LAS VEGAS: REAL ESTATE RECOVERY UNDERWAY?

Implications: For the first time in two years, the Las Vegas resale market has less than 8 months of inventory.  If a normal market is defined by six months of inventory, then the resale market in Las Vegas is on the edge of being considered normal. undefined is n----->There is not one person reading this article who believes that last         sentence. The truth is: Nothing in Las Vegas real estate is “normal.”  And, July data accentuates that point.  There’s enough negative news to keep all of the pessimists beating on their alarm drums.    undefinedü  J -----> But, July data also suggests that the Las Vegas market         continues to improve more rapidly than other areas of the         country. Let’s look at the various market segments:

Analysis:

EXISTING HOME MARKET:    The total of 3,173 existing home sales in July was the highest total in any month since September 2006.  July inventory edged up slightly (0.4%) from last month to 20,641. 

Over the last three months, Las Vegas has averaged 2,624 closings per month. Average inventory over the same period was 20,589. Those last two statistics yield a third: there is about 7.9 months of inventory in the resale market. 

More than three out of five (61%) of July existing home sales were bank owned homes with a median closing price of $193,000.  The other 39% were non-bank owned homes with a median price of $235,000.  Overall, the median price dipped to $210,000.

FORECLOSURES:  The number of foreclosures edged up in July to 2,281, an 8.4% increase over June.   
 

<!--[if !supportLists]-->ü  <!--[endif]-->Pr-----> Perhaps overlooked in all these numbers is a simple fact: The total
number of foreclosed homes purchased was about 85% of the number of new foreclosures. 

 
In effect, this means that the market is nearing the point at which foreclosure absorption exceeds foreclosure creation.  That is one benchmark for a market in recovery.

Las Vegas no longer leads the nation in foreclosures.  In  RealtyTrac’s report for June, the Cape Coral-Fort Myers area in Florida was the metro area with the highest rate of foreclosure.  It was followed by three California cities: Merced, Stockton, and Modesto. Las Vegas ranked fifth.

In June, foreclosures were up 8% nationally over the previous month.  Las Vegas’ foreclosure rate dropped.

Examining these foreclosure statistics does not suggest the situation will get better quickly.  Yet, they strongly indicate Las Vegas is on the “mend.”  Assuming we get through the next two subprime mortgage “reset” months with reasonable results, the Las Vegas resale market could be in full recovery before the end of the year.  Certainly, its sales totals will exceed those of 2007.

NEW HOMES:  The new home sector does not look nearly as bright.  July sales were the lowest of the year … the decade … and the century.  Only 731 new home sales were recorded. The average number of sales in the month per subdivision was 1.62 – a tie for the lowest such total in this decade.  The median price of new single family and/or condominium home was $252,990 – 19.7% below the same month last year, but less than a 1% dip from June.

Inventory is the only cause for optimism in the new home market.  The number of active subdivisions in Las Vegas slid to 452.  That’s 21.9% less than one year ago, but still the highest per capita in the nation.  New home permits fell to 688 in July.  That is the second highest total of the year.  However, with the exception of October, new home permits have been in triple digits (under 1,000 each month) since July of last year.

VERTICAL:  The market most impacted by the current credit crunch is vertical.  That is one reason why only 73 Mid/Hi-rise units closed in July – about 10% of total market absorption.  Inventory in this market is virtually impossible to count accurately.  While new homes segment of the market may start its recovery before the end of the year, it is virtually certain that we will be well into the third quarter of next year before recovery begins for this market segment.

People always ask me how to know when we’ve hit bottom.  One answer is: when Las Vegas gets more job creation.  The three hotels that open through the end of the year – Eastside Cannery, Aliante Station and Wynn Encore -- will increase employment by 7,700.  This could balance the employment damage caused by delays in construction of both Echelon and Plaza.

And, yes, that means Las Vegas is on the timid edge of real estate recovery.