com/opinion/a-quiet-boom-in-the-housing-market-70134557.html .

Homebuilders Hunt for Land

2009-11-10T00:00:00-08:00

From the Review Journal: November 7th, 2009

The housing bust left homebuilders with plenty of red ink on their books as they walked away from swaths of land they no longer needed.

But now homebuilders are on the hunt again, vying for choice parcels even in foreclosure-riddled markets such as Las Vegas, Southern California and Orlando, Fla., where prices are cheap and there are early signs of a recovery.

For the rest of the article click here: http://www.lvrj.com/business/homebuilders-hunt-for-land-69451427.html

Inflation/Deflation Outlook

2009-11-09T11:48:00-08:00

We have posted on the inflation topic before. Previously we noted how its a guessing game as to whether we will continue to have deflationary pressures or in the slightly longer term, inflation. My guess is that when the economy recovers, we will see inflation. Then again, I am more of a regional econ science guy rather than a macroeconomist so we look to the Fed for guidance because outside of individual decision makers in the aggregate, the Fed has the most influence.

James Bullard, President of the St Louis Fed, recently gave comments to the Financial Times about inflation, noting that, "I think there’s still some risk of deflation, but I do think the deflation risk is fading as the economy recovers.” He goes on to express, "In the medium term, “you have inflation that will be possibly substantially above target over a horizon of two to four years, and that, I think, is because of the combination of very large fiscal deficits in the US with very easy monetary policy.”

Naturally there is a lot of uncharted territory here but I think if a rebound occurs and the velocity of money increases, we could see inflation. As we noted before, one protection may be in real estate, which has been noted to increase with inflation (so often in real terms flat but that’s far better than steep drops in other assets) but the upside is that if you have a mortgage today, now at less than 5%, you are paying that money back with way cheaper dollars but the asset you control is still going up with inflation.

Link to the Financial Times Interview, click here.

Strategies for Operating in the Distressed Commercial Property Market

2009-11-06T17:09:00-08:00

Here is a good article on distressed commercial real estate and how each type of player in the market has a different perspective, from owners dwelling on past numbers to investors looking towards the future. We are talking to investors that are looking at opportunities in Las Vegas. Here is an excerpt.

"A new breed of distressed-asset investors, frequently referred to as vulture capitalists, has emerged in the past 12 months. These cash-rich buyers are pooling funds to pick up troubled commercial real estate assets at bargain prices. “They are about the only ones with enough cash and no immediate expectation of financing being available soon,” says Ron L. Opfer, CCIM, director of commercial assets for CBPR Asset Solutions Services, a division of Coldwell Banker Commercial in Las Vegas that assists banks with distressed assets. “That is why they underwrite with a high internal rate of return. They are stepping up and taking a huge risk. They are entitled to a return that reflects that risk.”

That sums up a lot of it but check out the whole article here.

CMBS loans - Risk on the Horizon

2009-11-05T12:33:00-08:00

From an artilce by Loopnet and quoting some Bloomberg numbers, $31.3 Billion of CMBS will face higher debt service requirements in the next year. The interest only periods on the loans will be ending and the properties are not cash flowing as expected when the underwriters originally calculated the loans.

These are spread out all over the country and there is not a lot of securitzed commercial loans in Las Vegas that we know of, however this poses further risks to bank capital requirements and hence, limits credit availabiltiy as a whole, especially for the commercial property sector.

Loopnet article: click here.

Fannie Mae Deed for Lease

2009-11-05T09:11:00-08:00

In an effort to keep people in the homes that they currently reside, or perhaps to prevent delapidation of vacant homes, Fannie Mae announced a program where people can perform a deed in lieu of foreclosure and then sign a lease at the market rate. The lease is good for up to one year and then it is month-to-month. It will be interesting to see how they appraise that market rate.

Its hard to say if this will have any stabilizing effects on neighborhoods. Fannie Mae does have a lot of exposure in the Las Vegas area. Check out the press release here.

Market Status Update

2009-11-03T11:33:00-08:00

October numbers continued to reflect the fractured housing market, where short sales continued to make up a greater proportion of the active inventory but for which the failure rate (falling out of pending or not meeting a contingecy for sale) is still high. We have essentially two different product types on the market, either REO or short sale. The mechanics of getting the deals done is distinct for each type.

REO inventories are moving quite well and in a more orderly fashion. However, valuations are still hard to peg given the multiple offer situation. Nevertheless, a high proportion of the REO properties that go under contract close. This is not so true short sales. This market is better understood as having two many parties to the transaction. Many of these transactions are not that orderly but without chaos there can be no order I suppose. Agents in our office are managing to get these deals done though, and if there was anytime where a commission is really, really an earned commission, that time is now.

The current recession has forced changes in many aspects of business and culture. I was hoping that the recession would lead to hip hop having its "grunge era" and returning to its roots on the street. I was also hoping that rock and roll would go back to some more introspective and original writing. Unfortunately those things haven't appeared. What has happened has been housing returning to its roots as a place to call home. This has been something that has made sense, where housing has returned to affordable levels (although it may be overdoing it in some home segments).

Changes in the market have also lead to some rigidities we didn't have before. Over 70% of the contingent sales on the market are still awaiting short sale approval and this can be very sticky as banks attempt to squeeze as much as they can from the seller, killing some deals.

The exhibit below shows that while much of the SFR market is tied up, the proportion that go to pendings still stays pretty flat. This implies that most of the contingent offers really are just tying up the property.

Source: Mlxchange, Coldwell Banker Premier Realty.

Where the foreclosures are

2009-11-02T09:34:00-08:00

Here is a graphic from the Las Vegas Sun showing where the foreclosures have been taking place. Foreclosures are more directly tied to high purchase prices rather than employment only since once a household is deeply upside down, especially when they owe 40% or more than the home is worth, there propensity to pay the note falls dramatically. This is irregardless of their employment situation.

The areas like Mountains Edge, Aliante and Providence were recent masterplans and naturally anything built during the 2004 to 2007 years is going to have a lot of walking away. The age of the homes is also a reason why some good buys are available in these areas. These are modern styled, recently built homes and there are several configurations to choose from. I always recommend a home inspection but there are certainly fantastic homes out there.

S & P Case Shiller Begins to Confirm Flattening

2009-10-27T14:00:00-08:00

The S & P Case Shiller numbers came out today, which reflect August numbers. This is a repeat sales index and it takes time to process the numbers. In a couple places, including our monthly real estate reports, we noted the flattening occuring in the median indices. Also, Radar Logic's index for Las Vegas demonstrated an increase in prices.

We won't say that yes, we are at a bottom until several indicators demonstrate that. One of those indicators is the Case-Shiller index. The other indicators include notices of default and trustee sales, which remain elevated. However, as we have stated in other posts, you don't need to time the bottom exactly if you frame your purchase decision within the bounds of well informed risk-reward parameters. Further, if you know the market well, you can buy smartly and find real estate that is below the market. You can think of this as built-in upside in the short-term and a buffer against a possible decline in the overall market in the longer-run.

In the Case-Shiller exhibit, you can see the index arcing towards a flattening. Additionally, the index is far, far below its long-run trend. That long-run trend does not incorporate all of the appreciation during the 2002-03 period, in which housing did participate in some strong employment driven growth. This period was slightly uncommon, so we leave it out. Nevertheless, strong fundamentals were in palce ahead of the boom and that was part of why the boom took place in Las Vegas. Investors responded to the strong employment and population growth. What the initial investors did made sense. The ones that followed were part of the herd mentallity.

We have given all of the bubble gains back. Today we sit below long-run fundamental values and part of this is due to knowledge of dark homes not yet on the market, as well as weak employment. For those working, you can buy (according to the Case-Shiller Index) a home at early 2000 values. For a lot of folks, that served to shrink their costs substantially. There is a lot of opportunity in todays market and after a strange decade, some things do make sense, like having a mortgage at a fraction of your income.

Source: Standard & Poors.

What to expect when purchasing a home today

2009-10-23T15:06:10-08:00

What to expect when you’re expecting to purchase a home in the current “Buyers Market” when applying for a loan…

A play on a book title but an appropriate subject to discuss… the first word(s) that comes to mind is extra scrutiny if you are applying for a mortgage. Gone are the days of “I have good credit rating and I have a million dollars in the bank I want to state my income. All lenders are turning a critical eye to the haves as well as the have not’s and will continue to do so for the foreseeable future.

To shed a positive light on an otherwise gloomy statement is that mortgage applications ticked up in the 3rd quarter as rates dipped again. Rates have slowly risen and applications have trickled off somewhat but there is still a healthy application rate as the looming deadline for the First Time Homebuyer’s tax credit approaches.

Investors cannot be left out of the equation and are making up a lion share of purchases below the $100,000 mark as they are able to purchase with cash and close quickly. With lending guidelines and turn times for loans increasing due to new legislation such as: Home Valuation Code of Conduct – lengthening the time it takes for appraisals being performed, “3/7/3” rule regarding disclosures and effectively ruling out a quick close if financing is required and lastly on the State level legislation regarding the “Nevada Good Funds” rule that puts holds of up to 10 days on certified funds physically brought to title companies at the time of close, you can see why sellers are often opting for cash buyers who are only slightly impacted and can close quickly in this price range.

Historically low interest rates are also headed to higher ground as the Fed begins to wind down their purchases of Mortgage Backed Securities and it will be left to the open market again to dictate interest rates. What that equates to is that the insulation from the Stock Market fluctuations will also come to an end because in a typical market (one without the assistance of the Fed buying the MBS’) stocks and bonds fight for the same dollar. So as the stock market goes the inverse happens to the bond market – a run up in the stock market means a rush of money out of the bond market and a byproduct of that money flow is higher interest rates.

So now you ask- I am looking to buy what can I do to position myself as a strong buyer? -Get pre-approved not pre-qualified the difference between the two is your documentation has been reviewed and the other is that you have simply had a conversation discussing your situation.
-Meet your lender and provide them all of your income and asset information so that the lender can write a stronger approval.
-Expect to re-submit up-to-date pay stubs and bank statements more than once throughout the process to show that you are still qualified.
-DO NOT MAKE ANY NEW LARGE TICKET PURCHASES during the process on your way to closing. Wait to buy your furniture and any appliances you may be eyeing until AFTER your Real Estate Agent slides you your keys.

There is a lot to digest here but the take away of this article is to get in the game NOW. If you are considering buying now is a great time to go and get pre approved. PHH Mortgage charges nothing for you to get pre-approved and you’ll be surprised how easy it is to accomplish. Investors are not the only people buying homes there are plenty of people just like getting in the game and winning some great properties at great prices with great mortgage rates. With all of the changes that are coming this may be the best chance you have to realize the American Dream of home ownership!

Dave Reichert CMP

PHH Mortgage