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.    

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.

Aaron, great post, thank you.  I have been toying with buying something in Vegas for a long time.  Perhaps the time is near.

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!!

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.

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!

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.

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---

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. 

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!

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."

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!

Hi  Aaron,

I've been reading your blog with keen interest for the past couple months. Great contributions!!!

I live in Alaska and have been through a melt down in the Real-estate market. Although the circumstances are quite different, the results are quite similar.

In the 70's with the Alaska oil pipeline under construction, we had a huge influx of workers etc. Being a rather small population this had a big impact on the limited housing, short construction seasons and land constraints. Home values soared beyond their worth, land values did the same. People were living in everything and anything that had four walls, and maybe a roof, in addition to tents and trailers.

In Alaska, we have a State run entity called Alaska Housing Finance Corporation (AHFC), probably similar to Freddy Mac. It uses the Alaska Permanent fund for backing and run various programs patterned after many you see out there today low income, first timers etc, kind of an in State thing. With the need for housing, they began financing condo's. There was a limit on those of $39k and initially the builders were selling them like hotcakes. Soon, with land and construction costs going through the roof, they could no longer build and sell them for that and the talk on the street was the upper limit would have to raise and the builders kept building them knowing that may happen. They did in fact raise the limit to $60k and every single condo was instantly worth just that. This was all well and fine except the only was a simple change in the limit. They flew off the shelves, many shoddy at best and thousands that were worth roughly $39k were now worth $60k, overnight.

Then, the pipeline wound down, the country went into a recession, and the price of oil dropped to less than $10 a barrel. The oil companies cut back, laying off hundreds of people which in turn caused hundreds of other support companies to do the same. People were losing jobs, and began turning in their keys and leaving the state. Initially, the Alaska Housing Finance operation took them, deed in lieu, thinking it would be ok. The FDIC was seeing the same things as banks went under due to their ratios going in the loo. Surviving banks didn't know what to do and did the same although to a lesser extent. As this whole thing accelerated, the banks had a huge mix of deed in lieu, foreclosures, and few work outs. Remember, interest rates were in the 10 to 14% range.

Alaska Housing was getting condos back in one manor or another as the outflow of people hit 5k a month. There was no market for them, interest rates were still high and that coupled with the huge supply of homes abandoned, it looked grim.

Banks started feeling their way through this, a long process as they didn't have a plan, and there was nothing on the horizon. Soon, empty homes were getting looted of any and all appliances, cabinets and whatever else wasn't bolted down. Unlike your climate, we have to keep our utilities on, and furnaces running otherwise you have bursting pipes! With all the empty homes and condos, the holding entity was scrambling to open utility accounts. With many banks not having a presence, there was lots of damage before they got a handle on this.

It wasn't until interest rates hit bottom that there was any market, and at that time, investors from outside started buying.

Finally, AHFC went in, replaced all appliances, new carpet, paint and vinyl, and put them on the market for $20K!!! They took the hit! If you had any money, it was a hell of a deal, unfortunately, not many other than outside investors had that kind of cash, few residents without cold hard cash didn't have any equity in their properties to borrow against. This also reset the value bar. Lenders tighten up as the market came back, houses had to prove their worth (there was a ton of junk) out there. People that sat pat saw their values come back over the next 10 years, but the days of easy money were over and there was discipline in the housing market.

In this present market, all the lessons we learned up here were ignored down there, the lending institutions went nuts with these crazy ARM's, subprime loans, no down and exorbitant house prices. Yes, there are some up here that fell into that, but really, few in the whole scope of things as it's a stable population. Our market is reasonable but is feeling the affect.

In my opinion, I don't think the true reality has hit in your area yet. Houses are over value and by a lot, the lending companies have yet to realize how to deal with it and when they do, it will be at the lowest point. Band aids will be the initial treatment, but amputation will be needed to turn it around.

I have a son and daughter living there. My son is going to UNLV, third year and is living in an apartment with his girlfriend so we make several trips a year to Las Vegas. Having watched this market since 2003 we decided it may be the time to look at buying a second home there. Our thinking is we would buy one, put the students in it and decide what to do with it in 5 years or so. Having been there, done that, I put an offer in on two homes. One is owner occupied, and bought before the boom for $217k. This particular owner had done a lot of upgrades, probably with equity loans. He put it on the market for $399k, then down to $379k and now is at $369k. I offered $330k and was countered with $360k. I turned it down. Why? Because much of the asking price in that home is based on what got this market in trouble.  This owner hasn't faced the fact that much of his asking price is based on cheap interest, no money down, and all the other cute finance offerings.  He is going to sit on that home until the market comes back...5 years most likely, or take what it's really worth today and not make as much as he'd like.

I put another offer in on a short sale home. It is empty and on the market for 114 days. Original asking price, $399k. It dropped over the past months and is now at $349k. I offered $320k. Why? Because I am willing to pay that, and in a normal appreciation, 5 years at best, I expect it will hold it's own or increase at a reasonable rate. My offer takes into consideration that it's within a few percent of the bottom and I can accept that. In the mean time, I'm putting money into that instead of rent for the students.

The agent I'm using thought I was nuts! But, the offer was accepted with the condition that the owner signs a promissory note and that the lender accepts this package in writing. Obviously this owner was an investor, or intended to flip this house or put 0 down, doesn't matter at this point other than it's a result of blatant disregard for good lending practices on the part of the lending institutions and the owner falling for it. The lender is dragging it through its internal maze and as we saw up here years ago, they can't seem to make a decision as of yet and we don't know when they will. I don't think reality has taken hold, and they may lose my offer and take a bigger hit in foreclosure. You see, I have patience, have experienced this kind of market, and am only competing with the bottom.

Yes, Las Vegas enjoys an inflow of people unlike what we faced and that's a plus. None the less, many won't qualify with the tightened lending policies which simply means, prices will have to come to them as interest rates won't be going much lower.  

Zero down, resettable interest rates, sub-prime loans and to some extent, Arms are what led up to this. I don't profess to have the answers on how to prevent this kind of thing. People will be people, and lenders will do what they will. It used to be, you put some hard earned money in the pot, sort of a commitment and a share of the risk, what happened to that? When did we trade worth for opportunity and get rich quick. I would venture to guess, we get back to that for awhile until the pain fades and it will cycle all over again...hmm, who said real-estate went in cycles?

Keep up the great work you do Aaron, you have a good head.

Regards

Kurt Schmitz

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.

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.