I have discussed the current Las Vegas real estate market and why there is such a feeding frenzy on Las Vegas homes and condos by Las Vegas real estate investors. I also stated that we have thousands of severely under water homes that have to be disposed of. How these homes are disposed of will decide the Las Vegas real estate market in 2013. The other factor is resistance to price hikes on the part of buyers who want to invest in Las Vegas real estate and there is no sign of it at this time.
News organizations are reporting that we have 70,000 homes and condos that are severely under water which have to change owners (I didn’t say get foreclosed on), let’s give it to them and say we have 70,000 homes that are good candidates for foreclosure and due to free market forces; this will force price cuts next year. What free market forces? We ain’t got any!!
Las Vegas residential real estate market in 2013 depends on how these highly distressed homes will be disposed of and at what price point.
Las Vegas real estate market is tightly controlled by 5-6 banks, Fannie Mae and Bank of America by far the biggest and then Freddie Mac, Chase, Wells Fargo and HUD homes. They control what happens to these properties. More importantly, it is these banks that decide Las Vegas short sales homes and condos pricing also, and banks are pricing pre-approved short sales at the top of the comparable or higher, including non-distressed sales that usually command 15%-20% higher prices than distressed properties. Keeping that in mind, let’s take a closer look
Of 70,000 or so highly distressed Las Vegas homes many will not make it to the retail market (retailed through being listed and sold on the Las Vegas MLS).
A significant portion of these highly distressed homes will be sold as short sales as is happening right now. Let’s pick a very low number and say only 20%-35% will be sold as short sales and I think this number will be much higher, probably 50% or more. Anyway, if 35% of 70,000 homes are sold as short sales, that leaves 45,000 homes.
Of these at least 10,000-15,000 will be sold through Las Vegas real estate note sales (which I have discussed in detail for commercial real estate) to big investors who could turn around and cut the principal for the borrower without the constraints that banks have to deal with. This is happening right now and our good Government has turned this matter over to a private company which has cut off real estate agents such as me from the process, while there is no one better to valuate these properties.
Trustee sale auction in Las Vegas is offering note sales on single family homes and condos lately, however do NOT try this on your own as it is even more complicated than buying foreclosed homes at that auction. I can help serious investors.
Banks have started renting back the home they took back from borrower through deed in lieu (borrower turn in the deed to the property to the bank in return for the bank giving home owner $3,000-$30,000 in “relocation” fee and forgiving special performance which means that the lender will forgive difference between the loan amount and net proceeds from the sale.
Let’s say 10,000 homes will be sold through note sales and that leaves us with 35,000 homes and condos that could be sold in the Trustee sale auction where the act of foreclosure takes place. At least 30% of 35,000 will be sold to the third parties ( at the moment it is 50%), who then either flip them at much higher prices or rent them so we are left with about 25,000 that will be sold back to the banks and eventually be marketed in Las Vegas MLS where they can directly affect home prices.
The future of Las Vegas home pricing depends on how quickly banks sell these homes through Las Vegas MLS and more importantly how they price them. Do you really think that banks will be listing 3000 homes in the Las Vegas MLS each month? I don’t, as doing so will lead to 15%-20% price cuts in a year and banks know it. I truly think that it will be more like 1000 homes per month and in the Las Vegas hot real estate market; this should have very little to no adverse effect on pricing. However, I see no sign of 1000 homes that are going to be listed in Las Vegas MLS.
Additionally, it is forecasted that we will not see any significant increase in Las Vegas foreclosure numbers until spring 2013. If prices are up by another 10% by that time and given asking prices, especially pricing for bank owned Las Vegas homes, it is NOT improbable, then a 10% price cut for the remainder of 2013 will get you back to where we are today. Fannie Mae foreclosures which dominate our foreclosure listings right now are priced $15,000-$30,000 higher than the crazy prices in November and December 2012. HUD homes which are priced based on FHA appraisal are up sharply and I see this repeating with the few new bank owned listings by Bank of America and Wells Fargo.
In the last 3 blog posts about Las Vegas real estate market for this year I have explained in detail what I think will happen to Las Vegas real estate market, I do not have a crystal ball and all these are highly educated guesses and I may be wrong. If nothing changes we will be looking at least at 15%-20% price appreciation. If things change, I have no idea what will happen after March, 2013.