Las Vegas: Record Sales & Dwindling Supply – So Why Are Prices Still Falling?


Welcome_to_vegasThe economic law of supply and demand says that when demand increases and supply falls, prices are sure to rise. Apparently that law has an asterisk that says “except for Las Vegas.”

For months now I’ve been hearing about how brisk sales have been, especially in the REO, or foreclosure, market. Looking at the numbers you will see that the available supply has been steadily trending down and sales have been setting all-time records. A bank puts an REO on the market and within days there are multiple offers on the property. So why are prices still falling?

On The Street

One realtor that I know specializes in these REO properties. What he sees are a lot of cash buyers from other areas stepping in. That would seem to mean that investors are seeing the value while local buyers are still gun-shy. Are they missing a golden opportunity?

He told me a story last week of an out of state investor who made an all-cash offer for 10% below the listed price on an REO. He warned him that he had virtually no shot at that deal. His buyer said, “but it’s all-cash.” The agent’s response was “so is everybody else’s offer.” Sure enough that REO was in a multiple offer situation and sold for about 10% more than the listed price on a 100% cash deal. He went on to say that the standard practice for the banks is to place a property on the market at a price that is lower than they expect to get. After a number of offers come in they counter by asking the buyers for their “highest and best” offer. The banks seem to have hit on a winning formula for liquidating properties.

The REO Myth

I have been asking a lot of veteran real estate agents and seasoned investors why prices are still falling. It would seem that a number of people think that there is going to be another wave of foreclosures that will be a tsunami that will cause prices to fall even further. Another opinion is that banks are sitting on a significant number of foreclosures and are releasing them piecemeal in order to keep prices from collapsing altogether.

Will there be another wave of foreclosures? Perhaps, more likely than not it will simply be a continuation of the wave we’ve been riding out for some time now. In the Las Vegas market demand has been outpacing supply for a while now, can that much more supply suddenly hit?

As for the theory that banks have all of these properties hidden under a tarp somewhere I say simply, where are they? These banks are public corporations and their assets are not invisible. If they were there someone would have found them by now.

The Smart Money

Are all of these cash investors wrong? I have a feeling that they’re not. Las Vegas prices have fallen so far below replacement cost that it would seem that they are significantly undervalued. For the longest time it had been virtually impossible to get a property to cash flow in the Las Vegas market, now it is a piece of cake. How much longer before everybody else notices?

Whenever you find yourself on the side of the majority, it is time to pause and reflect.Mark Twain

About Author


  1. Richard, banks have sure changed their mindset since this time last year. Now they list the properties cheap, put them in escrow within a week of listing them.

    I feel bad for any retail buyers out there, trying to compete with us investors. It seems there are two groups of cash buyers, the sophisticated buyer and the emotional buyers, who pay above market to get in the game.

    I think prices are falling because banks are getting aggressive at moving property and we are setting a new low threshold of comps because brokers are using the lowest comps they can find to make a BPO. If a property needs “work” they price it under the comps by the amount of repairs it needs. Setting a new threshold of low comps.

    Good post.
    .-= Steve´s last blog ..And finally House #4 is SOLD! =-.

  2. Richard,

    I actually think there is a big backlog of properties that will be sold in the coming years by banks. Besides the REO properties already owned, I know from a close friend with the FHLB that there are a lot of properties in their member bank’s portfolios that have gone 200-300+ days without a payment by the owner occupant but still have not been foreclosed on by the lender.

    it would be great if the books were not questionable and that we could be confident that FDIC was pushing lenders to be forthcoming. Unfortunately I am pretty confident that just the opposite is happening. The FDIC is trying to “control” the liquidation of lenders who are not going to make it by delaying the recognition of the losses sitting in their portfolios as well as providing liquidity for the banks to continue to operate–you should see the FHLB loans that the FDIC and others forced on the FHLB regions to take care of CW, WM etc in the last year.

    This is going to probably play out just like Japan’s “lost decade”. an orderly liquidation of lenders over a 5-10 year period to avoid panic. Estimates of “shadow” inventory of distress houses are not insignificant and the next 2 years with rising interest rates, continued high unemployment, and a “Dead” move up market is going to make it very tough for house prices to stay at the same level let alone increase.

    Prices are falling because there is less demand than supply, extension of the tax credit program is critical to stablizing the market next year.


  3. Jeffrey,

    Your statement:
    “Prices are falling because there is less demand than supply, extension of the tax credit program is critical to stablizing the market next year.”

    The point of the post is that there is NOT less demand than supply. Demand has been outpacing supply for months now, yet prices continue to fall. There are bidding wars as properties have been receiving multiple offers. A situation such as this should result in rising prices, yet that hasn’t happened. Unless supply suddenly increases, or demand falls, prices will have to rise at some point.

  4. Richard, can you contemplate a reason why you can have houses selling in greater Las Vegas for greater than list price while still having median house prices fall?

    I don’t see though as mutually exclusive events.

    A wise seller always wants to get a house listed at no more than %3 above market price, in fact listing your property slightly below list price in a market with sufficient buyers will often result in a higher sales price in a shorter time period.

    I suspect, without the benefit of your local knowledge, that the REO sellers in the Las Vegas area have a lot of entry level inventory they need to dump and are taking advantage of the federal tax credit incentive by being very competitive on list price.

    However, perhaps you can share how the prices being paid compare to what the banks investment is in the properties as well as what the value was at the last arms length transaction on the same property–I suspect that the new “bid up” prices are 20-50% below the previous high prices between 2003-2007, no?

    At the same time as the entry level market in Las Vegas would seem to be stablizing, how is the move up and upper half of the market doing. If it is like the rest of the west coast I follow a bit, other than the entry level tax credit influenced range the market is in the doldrums with few sales and falling prices.

    As I was taught at Deloitte out of college, “figures lie and liars figure”–i.e. a lot of confusion is caused by the use of a median price to describe the action in a real estate market. Median, as I am sure you know means have the homes sell above that price and half sell below that price. It is not an average price and thus it tends to be greatly influenced in a market where the midrange to upper range homes are not moving–i.e. if most of the sales are below $400,000 you will see the median price range move downward vs if much higher end properties are moving they can tend to move the median price higher.

    so, can tell me, when you say prices continue to fall what are you referring to? same price range in the last year/month, or median for the market or same price for the same house since the last sale?

    Cash flowing single family rental houses is a unique situation in regards to recent years across the country. My question in Las Vegas is how many vacant homes are there being sold by builders/investors/2nd home owners vs what is the local demand by tenants for rentals? You have what 12%+ percent official unemployment coupled with a huge excess of homes being bought mostly by all cash investors all assuming that they can rent them with positive cash flow? What happens if they get a great price, but local economy continues to be stagnant with further job loss etc.

    The fall of the dollar and the rise in gold prices are not encouraging signs regarding future interest rates.

    While everyone is focused on buying homes below replacement costs (you care to guess what current replacement costs are?) how many of them understand the high likelihood that in the U.S. we experience a 12-24 bump in the economy that is then undercut by continued high unemployment, much higher interest rates and a falling currency leading to the final leg down in this “double dip” bear market? From talking to the FHLB friend, I know for a fact that we are a long ways from understanding what kind of risk is still sitting in lender portfolios–and trust me the trend for default/foreclosure is no where near the bottom!

    We won’t even discuss the impact that the commercial real market implosion (i.e. Big Las Vegas Casinos defaulting etc.) is going to have on regional lenders in the next 1-3 years as hospitality and retail implodes–FDIC will be out of funds by the end of the month–three more Friday afternoons to announce closure of more banks. Ms Bair on the TV this am saying she is not sure if they will need more money was disingenuous at best.

    My concern with Las Vegas is that there is nothing sustainable about its existence. There is a shortage of clean water, it requires significant energy for cooling and heating and it is a one trick pony completely dependent upon folks spending leisure dollars to blow off steam and gamble–better hope the Far East steps up to replace the domestic visitors–i can not imagine going forward folks are going to spend as much of their dwindling resources in Las Vegas as they did the last 10 years while huge investments were made in rooms/tables etc.

    I would love to see more stats on the Las Vegas SF market.



Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here