February 2nd, 2008
As the market continues to slow....
Since 2005 when we closed 41 total residential units in the local Mesquite nv MLS, January closings have gone to 38 in 2006, 28 in 2007 and now 26 in 2008. Inventory, specifically property being listed, grew 7.2 new listings to each 1 that went into pending status in January 2008.
While the total number of properties for sale only increased about 3%, the other properties went out as failed listings, either expired or withdrawn. The number of vacant properties remains very high and most of what has been rented is running large negative cash flows. Some of those failed listings will be tomorrow's foreclosures and short sales. Many people must sell.
The speculative buying fad of the recent past, that pushed builders to capacity, caused lenders to become shady street venders hocking stolen goods in dark alleys and led normally smart buyers into mindless bidding wars, now looks like an $8 cup of cold Starbucks coffee.
If you are wondering where they got the stolen goods, take a look at the consumers faced with payments they can't afford combined with negative equity positions. Take a look around the world at the values of the CDO's held by every type of investor, from institutions to pensions to 401K plans and individual investors. It is the stuff you hear on the nightly news; those write downs that they now say exceed 260 billion and are likely on their way to half a trillion. Greed at every level seems to have gotten the best of them all.
At January's closed numbers there is a 16 month supply actively listed today. There are at least 50% more out there that need to sell, that's a 24 month supply, without any new starts until 2010. The builders will keep building because they have to. They speculated on the land and lots of it!
Mortgage interest rates are extremely attractive. Qualifying for a mortgage has gone back to: Can the borrower actually afford to make the payments? Key word being afford, and that of course relates directly to prices, as well as rates.
Banks generally have not received the memo, REO prices are not adjusting down yet. So while more listings fail and notice of mortgage payment defaults increase, the bank inventories will grow. The negative equity will lead the world wide write downs on this debt to march higher and creating a pressure cooker for those holding the property and those with the notes. A tug of war between need to sell and need to get the higher price and the interest clock keeps ticking.
So where does the market go from here? We have to work our way through the inventory. Some sellers are far more motivated than others. Many will eventually do what is required to sell, even to the point of turning it back over to the bank.
The principles of, supply and demand, price competition, and affordability will be setting the rules for 2008 and beyond. Stimulus plan or not.
Chris Miller
435-862-5951
ERA Brokers Consolidated
702-346-7200
Mesquite NV 89027
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