Excellent handicappers are those who can access all or most of the relevant information about the event that they are handicapping and then correlate all the weighted factors that influence that event, analyze them and make an educated guess at the outcome of the event.
As we have seen in the past few days, all the data that was used to make any predictions about Las Vegas real estate or economy, which is directly affected by the US economy, were based on faulty data and as a famous computer saying goes: garbage in garbage out.
It is hardly a secret that Las Vegas commercial real estate has come to a standstill because banks do not make loans. Commercial real estate builders in Las Vegas have left projects unfinished due to lack of financing. Homes in Greater Las Vegas that can’t be purchased through VA loans or getting FHA financing are not selling well either.
Washington Mutual, which tried to unsuccessfully save itself by downsizing its name to WA MU, went bankrupt as many other big financial institutions have. Others have been sold at fire sale prices to competitors.
The fact of life is that the economy of the United States is in trouble and inaction can be hazardous to all. Unlike Japan and many other economies that are cash based, the US economy is based on credit and the reason is simple. It is a lot easier for a person that makes $40,000 a year to borrow $100,000, say at 6% interest rate for a term of ten years and pay back $1,110 per month than to save the $100,000 and buy with cash. This is a true story, a client of mine who was earning over $16,000 per month, but was cash poor was turned down for a loan for which the monthly payment was $4300 a month. She had another $700 in other monthly payments.
The fact that the US credit market has been crippled for months is no secret, what is new is that the stuff has hit the fan for big corporations, McDonalds can’t get a loan to upgrade their kitchen, a couple of Chevy dealers went out of business just last week and numerous Nevada banks have fallen.
Credit is like a lubricant that lubricates the United States economy engine and without it the engine will burn, but engines rarely burn suddenly. There would be all kinds of warnings, like the car overheating, engine noise, etc. We have seen much data that warns that the US economy is laboring and in need of help.
I counted only four commercial parcels of land located in S.W. Las Vegas that have sold in the last 9 months in the 89113 zip code. Many of the Las Vegas commercial buyers who bought n 2005-2007 in hopes of appreciating prices and a quick profit will be foreclosed on.
Those commercial property buyers who purchased a retail or office property have seen their cash flow mortally wounded by renters who went out of business and increasing vacancies that can’t be filled up quickly.
I am not an economist but I know this, without urgent action Las Vegas commercial real estate will witness a blood bath with many foreclosures selling at fire sale prices and that would not help Las Vegas in the long run.
Please urge your representative to do something positive about this tsunami that if it hits will take out all of us.
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