2008 was a year of uncertainty and near panic as the American public was bludgeoned out of its collective denial, that the sub-prime crisis had far more sinister implications that just punishing speculators and a small segment of borrowers. I believe 2009 will be a different environment; interest rates are lower, at around 5%, than last year. Buyers now see the opportunities created by the current downturn.
Brian Wargo, a staff writer for In Business Las Vegas, cited the enormous price drops and increased sales in 2008.
Fueled by foreclosures and a 37 percent drop in median price to $205,893, the existing home market ended 2008 with 31,727 sales, 38 percent more than in 2007. Combined with declines in 200, the median home price has fallen 45 percent since February 2007 when it was $288,000. http://www.inbusinesslasvegas.com/2009/01/23/feature1.html
I was watching a local broadcast this evening on KLAS TV and the anchor, Jeff Gillan made a very interesting comment in a conversation with Richard Lee, a V.P. from First American Title here in Las Vegas. Mr. Gillan asked his guest during the course of his interview ‘if prices are too low and actually over-corrected’.
I have been thinking a lot about our current prices. As a Las Vegas real estate agent, I am asked nearly every day if the market has “bottomed”. Good question, not many people have to ability to predict highly complex systems such as an entire marketplace and believe me, I won’t try. I do however believe that prices are on average, too low. Unlike many markets with high foreclosure rates, the Las Vegas real estate market is moving properties. We sold an average of 3000 units (single family homes and condos) a month during the last three months of 2008. Many existing homes aren’t selling because they are overpriced, but because of a lack of credit access.
If one accepts the popular analogy of a bubble bursting, think about what happens afterwards. We have all seen super slow-motion photography of a bubble of liquid bursting. The droplets created, eventually begin to fall and then create a depression in the surface of the liquid. That depression undulates until the surface eventually settles. That is where I believe we are today. The weight of the crash has pushed prices below where they should be. I hear all the time from real estate professionals and builders that ‘we have returned to 2002 prices’ or ‘2003 prices’, like that is somehow natural. Our prices really started moving upwards in the 2nd half of 2004 and stopped climbing in mid 2006. Think about that for a moment, if current prices are truly accurate, wouldn’t we return to 2004 prices instead of 2002?
We now have prices equal to seven years in the past, interest rates at levels not seen in half a century, what else would a potential buyer require for a buying signal? Look at the numbers and make a decision as to whether you think it is time. Why wait until some government decree to officially name a bottom? Once something fully enters the public consciousness, it is often already passé. People who wait will mostly likely enter the market as part of a heard, and that could mean facing more competition for the best properties than those who are out there buying now.
My buyers have made their decision and all they really have to focus on is buying the right property, an undervalued concept in this market. Once the word gets out, many will feel compelled to pick up a deal and possibly get stuck with some home that sat deteriorating in a torrid desert environment for two years while that buyer was trying to “time” the market.
Paul Rowe is an agent with North American Realty of Nevada and a five year veteran of the Las Vegas real estate market.
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Excellent article, Paul. I’ve heard of first time home buyers getting deals in the $45 sq ft range, which sounds crazy to me. Even though most of these lower priced homes may need a little rehab work, I’m not sure how much lower people need to see prices before they make a move.
Great article Paul; the question posed is a good question that I hadn’t thought about. I’d imagine the only way to see if homes are undervalued is to check out the affordability ratio – do you know what it is in LV? During the beginning of the boom, I remember investors saying that Arizona was so attractive because the homes were more affordable than the rest of the nation…I’d guess that this theory would hold up across the nation.
Interesting article, the 3qtr National City study Home Values in America indicates Las Vegas is 18% undervalued. The High-rise market is still declining due to late foreclosures and saturation. Low ball short sales are continuing to drive down prices to the $250 sqft range.
I think things in the foreclosure market are still going to get much worse. Banks have been holding off throwing their foreclosed properties onto the market due to political pressure, but my guess is they’re going to start unloading masses more of them within the next few months.
Perhaps that is true in a national sense, but Vegas is moving homes. If they throw them all on the market that, will crash the market they have been essentially adding them at the same rate as we’re selling. I don’t see them dumping properties at this point.
Thanks for the response to this article.
It seems to me that home sales are picking up in the areas that have declined the most. Also the areas that most of the sales are conforming loans are doing better. Jumbo loans are still a bit tough and are priced at a much higher spread than historical standards. Securitizing is what is lacking and the government is trying to get that started again.
If the mortgage money keeps coming in by the fed, than we should see the market try to get all the home price ranges into gear.
Of course prices will go up again! With millions of foreclosed homes yet to be listed, and millions of jobs yet to be lost, this is a great time for uniformed spectaculars to take that 15 to 20 percent additional loss that every non-realtor housing expert is predicting. Do these freaking people even know how to read? Put your hope in one hand and your spit in another -guess which hand fills up faster.