On the national scene we have witnessed unprecedented events that have led to the caped crusaders of the Beltway, otherwise known as Congress, rushing in to save the day with a $700 billion bailout package. After acting with a real sense of urgency to pass this package, now being called a rescue, they have yet to figure out exactly how they are going to spend it. Makes you wonder how they arrived at the $700 billion figure in the first place.

Courtesy of Warner Bros.

The economy is faced with the prospect of a severe recession that promises to be long in duration. Unemployment is up and inflation is rearing its ugly head. As Halloween approaches the scariest of creatures are out. No, not ghosts, goblins, witches and ghouls, but the most frightening creatures of them all – politicians seeking your vote!

But it seems a funny thing has happened on the way to economic Armageddon, real estate sales have been steadily rising. A Washington Post article shows a trend of rising real estate sales nationwide. It seems the law of supply and demand is very much in effect. As prices have fallen, demand has increased. Many of these sales are foreclosed (REO) properties, but they are still sales. As the inventory of the REO properties dries up it will allow the rest of the market to pick up as well.

Through all of the turmoil, people still want to own real estate. Wealth has long been associated with property ownership. That is even truer in turbulent times. Real estate is an excellent hedge against inflation and that is probably going to be very important in the years ahead of us. The way the Government is throwing around billions, if not trillions, of dollars, inflation is inevitable. The question is not whether we will have inflation, it’s just a matter of how bad it will be.

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Tags: las vegas real estate, real estate sales trend

When a cat falls, its innate sense of balance allows it to land on its feet, bounce up and prance away without ever losing that smug look of “coolness” on its face. When a dead cat is dropped it too will bounce up only to come crashing back down with a resounding thud. That explains the Wall Street warning that you need to watch out for a “dead cat bounce” and not be fooled by what looks like a turn in the direction of the market. That Wall Street expression can be applied to real estate and other investments as well. Markets that seem to be turning around may just as quickly reverse and resume a downward trend.

Speedboat vs. Supertanker

Due to its highly liquid nature, the stock market can move sharply in one direction only to seemingly stop on a dime and reverse course and then move just as strongly in the opposite direction with the agility of a speedboat. However the overall trend does not change as swiftly and the market will tend to resume the course it had been following, thus the dead cat bounce. Without that inherent liquidity the real estate market changes direction much more slowly, more like a supertanker. But that doesn’t mean that it can’t have a phony trend change, or dead cat bounce, of its own.

 Lately we have witnessed huge swings in the stock market within the same trading day. This volatility will continue until a new sense of direction is established. The short-term day traders can win or lose plenty of money in these times. Those holding long-term should be fine in the long run but is indeed scary if you are attempting to sell.

The Trend is Your Friend

Another Wall Street expression is that the trend is your friend, go against it at your own peril. Too many investors try to anticipate a change in the market only to get burned when they are proven wrong. Before committing to an investment strategy you need to be sure that the conditions are right for that kind of approach. This is a tough time to be betting on any particular direction.

 One advantage of real estate is that it can provide income regardless of the current market trend. If you have rental properties that provide positive cash flow it doesn’t really matter which way the market is moving. If you are a long-term investor and you are making money every month, does it really matter which way the market is heading? But if you are looking to buy or sell the trend is very important, you want to buy when get the prices are low and sell when they are up.

Is Change in the Air?

Many real estate markets are showing some encouraging signs of life. Las Vegas is actually experiencing multiple offers on foreclosed properties, which are frequently being sold for more than the asking price. Investors sensing that the market has approached a bottom are returning in numbers large enough to be noticed. Sales have been steadily rising month by month and there is a feeling of hope.

 However there are problems. The credit crunch has caused a lot of difficulty in getting deals to close. Buyers in high rise condo and hotel/condo projects who were pre-approved and placed deposits on units prior to construction are having problems securing loans now that the units are ready. The recent end of a popular down payment assistance program will have some effect on demand going forward as well.

So is the trend changing or has the dead cat bounced only to come crashing back down?

If all the economists in the world were laid end to end, it wouldn’t be a bad thing. – Peter Lynch

Tags: investment trends, las vegas real estate, real estate investing

The real estate agent seems to be the eternal optimist. In the middle of the credit crunch, foreclosure crisis and general market malaise, he or she will be smiling broadly and proclaiming that this is a great time to buy. You could almost picture the agent showing a property that had been devastated by an earthquake, flooded by a hurricane and whisked away by a tornado and saying “It’s a steal, a little paint and new carpet and it’ll be good as new!” Lately I’ve been hearing real estate professionals here in Las Vegas saying that they are busier than they’ve been in a long time, just more puffing?

Houses being snapped up in a matter of days, multiple offers, bidding more than the listing price, - sounds like the real estate market circa 2005. However, that’s what I’m being told is happening today. This is the world of bank-owned homes, or REOs, in Las Vegas at the moment. This isn’t some pundit spouting numbers, or an economist manipulating data to support a pre-formed conclusion (see last weeks article), these are reports from the front lines. New homes still aren’t selling and typical resale listings are languishing on the market for extended periods of time, but the banks have slashed prices on their REO listings enough to spark an interest again.

The Raw Numbers

While I don’t have an axe to grind in this situation, I was sure that what I was being told was an aberration. With all of the negative news we keep hearing, how could the situation possibly be anything but bleak? I decided to look at a few key numbers that are readily available for the Las Vegas market. I would only look at single family homes since that is the bulk of the market here. I was interested in comparing the total number of homes on the market, number of homes under contract, and median price. I would also look at the days of supply, which is simply the number of homes listed divided by the average number of closings per day. I wanted to compare today’s figures to those from 2007.

Listings:

May 2007 19,411

May 2008 16,556

Down 15%

(Peak supply was 21,772, we are down 24% from that)

Under Contract:

May 2007 2,684

May 2008 5,735

Up 114%

Days of Supply:

Tags: Foreclosures, Housing, las vegas, las vegas real estate, vegas, vegas housing

It was the best of times. It was the worst of times.
By the end of 2004 I was totally frustrated with the Las Vegas real estate market. As a rehabber my business model is to find distressed property to purchase at a large discount. The goal is to repair and renovate the house in order to bring its’ condition up to the area standard after which the property is sold for a profit. However the market was so hot that even a house in terrible condition would receive multiple offers very quickly, often at an amount higher than the listing price. Houses in poor condition were selling at prices that were as high as homes that needed very little work. It made no sense to buy at retail prices and add money for renovations only to hope that the appreciation continued.

Las Vegas is the kind of city that television stations would send rookie weathermen to in summertime, it’s hard to mess up a forecast that is always the same – sunny and hot! It seems that the city was attracting amateur house flippers as well. People from California and other states were cashing in their home equity in order to jump on the soaring real estate market. In a classic case of a rising time floating all boats, even a property that was totally trashed would command a high price. It was definitely the best of times for a seller but the worst of times for an investor looking for a good value.

Amateur Night at the Apollo
I was having a cup of coffee at a Starbucks when I overheard the conversation at the next table. A blue-collar pool maintenance guy was talking to his yellow pages rep about placing an ad when his phone rang. From what I could hear he was talking about a house that he had listed and my ears perked up. Apparently a pending deal was falling through. He got very animated and started saying to the agent “the heck with ‘em, cancel the deal! The house will be worth $50,000 more in another two months anyway and we’ll sell it to someone else”. This was a revelation to me in that I realized what was going on, the amateurs were jumping into the market and running amok. For me it was time to sit on the sidelines or look to other markets.

Inmates Were Running the Asylum.
Las Vegas had become another example of the inmates running the asylum. People who had never invested in real estate before saw this as easy money, after all their home had gone up significantly in the last couple of years. Hairdressers, bartenders, parking lot attendants and a slew of others were getting their real estate license to sell houses on the side. Many were jumping into the mortgage lending business because there was a fortune to be made. These people had never experienced a down market and thought that real estate will always go up. The true professionals in the business found themselves competing with all of these newcomers. There were always cases of pros losing deals because a prospective client had an aunt, brother, cousin or uncle in the business but now it was getting ridiculous.

Full Circle
Fast forward to 2007 and the picture is totally different. The Las Vegas market is back to a pre-boom sales pace. In September there were only about 985 single-family homes sold from MLS listings yet there are over 7,000 agents in the area. Listings of houses and condos are at all time high with more than 25,000 currently available on the MLS with 40% of those vacant. Las Vegas is one of the largest foreclosure markets in the country and many of these wanna-be investors have lost their investment properties and the nest eggs that were used to buy them. Real estate agents and mortgage brokers are leaving the business in droves, layoffs in real estate related businesses have been occurring with great frequency and the media is having a field day with all of the bad news.

It is now the worst of times for someone trying to sell a home. For an investor there are bargains galore, it is definitely the best of times. The average person is talking about how bad the market is and how it will take many years to rebound. The savvy investor is jumping on opportunities while the amateur waits for fear of making another mistake. When the market rebounds and begins to peak the savvy investor will cash in his profits by selling to the amateurs who will get in at the tail end of the market cycle once again. As usual, history will repeat itself.

Failure is simply the opportunity to begin again, this time more intelligently.
-Henry Ford

Tags: las vegas, las vegas real estate, rehabber, Rehabbing, vegas real estate

We’ve been working hard to build up our blogging team for you and are happy to announce another talented professional to our team of experts, Richard Warren.

Richard has been investing in real estate since 1985 and began rehabbing in the early 1990’s. With a background in financial planning, Richard learned that most of his wealthy clients had acquired their money from a variety of ways, but real estate stood out for him as one of them. He began investing in Long Island, NY, but after moving to the Las Vegas Area, he, of course began investing in real estate and rehabbing properties around there.

Richard has been a great contributor in our forums as Rehab702, and has also participated in our investor interviews know as Meet the Investor. We are extremely happy to have him join us as a part of our blogging team!

Lets all show Richard a warm, BiggerPockets welcome!

For more on Richard, visit our Contributors page.

Tags: las vegas real estate, meet the investor, rehabber, Rehabbing, Richard Warren