The safest real estate investments are in underwater markets like Las Vegas
The more underwater homeowners a market has, the less likely it is to see much inventory on the MLS until prices exceed peak values.
Unlike many markets where only the most indebted late buyers and HELOC abusers have been washed out by falling prices, in Las Vegas, prices have fallen so low that ordinary buyers from before the bubble who paid down their mortgage find themselves deeply underwater, unable to move, and hopeless. Those owners are the true victims of the housing bubble because they didn’t do anything foolish. They happened to buy in the wrong place at the wrong time purely by chance.
Now these ordinary citizens are trapped in their underwater homes unable to move to seek employment elsewhere. Las Vegas is the only desert where people routinely drown.
It used to be that underwater borrowers were trapped in what was known as shadow inventory, but must-sell shadow inventory morphed into can’t-sell cloud inventory. Cloud inventory consists of homes where the owners can’t sell because the resale value of the house is less than the price they need to pay off the debt (and perhaps leave with a 20% down payment). I contend the shortage of properties on the MLS is due to cloud inventory.
The cloud inventory phenomenon isn’t going away any time soon — and that’s one of the reasons I still like Las Vegas real estate for home price appreciation. Cloud inventory stays off the MLS until prices get high enough. This shortage of available inventory becomes chronic, and buyers for years are forced to compete with one another for the few properties available for sale. Not just does this make a price crash unlikely, it also increases the normal rate of appreciation until such time that the market becomes truly unaffordable, or prices exceed peak values.
Las Vegas real estate recovered significantly since early 2012, but it’s still well below the peak, keeping MLS inventories light and prices moving higher.
More than eight years after rotten loans and plunging home values made Las Vegas the center of the housing crisis, thousands of people have yet to recover.
Las Vegas is a glittering promise built on a simple truth: The house always wins.
Actually, in this instance the “house” lost. Both the bankers and the borrowers suffered during the bust and even today.
But years after rotten loans and plunging home values made Las Vegas the center of the housing crisis, thousands of people have yet to recover from the cataclysm that tipped the United States economy into a recession.
Even with new resorts springing up on the Strip, home values recovering and record numbers of visitors pouring back to this American playground, thousands of people in golf-course mansions, gated condominiums and stucco starter homes are still stuck in 2008, battling with their banks, owing more than their homes are worth, trying to negotiate a sale to avoid foreclosure. To visit this underwater America is to take a tour of too-easy money, bad choices and worse luck, and of the way the economic toll of the Great Recession still haunts much of America.
They blame themselves, but their scorn for banks and bailouts runs as wide and hot as the desert.
No, they don’t blame themselves. Few take responsibility for anything unless compelled by force.
The crash tarnished their faith in that core American belief that buying a house was a foolproof path to security and prosperity.
Housing sales and prices are rebounding across Las Vegas, but the market was in such a deep pit that families who bought at the peak or borrowed against their homes say they may never see any return on their $240,000 starter home. Some who walked away are bouncing from rental to rental, negotiating bankruptcies and trying to fix their credit. And they say the tepid job market — Nevada’s unemployment rate is 6.4 percent, up slightly in the most recent government survey — is an added weight.
To them, the economic recovery was a fickle storm that brought rain to some parched farms while skipping theirs. The frenzied market for million-dollar studio apartments in Manhattan and seven-figure bungalows in Los Angeles might as well be another planet. …
Sometimes I lose focus on the bigger picture because I’m in Coastal Southern California. Housing markets in the rest of the country don’t behave like ours.
One in four homeowners in the Las Vegas area owes more to the bank than his or her home is worth, according to RealtyTrac. That is the third-highest rate in the nation, behind Cleveland and Akron, Ohio. And though prices are recovering, they are still below the frenzy of 2005, when people lined up for open houses and bought homes for nothing down.
There are a great many peak buyers and refinancers who will be underwater for another decade or more.
By WPJ Staff | July 11, 2016 9:00 AM ET
According to the Greater Las Vegas Association of Realtors (GLVAR), … local home prices and sales heating up last month compared to the same time last year.
GLVAR reported the median price of existing single-family homes sold in Southern Nevada during June through its Multiple Listing Service (MLS) increased to $235,000. That was up 6.8 percent from $220,000 one year ago. …
“It’s shaping up to be a strong summer for our local housing market, and I think most of our members are optimistic that we can continue this momentum in the coming months,” said 2016 GLVAR President Scott Beaudry. “As we’ve been saying all year, we’re still concerned about our limited housing supply, which is about half of what we’d like it to be. But overall, the housing market seems to be moving in a positive direction and avoiding the volatility we experienced in past years.”
The lack of sellers in Las Vegas will be chronic. It will be another decade before those who bought in 2006 are finally above water. In the meantime, expect above-average appreciation until the market is well above peak pricing.