IS THE LAS VEGAS REAL ESTATE MARKET ON THE CUSP OF A REBOUND?

Implications: As you know by now, the Federal Reserve Board surprised the financial world with a ½% reduction in interest rates. The impact of that action may curtail the amount of time the Nation will spend mired in a housing slump. Nowhere was this information better received than Las Vegas. There is greater hope for the future because of this interest rate drop and because of August surprises in two shelter industry data elements: Foreclosures; andNew Home Sales/Prices.

Analysis:

In August, the Las Vegas housing market experienced the lowest number of foreclosures this year. Indeed, the surprising 212 figure was nearly 500 under the 2007 peak which occurred in July.

While that is cause for some optimism, it is too early to suggest that the foreclosure rate is slowing. September’s data becomes critical in making that determination.

We urge caution in analyzing these foreclosure numbers because existing home inventory has reached a record high 27,321. And, 46% of those units are vacant. The Mortgage Bankers Association has told us that investors defaulted on one third (32%) of the Las Vegas properties in foreclosure.

Þ Under normal circumstances, we would suggest that the investor impact on the foreclosure picture is waning. But, foreclosure data is not enough. Demand remains weak in the resale sector and appears to be just gathering strength in the new home arena.

While existing home closings totaled 2,390 (34.7% below last August), we continue to see monthly existing home sales statistics trading in a very narrow range. Less than 30 units separate the total sales figures for each of the last four months. That’s usually indicative of a “bottom.” But, until we see upward momentum, foreclosures remain an ugly reality.

The median price of an existing home slipped to $270,000 (6.6% below last August). While that is the most precipitous drop of the year, existing home prices are off only 2.2% through the first 2/3 of the year.

The second surprise in August data was a solid switch from down to up in both sales and prices for new homes. In view of seasonality, August’s 1,928 sales – a 14.2% jump over July -- was surprising. It was still 39.9% behind last year (only the second month this year to be under 40%). Also, the average sale per subdivision increased to 3.39, a 16% increase over the previous month (but still 44.9% below last August).

Led by a powerful surge in mid-rise and hi-rise closings (466 or 24% of the month’s total), new home prices soared to a record $348,896 – a 5.8% increase over last August. If Hi-rise and mid-rise are taken out of the equation, new home prices stood at $309,241. That’s 3.4% above July but 9.8% below last year.

Inventory is declining in the new home arena. The number of active subdivisions declined from last month’s record high 579 to 568. That’s the first time since March, 2004, that number has declined. The number of new home permits – off 44.9% so far this year – was at 802, the second lowest figure in the last two years.

The bottom line is that September’s statistics are shaping up to be critical in reading the future of Las Vegas real estate. They won’t be available until late October.

We can’t tell you today that these statistics foreshadow a change in the market. But, August may come to be regarded as the bottom of the market if September develops upward momentum.