Foreclosures: The Key to the Real Future of Las Vegas

But the big story in the August data for the Las Vegas residential market can be summed up in a single word: Foreclosures.

     Surprisingly, for the second consecutive month, the avalanche of foreclosures predicted for this market failed to materialize. 

--->Indeed, Las Vegas experienced its second consecutive monthly decline in the number of actual foreclosures, sliding from 2,471 down to 1,944.  That’s a drop of 21%.

--->For the sixth consecutive month, the number of foreclosures sold exceeded the number of foreclosures created. This month, the difference was 527 units.

--->The number of bank owned foreclosures peaked in February at 16,411. August saw 12,593 REO’s left, a slide of more than 23%. The key here is that the number of foreclosures available in the market is declining … a drop of more than 3,800 units in the last seven months.

---->Yes, that’s about two years of supply at current absorption rates. But, as foreclosures are eliminated, their impact on pricing will be ameliorated.

August data for the Las Vegas market also indicated:

1.       Sales remain strong;

2.      Inventory continues to decline;

3.      Prices, buffered by foreclosures, also slipped.

Here are the details:

     Sales in both the existing and new home sectors of the market remained strong in August, although not as strong as they were in July.

     Existing home sales slipped to 4,001 units, a drop of 14% from July, but an improvement of 27.7% over last year. It is important to note that the percentage of REO’s in sales has been declining steadily for the last six months.

     New home sales increased 5% to 429 units, the third highest month in the year. That’s still 46.2% lower than last year’s lackluster pace.

     Nearly three out of five (56%) of the existing home closings this month were bank owned homes. The median price of an REO was $106,000. The other 44% of existing home closings were non-bank owned homes with a median closing price of $130,000. 

     Overall, the median price of an existing home slid to $120,000 in August, about 40% below the level of last year.

    New home pricing rose less than 1% over July’s median to $211,350. That’s just 18.7% below last year.

    It is interesting to note that the average square foot price for both new and existing homes rose this month. The differential between a new home and an existing home is more than $30 per square foot. In other words, new homes tend to be 28% more expensive than existing homes.

     I note that more and more new home builders are bringing less expensive and smaller sized product to the market. It should be interesting to see at what point new home sales begin to accelerate.

     Existing home inventory declined for the ninth consecutive month, reaching 11,356 – a number not seen since Dec. 2005. Essentially, there are now 2.8 months of inventory in the resale market – just under the 3-month standard definition of a “hot” market.

     The number of active subdivisions slid for the 25th consecutive month to 265 – a number not seen since the last century!

     The number of new home permits dipped slightly to 427, just a shade under July – but still the second highest monthly total of the year.

     Bottoms take some time to form. So, the questions are: Are we on the bottom? Will prices stabilize? Will the rate of foreclosure absorption accelerate?

     Francis Bacon once said: “If a man will begin with certainties, he shall end in doubts: but if he will be content to begin with doubts, he shall end in certainties.”

   Las Vegans have lived  with doubts for more than 2.5 years. I strongly believe there will be some degree of certainty regarding this market in the very near future.