The Las Vegas Home Market Has A Sweet Spot—But Opportunity Has A Shelf Life
Investors, second home buyers, and owner-occupants are buying homes in Las Vegas. Baby Boomers are taking advantage of the very affordable home prices.
10,000 Baby Boomers are turning 65, the retirement age, every day. So, the home sales will continue to grow from that sector. Investors continue to enter the market in a steady stream as displaced homeowners need homes to rent, which creates cash flow quickly. Most of the investors are cashing in on these cash-flow-rich opportunities. How long will they have this sweet spot? The answer lies somewhere between underwater mortgages and home equity.
Let's take a look at the numbers to establish the position of the market: • 4,541 resale homes were sold in June, a 15% jump—good news! • 22,872 homes were sold from January through June — a 5% increase over the same period in 2010. • Did you know that you can purchase a 3-bedroom, 2-bath home for $110,000? • $110,000 is the median price of the homes sold in June.
June Sales Breakdown: • 46% were bank-owned • 23% were short sales • 31% were normal home sellers. The average price per square foot has been bouncing around $70, but in June it was $68.41. Builders can not reproduce that home for that price.
So, where do we see recovery? We already identified sources of home buyers: Baby Boomers, second home buyers, and investors. Some say that when we have the return of home equity, we will be in recovery. Home equity and appreciation will also suggest more potential housing sales.
Move-up buyers will begin buying. When the move-up market returns, we should see the prices move up; home equity and appreciation will return with it. Let’s not forget the luxury home sales as another indicator of movement. These indicators will signal that the underwater mortgages are diminishing.
Let’s discuss those underwater mortgages. Some thought that this year would be the year that the short-sale market accelerated. However, 54% of the available homes on the market are short sale listings, and only 23% were sold in June.
This indicates that many of those short sales turn into foreclosures. Many buyers walk away from short sales because they take too long to close. Then, the same slow bank comes in and forecloses. Makes no sense to us.
If—and it’s a big IF—the banks/lenders start to process the short sales faster and offer the homeowner incentives to sell their home as a short sale versus foreclosure, then the underwater mortgages will start to diminish as those homes are sold faster to home buyers.
So, let's identify the steps to recovery: 1. Baby Boomers buying homes 2. Investors buying inventory 3. Banks are processing short sales faster (decreases the underwater mortgage and foreclosures) 4. Home equity returns—appreciation inches up 5. Move-up buyers return 6. Then the market normalizes
Opportunity Has A Shelf Life. When the market normalizes, there will not be the same inventory of renters for the investors. The next opportunity for the investors will be when the job market returns and more people move to Las Vegas. According to the Las Vegas Sun, over 5,000 people are moving to Las Vegas every month.
