Since I posted on March 5, the inventory of single family homes has dropped from 7,134 to 5,658. A net decline of 1,476, 20.69%, in one month! During that time 3,360 sales closed which indicates that the ratio of sales to new listings is approaching 2 to one. Moreover, there are 12,841 houses with either contingent offers or pending sale. Of course, some of those will come back onto the market, but the numbers suggest that the real estate market in Las Vegas is changing dramatically.
What is causing this change? A number of factors can be identified.
- Homeowners who were compelled to sell or be foreclosed upon by reason of hardship by now have mostly sold or been foreclosed upon.
- Homeowners who decided to sell or and those who “strategically defaulted” and let their homes go to foreclosure because of discouragement over the declining values of their homes have been largely been shaken out of the market.
- Although a considerable number of homeowners remain “underwater,” owe more than their homes are worth, most of those have the resources to continue to make their mortgage payments, like where they live, and have no intention of selling.
- A Nevada law, AB284, makes it more difficult for banks to complete the foreclosure process by requiring them to present documentation establishing that they possess an interest in the relevant indebtedness sufficient to authorize them to foreclose.
- Investors have flocked in to take advantage of the being able to buy homes at such low prices.
Although all of these factors have contributed to the diminishing supply of homes. There are rumors of a huge shadow inventory overhanging the real estate market that the banks are just waiting to dump when and if the foreclosure impediments of AB 284 can be surmounted. The extent of such a shadow inventory remains subject to considerable debate and uncertainty. The factors outlined above suggests that it may not be as ominous as some imagine. Regardless of how large it is however, even if the banks could do so it is unimaginable that they would deluge the market with supply and devalue their assets. Bankers likely have learned from their mistakes and are back to thinking through basic economic decisions. If anything, AB 284 is a god send to the bankers since it prevents them from shooting themselves in the foot.
All things considered, it appears that the real estate market in Las Vegas has stabilized. Of course, it is a fundamental principle of basic economics that if supply diminishes and demand remains stable, prices will increase. I will have to research it, but don’t believe that there is an accelerating population outflow. If not, housing demand should remain basically stable or increase with the natural growth of household formation. Accordingly, if basic economics principles prevail (and the bankers are not as stupid as some think) it is likely housing prices in the Las Vegas Valley will begin to increase in the near future. I don’t believe that in the near term those increases will be large or rapid; however, if the hoped for economic recovery materializes, price increases could accelerate. Now is a good time to buy.