Remember when buying a home was as simple as liking the neighborhood, peeking inside closets, flushing the toilets and filling out papers?
These days, Nevada’s residential real estate market is a maze to be navigated, with buyers and sellers alike having to juke and swivel around such things as turbulent national and state economies, a saturated market, rampant unemployment, underwater properties, foreclosures, short sales, out-of-state investors, reluctant banks, government regulation and a small but stubborn demand for even more new houses.
All of which leaves us….
“Pretty much in a hold position,” according to Monica Caruso, Director of Public Affairs for the Southern Nevada Home Builders Association in Las Vegas. “We’re still not really in recovery mode, and that is for a lot of reasons.”
Chief among them, she notes, are the “bleak” job situation and negative equity in so many homes, with 66% of the mortgages upside down in the marketplace. “And in other marketplaces,” she adds. “People who come from other states represent a big portion of our potential buyers, and they’re also stuck in their marketplaces.”
Making matters even worse, Caruso continues, is “the tremendous uncertainty that continues to exist in the economy nationwide, and of course the foreclosures that are on the market as well as the shadow foreclosure properties (those in some stage of foreclosure but have not yet reached the market). We’re not exactly sure how many there are; there are only speculative numbers on how many are out there. But until the marketplace largely gets through those foreclosed properties we will be in this sort of holding pattern, and not moving in a recovery direction.”
Caruso calls the pick-up in home sales over last year “not really significant,” and suggests that some of the numbers are slightly skewed. “For a while we were looking at the 2010 numbers, but we had that tax incentive, where people had to buy a new home by July 1st. So the 2010 numbers are kind of hard to compare with, so we’re really looking more at the 2009 numbers.”
“I think it’s getting better,” says Mike Young, a longtime local realtor based in the Lake Tahoe area and current President of the statewide Nevada Association of Realtors. “We’re seeing light increases in values at certain prices points, and certain areas are doing better. It’s not characteristic north to south; each little community seems to have its own take on it. But it seems like things are trying to get better.”
A rise in home sales is tied to the number of short sales that are still out there. “I think the number of sales is increasing,” says Young, “but the values are still sort of dropping.”
“In the Reno/Sparks area we are actually holding our own,” reports Coldwell Banker Select Real Estate’s Sherrie Cartinella, President of the Reno-Sparks Association of Realtors (RSAR). “We’ve had near-record sales, and the fourth-best June in history. We’re seeing a little settling-in pricing after the boom, and of course leveling after the tax credit. But sales are strong.” Behind the brisk business, she adds, is pricing. “Homes are just so affordable right now -- not only for investors, where things are starting to pencil, but also for first-time home buyers if they’ve got good credit.”
A recent association survey found that a combined household salary of $20 an hour meant a couple could afford to buy a medium-priced home in the Reno/Sparks area. “That, I thought, was very impressive,” Cartinella admits.
Cartinella claims to have few over-priced homes in her company’s market area. “If anything I think they’re under-priced because our prices are at the year 2000 level.” In Reno and Sparks, she points out, homes are priced very competitively. “Even our equity sellers are very aware that they have to price the homes to compete with short sales and foreclosures.”
The question of over-priced homes and the effect they may have on the overall market brings interesting reactions.
Caruso says she doubts that there is a danger of overpriced homes bringing another downturn. “I don’t think we’ll see overpriced homes.’ Indeed, she takes issue with the concept of overpriced or underpriced homes itself. “Coming from an economic background, I know that price is a factor of who’s willing to pay what for what, and how much supply is on the market. I have to debate with people whether things are overpriced or underpriced. If people are paying a certain amount of money for a product and that is the amount of money it’s selling, for then it’s not overpriced.”
“I’m not sure the overpriced homes could bring on another downturn,” Young suggests. “I think there’s a problem that if we can’t move through these distressed homeowners – short sales, modify those loans, do whatever needs to be done – then it’s just going to go on too long.”
The whole process continues to depress the market, he points out. “Even though we seem like we’ve hit the bottom for values, there is still going to be that tugging down on the values. That could prolong (the downturn). Does that drive us to another downturn? Maybe. Hopefully we can get out of that.”
‘Pulling Us Down’
The number of pre-foreclosure filings in Las Vegas plummeted to 2,460 in July, a 48.3% drop from July 2010, according to the foreclosure data source LV Default. At the same time, the group added, the percentage of trustee auction sales continues to rise, with banks “picking and choosing” homes they want to sell and keep, said principal Tony Martin.
“In most areas, in Vegas and even up in the north, there seem to be fewer foreclosures actually happening,” says Young. “There are still a lot of notices of default out there, and threats of foreclosures, but the short-sell process is sort of delaying that.” The banks, he is finding, have been “a little hesitant because there are a couple of major lawsuits, things that the state is suing the banks over. For that reason they are being cautious about forcing the foreclosure, and are allowing more people to stay -- or at least try and get that short sell done.”
Those lawsuits, Young explains, usually have something to do with how these loans were put together. “It’s those ‘pick a payment’ loans, the toxic loans where you weren’t really sure how much it was going to go up and so on. Those caused problems. So I think there is a lot of that.” There was, he continues, some federal money that was coming in “that wasn’t being used because the parameters didn’t fit Nevada (because they) were upside down on their values, that kind of thing. Hopefully they get resolved.”
The banks are typically slow to react in these types of situations, he adds. “I mean, we’ve been doing short sales here for three years now, and yet there is no standardized way to do a short sale. Every bank’s got its own business model for how to do it. Processing times go crazy; it’s just unbelievable.”
During the most recent legislative session, state legislators passed a law forcing banks to give customers a response within 90 days, says Young. “Well, let’s see how that works. Hopefully that’s great. But now it’s taking four months, maybe longer, even if you’ve got a cash buyer. That is what’s going to continue to pull us down if we can’t get through that stuff.”
Indeed, banks may have more headaches of their own in the coming months. The New York-based Invictus Consulting Group LLC, a research house, recently reported findings indicating that ongoing financial stress brought on by the recession may well lead to more Nevada bank failures or mergers. Six of the 31 Nevada banks that the group looked at, or 19.4%, could become undercapitalized based on the loans currently on their spreadsheets.
New Homes, Renewed Hopes
Cartinella says that she and her colleagues remain “really optimistic about a recovery,” and that “now is the time to take advantage of those interest rates, and again look at the affordability.” The notices of default were down in March, April and May in her area, Cartinella points out, then picked up a bit in June. The notices of sale have followed that same trend.
Five years down the road, says Cartinella, the picture should become brighter. “I attended a builders association meeting recently, and our state demographer was talking about how we should see a 2% to 3% job and population growth in Nevada by 2016, which will obviously have a positive impact on the housing market.”
So what does the future hold for the residential real estate market?
The picture for 2012 remains largely unchanged, according to many. “We’re probably still going to be seeing these types of numbers,” Caruso suggests, “these sort of slow, small numbers. We’re stuck, and that again is largely a factor of the jobs picture, which is not really predicted to improve.” The uncertainty of the economy remains almost a global situation, she adds, and the process of working through the inventory of foreclosed properties will be ongoing. “That is not just a problem that seems to have an end in sight in the near term.”
“The numbers still are way down,” Young concludes. “From the building side, I know that of the 850 vacant lots that are on the market for sale in the Reno area, 750 are bank owned. All those kinds of things are holding this thing down, and the banks have got us by the cojones. They have to participate; they’ve got to come around. The banks overall need to come along with us, including the big banks.”
It would, he adds, be “great if we could turn this around. I think the reality is that we’re talking big numbers of these properties that still are going through the short sale deal, or that need to be sold, and have distressed homeowners. The numbers are really large that are sitting there. So that’s going to continue to hold us down.”
Young admits he doesn’t know whether Nevadans are looking at a one year, two or even three. “There are a lot of people predicting all sorts of things. I think we’re still in this for a good couple of years, I’m guessing.”
That said, he is quick to add, there has also been a lot of activity. “On the positive side people are realizing that there are some great values to be had in many markets. Vegas? You can get a killer house out there, and people are buying with cash.”
Over the course of his more than three decades in the business, Young notes, “we’ve had our peaks and valleys. We never thought we’d get out of some holes, and yet we still do. How long does it take to happen? I think it’s a ways out there. This was one of the bigger hits that affected a lot of homeowners who went through foreclosures and short sales; it’s sort of taken them out of the market for a few years. Having them come back into the market is going to be a while.”