Banks Manipulate Las Vegas Housing Floor

For the last two years, banks have been trying to force real estate markets nationwide to reach a "bottom."  The wave of foreclosures that began in 2008 drove inventory through the roof in many metro areas, like Las Vegas.  The credit crunch made it nearly impossible for the average buyer to qualify for a loan, and real estate sales everywhere slowed to a virtual standstill.  This excess of supply and lack of demand caused real estate prices to take their largest tumble since the Great Depression.  Dozens of large banks and mortgage companies closed their doors and those that survived tried desperately to cut their losses.  After two years, they seem to have managed to do just that. 

Many analysts (myself included) view this latest manipulation of the free market economy by the banks as just the latest abuse of power in a line of misguided liberties that brought us to this financial crisis to begin with.  But regardless of whether you condone or condemn the lending institutions for their actions, you can't argue that it seems to be accomplishing exactly what they hoped for...stabilizing real estate prices by manipulating inventory.

Here's how it works:  In 2009, record numbers of homeowners defaulted on their mortgages, resulting in a wave of foreclosures that flooded the Las Vegas real estate market with inventory.  In June of 2009, there were 2283 available (not pending or contingent) bank owned single family homes on the Las Vegas MLS.  This number represented 23% of the 10,278 total SFH listings.  As foreclosures continued to process, prices continued to fall.  In Las Vegas the median home price fell an average of $10,000 per month, every month, for over two years.  The banks felt that they had to do something to stop the bleeding and stabilize the market.  So they stopped foreclosing on homes.  With encouragement and incentives from the Obama administration, banks began shifting employees from their REO departments to their short sale departments.  The previously elusive short sale became more and more common through the end of 2009 and into the beginning of 2010 as banks tried to keep homeowners in their properties and avoid injecting more inventory into the Las Vegas real estate market.

Their strategy worked.  From June 2009, the percentage of available listings that were post-foreclosure REO properties began to fall.  In January, 2010, there were just over 1000 single family REOs on the Las Vegas MLS.  In February there were 1050 REOs out of a total 8001 available single family homes...a drop in market share from 23% to 13%.  These 1000 homes represented only around 10 days worth of supply. 

As the available inventory of bargain priced REO properties continued to shrink, demand for these properties began to outpace supply.  Rick Shelton, Greater Las Vegas Association of Realtors (GLVAR) President noted recently that the average median price of a home in Las Vegas rose in April of 2010 to $142,000.  Home prices were up 4.4% over March, 2010 and up .2% year over year from April of 2009.  This is the first median price increase we have seen in Las Vegas since February of 2007.

So does this single the beginning of an upswing?  To answer simply...absolutely not.

From December, 2009 through February, 2010 banks foreclosed on only about 900 homes per month in the Las Vegas valley.  In March of this year, we started to see a dramatic change.  The banks foreclosed on just over 1500 homes in March and then really turned up the heat by foreclosing on over 2300 homes in April.   This huge increase in foreclosures is starting to create an increase in the number of available bank owned properties on the MLS.  As of the writing of this article, we now have 1266 available SFH REOs.  This represents 16% of all the available (7996) listings.  Because banks are beginning, once again, to push foreclosure, there will naturally be more inventory moving into the Las Vegas real estate market.  The banks have achieved their goal of shrinking inventory, and now the goal is to match the number of sales with the number of homes being foreclosed upon.  I believe the banks will keep the number of foreclosures per month around the 3000 mark, as the numbers of sales have averaged around 3000 per month rather consistently.  The goal is to keep inventory low and consistent.  Any raise in inventory would cause prices to go down again, creating more dramatic losses for the banks.  I don't believe they will allow this to happen.

The result of all this market manipulation is a matter of ongoing debate.  Many experts believe that had the banks and the government simply allowed the market to naturally run its course, that the decline may have been steeper, but that the recovery would be quicker.  Regardless of your opinion, one thing seems clear.  With continuing low inventory, prices below historic trend levels, prices below builders' replacement costs, and investment properties that cash flow...this is a great time to buy real estate in Las Vegas.

If you are interested in learning more about investing in the Las Vegas real estate market, please contact me: Glenn Plantone, 702-769-9872, [email protected].