Yet another "Boom City" faces the harsh reality of the bursting of the housing bubble. Las Vegas experienced remarkable, unprecedented growth in the last few years but as a taxi driver remarked to me, during my July vacation, "Things have gone too crazy". When the taxi driver's "get it" better than the "flippers", you know you're at or near the end of the cycle.
Many factors affecting local real estate market
By NEIL SCHWARTZ
SPECIAL TO THE REVIEW-JOURNAL
I have read several articles recently about the current state of the Las Vegas real estate market. I now know why the public is totally confused.
After 18 years selling real estate both here and in Los Angeles, I have seen all the elements that affect a market. But never have I seen the problems facing us presently all coming together at the same time. It's like a perfect storm.
I believe if members of the public are well-informed with complete and accurate information, they themselves could help in solving this problem.
By getting a complete picture, they would better understand the problem and work toward a quicker solution.
Here are the elements:
1. We have an affordability problem in this town. They say that 5,000 to 7,000 people are moving in every month. So why do we have so many homes unsold on the market? Unfortunately, the wages being paid for the majority of jobs new and old are not high enough for the people to buy a home. You need approximately $57,000 of income to purchase a $211,000 home. Look around. Do you see many $211,000 homes? To solve this problem, either wages need to go up or prices need to come down. What's your guess?
2. Many investors who helped drive the prices up thinking they would make a killing are simply dumping their homes on the resale market to get out from under a mistake they made. They simply bought too late in the game to flip and they did not realize the $2,000 monthly payment can't be covered by a $1,200 monthly rental income. Because of the dumping of these properties on the resale market, the present inventory is more than 20,000 resale single-family homes and condos or townhomes. Fifty percent of the homes on the resale market are non-owner occupied. Who do you think is going to lead the market in pricing?
3. Some owners who have had their properties for a long time had built up some nice equity. Then interest rates dipped and they refinanced, increased the amount of their loan, bought cars, paid for vacations, etc., and now are finding out that with the market in somewhat of a decline, the value of their home is less than their loans. These people are trapped. These homeowners are the foreclosures of tomorrow.
4. Let's talk about loan fraud, which is occurring at an alarming rate. As sellers get backed up against the wall, they will be willing to listen to the few who will try to get something for nothing. A seller has his home on the market for three months at $400,000 and has not had any offers -- and along comes an offer of $460,000, but the buyer wants the seller to give him cash back of $60,000 after the close of escrow. Of course the lender won't know about this. After the deal closes and the buyer gets his $60,000, he is gone and never makes a payment on the mortgage. Here goes another one into foreclosure -- and since this scam is a federal crime, whoever they catch is going down, including the seller and almost everyone who touched the deal.
5. The public keeps hearing these reports from the experts that prices are not going down -- as a matter of fact, they are going up. Give me a break. What they don't say is that more and more sellers are giving incentives to buyers by paying all or part of the closing costs. This is legal, providing the lender is aware of it and limits the amount. So if a seller sells his home for $400,000 and gives the buyer 3 percent of the sales price for closing costs (that's $12,000), the seller really sold his home for $388,000. This is never mentioned when the experts report the real estate activity. The appraisers are required to make an adjustment for this incentive when they compare properties. The seller did not get $400,000, he got $388,000.
As I mentioned, all these elements are presently at work in the Las Vegas market. It's time for the media and the experts to take a day off and join an everyday working agent to see what all the facts are and report them accurately so the public can be well-informed and make good decisions.
Neil Schwartz is local real estate agent.
