Developer Services Blog

Home prices and mortgage rates

2010-09-08T09:50:02-07:00

David Leonhardt had an interesting post in the New York Times business section today. He provides an exibit of home prices against mortgage rates. As you can see from his chart, the relationship is not very close, that is they are not cointegrated. The relationship betweent the two series is not direct, presumably because the borrowing rate is not the only variable people need to think about prior to their home purchase. Job growth, family size, comparable rents and other factors are mixed in there too. Nevertheless, a combination of low prices and low rates does make a purchase more attractive (though many still use cash). People really do care about a monthly payment and in many cases in Las Vegas, a monthly payment is often lower than in a comparable rental. The other factor in the decision is how a home purchase may effect your mobility and where you want to raise your family.

http://economix.blogs.nytimes.com/2010/09/07/mortgage-rates-and-home-prices/

Incentives in Commercial Real Estate

2010-09-02T09:13:10-07:00

National commercial real estate trends continue to reflect weakness. Housingwire.com (Gaffney, 8/26/10) notes that 88 percent of respondents to a development survey stated that development was almost non-existent in their markets. Such is the case here in Las Vegas as well and while there is still some construction in office, retail and industrial, there is almost no planned product and no planned product that we are aware of in industrial.

Similarly, on REIT.com, Green Street Advisors analyst Steven Frankel also notes weakness in the industrial sector with "subdued net absorption." Rents are also expected to remain weak. A rebound may be a way's off. This is also the sentiment of many in the Las Vegas market. While Las Vegas' industrial market is very small compared to coastal cities, it is an important component of our economy and is very connected to the hotel & casino sector, since that is the key driver of activity in the region and since industrial space is often absorbed or vacated depending on the level of convention activity, slot machine manufacturing, food storage and whatever else you can think of. Until we see a stronger rebound in the hotel sector, we can expect some muted responses in net absorption.

Nevertheless, there has been leasing activity, often to lower occupancy costs by existing firms. There have also been investor deals. As always, as long as things are priced right, buildings can still sell. It has just been difficult to obtain a meeting of the minds between buyers and sellers, whose expectations about the future of the sector has been a wide chasm.

Overall, tenants are the ones who have been finding deals, sometimes within sublease space and have been able to drop their costs by substantial amounts by either finding cheaper space or smaller space that better suits the level of their current business activity.

Adjustment in Commercial Real Estate

2010-08-23T09:48:51-07:00

We have discussed the buyer-seller disconnect several times. Few commercial transactions have been consumated in the past couple of years as sellers have either refused to lower prices due to a different read of the fundamentals, they cannot liquidate due to capital constraints (writedowns for bank owned) or that they simply do not understand what they own or just replace number driven judgements with hope. Similarly, some buyers are unrealistic about pricing. They often believe that everything is distressed and can be obtained at a price below the appraisal or opinion of value. This is often stemming from the belief that fundamentals are still too weak or declining.

Owner-users do appear to have a higher willingness to pay for commercial space, however they are not the largest component of the potential buyer pool unless we are talking about smaller spaces or some improved frontage since most of the space that is being purchased or leased in the result of owner/tenant churning within the Valley as firms attempt to either lower their occupancy costs or find a higher traffic area. Overall absorption of vacant space has still not turned positive.

So what has to happen for transactions to occur? Like housing, prices should decline as values are reset to new fundamentals. Interestingly, Moody's is measuring an increase in transactions as prices have fallen, with volume increasing from $2.1 billion from $1.5 billion for the month of June year-over-year (housingwire.com). Such price declines are necessary before any bottom can be obtained and the subsequent recovery can begin. The recovery cannot begin when nobody knows the price of anything.

Source:
http://www.housingwire.com/2010/08/20/commercial-real-estate-hit-with-41-price-drop-and-soaring-delinquencies

More on Repeat Sales Indices

2010-08-09T17:17:11-07:00

We have a bit of a fascination with real estate price indices. This is simply because of the disparity in different measurements. At Market IQ, we tend not to like average prices since averages are sensitive to outliers. However, when we go out with buyers and look for homes, we tend to "feel" the average more than any other number so it does have its utility in describing the market. Medians are useful but imperfect as well since like averages, they are affected by the changing mix of home sold in each sample period, such as size, age, finish level, location.

We find repeat sales measures to be more realistic in explaining the trend since median prices have masked a lot of the same home price changes, especially as builders began making smaller homes on very compact lots. These are indices however so they are a little esoteric for folks who are not numbers junkies. In addition, Morgan Stanley has noted that an increase in the prevalence of short sales, which we find to sell for higher prices than bank owned homes, are causing the Case-Shiller, RPX and Morgan Stanley's own index to jump so severely in some metros that it just didn't seem realistic. The Morgan Stanley analysts question the validity of these measures for looking at national trends (from housingwire).

The Las Vegas area has had enough REO (bank owned) activity to keep pressure down on the indices so we never noticed anything as severe as the changes in the San Francisco trends, for example. I am considering building a "constant quality" index that will attempt to control for whether or not the sale was a short sale, REO or equity seller.

CoStar has also developed repeat sales indices for Commercial real estate. This is a very welcome development and I am glad CoStar has taken this mission since it is certainly not easy work. Previously, we had noted the Moodys/REAL Commercial Property Price Index and it is nice to have an alternative to check against. These indices tend to be a little bit too regionally broad for our local use since our CRE is so related to the gaming industry rather than international trade or manufacturing, however, institutional investors might find this useful.

Source: CoStar.

Sources:

http://www.housingwire.com/2010/08/04/for-investors-sake-morgan-stanley-questions-power-of-home-price-indices

http://www.costar.com/about/article.aspx?id=7719

Top Cities for Absentee Buyers

2010-07-09T12:02:35-07:00

On this blog we have discussed several times about the amount of investors absorbing inventory in our market. We've bought a lot of homes for investors in the past year but it has really piled up in the past few months. Many of these properties obtain solid returns, especially among older properties which are often getting 8-14% ces. It is difficult to find these returns in any asset class in today's world. Inman News has a great article on this phenomenon in Las Vegas and elsewhere.

http://www.inman.com/buyers-sellers/columnists/stevebergsman/top-cities-absentee-buyers

Contingent and Pending Activity

2010-06-07T08:40:00-07:00

Everyone has been curious about the impact of the tax credit on sales. We are seeing a dip but no cliff diving. We have expected that some demand would be pulled forward from the latter months of 2010. Since about half of our market has been investor sales that are not qualified for the credit, the effect may be muted more in Las Vegas than in other areas. The ultimate effect on sales post tax credit may end up being a popular question but with an academic answer. It is going to be hard to disentangle. So far continued low mortage interest rates have kept some in the game. Other macroeconomic factors may trickle down in some form to local housing sales and a lot of this may be mistakenly tagged to the expiration of the tax credit. We know that the expiration will have an effect but by how much is hard to estimate.

Here are the contingent and pending numbers up to May. Don't forget, a lot of the contingents are based on a short sale approval, so many of these will not convert to closings anytime soon.

Single Family Home Sales
.
Source: Mlxchange.

Housing Derivatives

2010-06-02T09:09:46-07:00

It is very common in the United States and elsewhere to use markets to hedge risk. Farmers, who are long whatever they grow, often sell futures on those same products. That way if prices slide by the time they harvest and bring to market, they have already sold at the higher price if a price decline indeed occured.

I have been surprised that in the United States that futures products like the S&P/Case-Shiller are still thinly traded on the Chicago Mercantile Exchange. Property derivatives are much more popular in the UK. After all of the misery associated with poor risk management in the past couple of years you would think interest would increase. Nationally, home prices may still have some slack towards the downside, although I think bubble areas like Phoenix and Las Vegas are already trading at discounts because they fell faster (with annual rent/sale price ratios higher than 10). Commercial appears to have even more slack and needs to reset lower. Right now some sellers are trying to price in a recovery, but it will take at least several years to fill the vacant existing space. You really shouldn't see price increases in a widespread condition for some time. Having an efficient method to hedge these risks would be great.

REIT magazine recently interviewed Robert Shiller about some of these concepts. Its a quick read and worthwile. Please click to find it.

Pricing Update, Case-Shiller & RPX

2010-05-27T14:04:00-07:00

Recently the Case-Shiller numbers for March were released. The low-tier index (under $125,000) continues to be show an apparent improvement. The middle-tier ($125,000 to $192,000) and the high-tier (over $192,000) continues to be flat or slightly downward bias. The Radar Logic RPX demonstrates a similar pattern. Median indices, which we can calculate more currently, demonstrate continued flattening.

Who knows how much of this was market held up by the tax credit that expired in April. In the Las Vegas market, we have had so many investors purchasing that they don't really factor in to the tax credit portion unless they planned to flip. Thirty-six percent of the MLS single family sales from January to April were closed with cash. Another twenty-four percent was conventionally financed, which requires a higher downpayment than FHA loans. FHA composed 31% o the financing on sales so that is really the proportion that may have needed the tax credit carrot to make their deals make sense. It may be a while to see the effects of the tax credit and it will also be hard to disentangle. Anecdotally, we are personally seeing even greater investor traffic, especially from foreign buyers. This may offset the weaker demand from the tax credit type buyers. In addition, banks have never released as many REO's as they said they would. Anyhow its hard to ignore 1990's pricing and often 10+ cap rates on rentals.

Source: Standard & Poors.

Economic Indicators

2010-04-08T09:41:00-07:00

This post dovetails off of a Wall Street Journal article printed today called "New Ways to Read Economy." I've seen the diesel fuel sales and the counting of train passengers but I think one of the neatest indicators (or at least a gauge of interest) is Google Trends, which shows trends in visitor traffic by search term.

Here are some examples.

You can see that the housing tax credit is still on an upward trend, though spikes occur around news releases.

The search for Las Vegas hotels has jumped substantially from the latter months of 2009 and then leveled off. The vertical jump in December was most likely a result of CityCenter's debut, although it looks like there is some sustained interest.

Short sales are the new big concept following a couple years of "REO" dominating housing headlines. A lot of people want to know how to short sell a home.

Luckily, for all of those short sellers out there (of homes, not stock), there are homebuyers too. I used the term, "how to buy a house" because I thought that's what a first-time buyer would type in. It's a clear upward trend with some seasonality evident. Searches jump in the beginning of the year and taper off towards the end. 2009 was a little different, with a peak in the middle of the year. That's about the time we experienced really good sales in Las Vegas and an end to the big price declines.

Residential Investors

2010-04-05T15:49:57-07:00

Of all the fancy indicators demonstrating a bubble in home prices, nothing was as telling as shows like "Flip This House" or "Flip That House.” During the time this programming was first presented, I was a consultant thinking that this programming was the equivalent of an "end is near" sign for residential prices. When you have a cab driver or you hairstylist (I’ve never actually had a hairstylist but you may) or the kid across the street that mows your lawn tells you to buy another house, maybe things are oversaturated. Same for the daytraders which sprung up everywhere during the tech bubble with documentaries about Mountain Dew slugging twenty somethings so glued to the computer screen they barely had time to load a pop tart in the toaster. I could hardly consider any of these folks “investors.”

It’s different today. While “flippers” have been back in the news, it’s not the same breed of overleveraged individual participating in this market. The people who buy at trustee sales or attempt to purchase homes in bulk are usually well capitalized firms that perform deep due diligence. They are the heroes in today’s market, taking the risk of buying a home that may have less than obvious issues and making them move-in ready. That’s a real value added proposition as many people, especially first-time buyers, cannot raise the cash to buy one of these homes, much less pay thousands to fix it up. It’s much easier just to roll it into the mortgage loan. Without the investor, it would merely be another vacant home withering away.

In addition to making homes available for sale, investors are purchasing homes for cash flow. Often these homes are purchased from a bank, are fixed up and then rented. You can buy them with a lease in place and we’re seeing some respectable cap rates, even above 10%. br />

In the exhibit below, we note that there are a few hundred more listed single family homes in March of this year versus March of last year with tenants in place. While homeownership for owner-occupied families is great, it’s also important to understand that a well functioning rental market is good too. This is real organic use of resources, unlike the bubble years where investors couldn’t care less if it was occupied as long as it appreciated. The key is to have occupied homes.

Source: Mlxchange.

2009 Summary Report

2010-03-29T16:38:17-07:00

We've posted our 2009 Las Vegas Real Estate Report online. There is extensive information regarding the residential real estate market. Click here to view.

Mark-to-market

2010-03-15T13:52:00-07:00

Today there was an interesting article in the Wall Street Journal regarding possible strengthening in mark-to-market rules. Banks have often been opposed to these rules because they are forced to write down values in times when they believe markets to be irrational, when investors flee a market based on fear. Conversely, banks may be holding loans at artificially high-values. Investors are tired of this, knowing that banks are holding some loans in la la land and are not moving forward in moving these loans and ultimately the collateral, like commercial buildings, to market. Many investors might be happy to see banks looking at their portfolios more realistically. On the other hand, can many banks find the provisions to offset the losses?

For the WSJ article, click here.

Expansion in REIT values expected

2010-03-12T09:01:14-07:00

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

2010-03-01T11:46:55-07:00

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

2010-02-26T00:00:00-07:00

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

2010-02-16T09:22:35-07:00

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

2010-01-28T10:00:32-07:00

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

2010-01-26T18:25:15-07:00

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

2010-01-22T11:33:00-07:00

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

2009-12-29T12:35:00-07:00

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

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

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

2009-12-21T11:32:29-07:00

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

2009-12-20T00:00:00-07:00

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

2009-12-16T09:08:00-07:00

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

2009-12-08T00:00:00-07:00

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

2009-12-04T14:45:30-07:00

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

2009-12-04T12:17:00-07:00

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

2009-12-02T15:38:00-07:00

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

2009-12-01T16:38:28-07:00

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

2009-12-01T14:39:00-07:00

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.