On my most recent blog I wrote about loans that home buyers can get even if they don't have a social security number. 

In the comments, Janet Guilbault, California Mortgage Expert, a fellow Active Rain member, whose opinions I respect, asked if I would write a blog about what is going on in the Las Vegas market and incredible amount of bank-owned property we have.

Janet asked, "Have you done an article about lender-owned properties around Las Vegas and the challenges getting investors financing? I, for one, would love you to write this blog. I hear rumblings from my California investors that there are lender-owned properties being deeply discounted.  They seem to be ready to pounce on them. What is the market like there? Is this true? Also, does the lender selling the house want to carry the loan themselves? Again? Or do they just want to make sure the buyer is solid?

We all saw yesterday's news that inventory in relation to sales is at its highest peak in 16 years, according to the National Association of Realtors.  And that was before the dramatic lending changes of this past month.   We can all expect that number to swell in the coming months.

Las Vegas is no different.   In fact, we are one of the leaders of swelled inventory with around 27,000 homes for sale. 

As I always write, to understand where we are we have to understand how we got here.

I am a lifelong Las Vegan.  Its hard to find many of us.  My folks moved here when there was 70,000 people.   I bought my first house, a 2200 sq. ft place to start a family, in 1990 for $136,000.  All the money in the world for me at that time.

Hundreds of thousands of people moved to this amazing city over these years.  One of the biggest reasons was affordable housing.    I sold that house in 2000 for $170,000.   It had appreciated by 25% over the 10 years I owned it.   And thats how the Vegas market was.

Then in 2001 or so it all changed.   Creative mortgages created more home buyers.  The lowest interest rates in 40 years fueled a national buying explosion.  

Las Vegas became one of the places to be for investors.  Investors came from all over the world.  There was far too much demand for the limited supply.  

I believe, at one point, there were less than 2000 houses for sale in our whole valley. 

You see Las Vegas is in a valley.  At the edges of our valley all of the land is owned by the federal government.  We cannot grow outwards without the release of land from the government.   And they release that very slowly.

The appetite for homes in Las Vegas was incredible.  Land prices skyrocketed.  Combine this with the high cost to build and high demand but low supply, and we saw 50% appreciation in one year. 

Some neighborhoods saw 100% appreciation. The average sales price went over $300,000.

The government held auctions to sell land to developers.  These auctions would yield hundreds of millions of dollars to the federal government.  

The auctions were so profitable that the Bush Administration, at one point, threatened to change the way the monies were split with the local municipalities because they saw Las Vegas land sales as a financial budgetary windfall of cash to help pay for the war and other deficit concerns.

To meet demand, developers built large master-planned communities and huge subdivisions all over town.  They even built high-rise skyscrapers to combat the land situation.  If you can't go out, you have to go up.

Investors snapped up every product offered.    

I attended a lottery for a new home tract.  10,000+ people showed up over three nights in a convention room of a major hotel to get a lottery number for the right to buy one of 200 homes. 

We will likely never see anything like that again.

Then the market crashed.  Prices got too high to make sense.  Interest rates went up.  The investors bailed.   And it turns out, the builders built way too many homes.  They never saw the end coming.

The homes the investors had bought and planned to flip were now theirs to maintain and they couldn't maintain the payment.  That was the first wave of foreclosures.  Then came the interest-only 100% loans.  Then came the subprime loans.

People will tell you that Las Vegas, as a whole, hasn't depreciated much in the past few years, which is true.  However, there are neighborhoods that are down 25-50%.   

These are the neighborhoods that were built during the boom and some of them look like ghost towns today because half of the homes in the neighborhood are bank-owned or owned by an out of town investor.   They are vacant.  

Ask any local agent to show you homes in developments like Aliante, Silverstone Ranch, and Mountain's Edge.    You will find homes that are $100,000's below what they originally sold for.

I recently read a story that said one of every three homes listed for sale in Las Vegas is vacant.   That is an amazing statistic.   There are around 27,000 homes for sale right now.  That means 9,000 or so are vacant.   

Thousands of these are bank-owned or "REO" for real-estate owned. 

As the credit markets tighten like we have all heard recently, these banks want to turn these homes to cash to sustain their banking business.

But what does that mean to you and your investors?  Opportunity!

Vegas is still growing like crazy.   This is projected to be the hottest job market in the country over the next five years as mega resorts are popping up all over the Las Vegas Strip.

Check this out.   According to a report by Deutsche Bank Securities, "the casino industry will need 113,500 more workers to fill the spots created by the new resorts that are now under construction.   Unless the city's population growth begins to accelerate, 25,000 of these jobs will go unfilled."

Now, that's what I call positive job news for potential investors.  

If you are interested in buying an REO property you should read my blog "What to Really Expect When Buying A Bank Owned Property" first as it has some helpful tips.  

I also wrote about buying a home when everyone else is afraid in Buying a Home in Today's Market: Contrary to Popular Opinion.

But to answer Janet's questions and I would love some of the talented Las Vegas Active Rain agents to chime in here....  Yes, some of the banks are offering deep discounts on a lot of properties but not in all areas.  Banks are smart.  They know what the true value of the home is and in what neighborhoods.   You will likely have to do your research and be prepared to make some repairs to really "steal" something.

And, no, according to most of the REO listing agents I deal with you don't have to adhere to that part in the listing that says the buyer "must be approved by our bank."  

That "requirement" usually comes from the sales department at the bank looking for a commission check.  The REO Department, and most banks have them today, couldn't care less so long as the buyer is qualified.  They want to turn the asset to cash.

By the way, you know that neighborhood where 10,000 people entered a lottery for the right to buy a home?  Last I checked that neighborhood still wasn't sold out and they were discounting prices $100,000's as well.

I remember sitting in that convention room with thousands of others thinking that it was insane for the builder to hold a lottery and not to sell all 200 homes for cash over those three nights to the highest bidders.    I am sure they could have sold it out and cleaned up.

When opportunity knocks, we have all been taught, you have to take advantage.   Today's Las Vegas market may just be a similar opportunity for those who have the courage to take the chance.  

If you are really looking to steal a home and you have patience and the finances to fix it up a bit and wait, I can think of no better place in the world to take a chance as an investor.

UPDATE:  After I posted this, a Las Vegas agent who specializes in REO sent me the following email privately...

"Actually 44 percent of the homes for sale on the MLS (in Las Vegas) are vacant, not a third. Also, about 10 percent are short sales and another 10 percent are bank/corporate owned.  We work with several banks and we are seeing lots of foreclosures coming."

Even more incredible than before.  This means that nearly 12,000 houses are vacant.

 
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15 Comments on The Las Vegas Housing Market Mess and The Opportunity It Provides Your Investors

AUG
28
2007
Great post Aaron, I guess i kind of keep to my own and don't pay AS much attention to other states. Rather the conditions of my own instead. Las Vegas has definitely made quite the swing from when things were sky rocketing out of control. It'll definitely turn around if they are going to need that many jobs filled. Everything seems to have a way of correcting itself. With the recent downturns comes opportunity which brings in investors and people wanting to take advantage of it.    
11:39pm • #1
AUG
29
2007
11 Featured Posts

Rick--- There is no doubt that our market was the extreme version of what was going on all over.  You are right.  The good news is that we should be able to take some relief in the job market.   But at the end of the day we have to convince these newcomers to buy houses and we have to be able to get them loans.  However, I do think for smart investors with the ability to wait it out, now is a great time to start looking for a winning deal.

 

1:28am • #2
Aaron, great post, thank you.  I have been toying with buying something in Vegas for a long time.  Perhaps the time is near.
1:58am • #3
11 Featured Posts
Thanks, Darrel--- It certainly isnt a bad time to come and "kick a few tires."  And, worst case, you have a great time here nonetheless!!
2:01am • #4
124,440 Points 84 Featured Posts Localism Sponsor Outside Blog

I gave you a 5, and have bookmarked. I will definately be showing this to my investor clients. You did an excellent job of describing why investors here in Calif. have picked up the scent of incredible opportunity in Las Vegas. I especially liked your history of the market there,,,,what an amazing story.

To have so many vacant homes is sort of eerie. My investor client just got into contract on an REO...yes, lender tried to steal the financing from me, but that is another story.....House had originally sold for $460K, he went into contract for about $200,000 less than this. Lender who owned has been in the news lately.....starts with a C....lost their shirt on this house...and how many others do they own? Something to think about.

I think that Mr. Opportunity in the Honda commercials should start talking about Las Vegas real estate.

 PS This is the third house my San Francisco based investor has bought in Las Vegas. He also has Texas houses. Refuses to buy the "overpriced" houses in California.

6:33am • #5
383,683 Points 48 Featured Posts Localism Sponsor Outside Blog
Hey Aaron!  I just want to add something interesting.  The short sale listings are EXTREMELY hard to show and those are the ones that are priced at fire sale prices.  There is currently 43 months of short sale listings on the market today and I find this number astounding!
8:22am • #6
11 Featured Posts

Janet---  Thanks!  You are a great motivator!  The "C" bank owns a ton.  However, I recently heard they are adding a massive staff of note modification people.   Like other banks, it's time to go to Plan B and that is to help people stay in these homes and not spend the $70,000 it takes in foreclosure.

Renee--- Those numbers are mind-blowing.  All of this inventory is just incredible.  That's why I am always so surprised by those in our market who try to tell you, even today, that this depreciation cycle will last "six months, a year max!"  

43 months of short sale inventory.  Probably another 43 months of REO property.  In 2006, 14% of all mortgages were subprime.  Of these, 75% were 2 year ARM that adjust NEXT year in 2008.  That means that 10% of all mortgages are going to rates of somewhere between 10-15%.   How many more short sales and foreclosures does that represent?

Now, I do believe that note modification will be huge next year and probably the norm, however, this cycle will be here for years. 

Thats not to say there arent great deals out there for people, because there are tons.   But overall market performance will be down for a long while.  Heck, we had 50%+ appreciation in one year.   Many markets dont get that over a lifetime.

9:24am • #7
SEP
04
2007

I am one of those greedy california investors that invested (too late) in Las Vegas and now regrets it.

My gut told  me "no" but my greed got the best of me.  I have 5 cracker box, Signature homes in Solana and  Solana Terrace.

2 vacant, and 3 where the tenants are often late.  Most of my real estate investments are solid, but I really missed on these.

I am tempted to start dumping them for less than I paid, but that greedy side of me, tells me that in 2 years they will appreciate.

Do you have  any insight into these neighborhoods??

guilty
2:05pm • #8
11 Featured Posts

Guilty---

You are certainly not alone!  I am going to forward this to one of the talented Las Vegas agents, who associate with me here on AR and have them answer this about those neighborhoods. 

2:09pm • #9
4 Featured Posts

43 months worth of short sale listings alone? With that kind of inventory out there, why hasn't the price gone lower than what we've seen thus far. That can't possibly be right, can it?

Talk about opportunity......this is definitely a time to look at Vegas as a "when do I invest market", not "do I invest?".

Phenomenal content as always!

5:11pm • #10
11 Featured Posts

Bill---Its incredible isnt it? 

I think the reason why the prices arent lower is that the banks, holding these REO, believe in the future of the market as well.  At least up until now they have.  

They know the jobs data, the growth, and the monthly move-in's. 

You know these banks way better than I do but I think part of their thinking is "someday soon we will sell this asset for close to what we want, so we won't give it away today...this market will come back and pay us close to retail for this home."

5:20pm • #11
SEP
05
2007
3 Featured Posts

Guilty:

Aaron forwarded your comment to me and asked me to give my 2 cents worth on the topic.  Without knowing the financial details of each property, it's difficult to give a generic response.  However, this is what I know.  Sometimes it is necessary to stop the bleeding.  

Ideally, it could take us 5 years or more to see values greater than what they are today (in my opinion).  There is far too much inventory, lending guidelines are limiting buying power (not to mention desire) etc.  In addition, we cannot overlook the builder inventory & incentives that we have no choice but to "try" and compete with.

If you would like to email me with details on each property you would like evaluated, I would be happy to prepare a financial summary reflecting your expectation of return etc.  Then you will be in a position to adequately assess your options & make an educated financial decision.

I wish you all the best!

 

1:19pm • #12
APR
11
2008

I have been watching your market closely for several months.  In Florida, we have more foreclosures, higher taxes and Insurance rates that have quadrupled.  We are not creating jobs, as NV is.  I have recently purchased a house with two other ladies that was rented before we closed.  I believe that one of the problems is that many owners do not know how to market their properties.  Yes, we got a 30 yr fixed with 15% down...nothing like the good old days.

I have put offers into 2 more homes and have gotten beaten out by another bidder.  I am trying again and hopefully this one will be accepted.

Dollie
9:36am • #14
Here's a suggestion from what my fiance and I were talking about recently.  We live in Tennessee.  We've always liked Vegas and we have talked about buying a property out there now that it is such a buyer's market.  I suggest marketing to other parts of the country that you probably haven't thought about.  Californians are familiar with Las Vegas because of the proximity but Vegas is a huge tourist attraction for people all over the country and all over the world in fact.  A lot of people buy homes in the South for vacation homes.  I think the ultimate place to have a vacation home would be in Vegas.  Just a suggestion.
12:01pm • #15

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Aaron Gordon, Home Loan Consultant, Las Vegas, NV

Las Vegas, NV

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Home Loan Consultant

Office Phone: (702) 304-8905

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