Now that the month is over let’s take a look at what happened in Las Vegas.
In September, 2,715 single family homes sold at a median price per square foot of $119.44, just a smidge higher than the $119.18 per square foot of homes that sold the month before. Over 86% of those September sales were regular equity sales with bank sales and short sales accounting for just under 7% each.
Although cash sales reached as much as 54% of the market in February 2013, last month on similar sales volume only 21% were cash sales. I think a couple of factors account for this change. One is that as prices increased the “deals” that enticed investment funds and other cash investors into the market disappeared. Another is that as the economy improved owner-occupant buyers became more readily able to obtain mortgage financing.
There has been speculation that at some point investors who bought at market lows will “flood the market” with properties driving prices down. I just don’t think that is likely to happen.
Although individual investors may have purchased properties to “flip”, sales here and there by such investors are unlikely to have any significant impact on market prices. Indeed, such flip transactions have been occurring on a regular basis for at least the last couple of years with no perceptible effect on the rise in Las Vegas home prices. The only way these transactions could significantly impact the market would be for hundreds of these small investors to coordinate their sales.
The only real way that home prices could be catastrophically damaged by a flood of properties would be for the big players to take action. This is unlikely to happen.
First, many of these investors are looking to make profits through increasing rents on properties they own not by selling those properties. For example, one of these big players, American Homes 4 Rent, a publicly traded real estate investment trust that as of June 30 owned 37,491 single-family properties in 22 states, articulates their goal is to be “focused on acquiring, renovating, leasing, and operating attractive, single-family homes as rental properties.”
Second, the individuals who manage investment funds with this volume of real estate are sophisticated businessmen who are well aware that if they “flood the market” it would be shooting themselves in the foot. Flooding the market would drive prices down to the extent that they could not sell their inventory fast enough to realize gains. If they make sales from their investment portfolios, they are likely to make them in small increments so as not to detrimentally affect the market.
Indeed, for these big players driving prices up would be more lucrative than driving them down. In addition to getting more for the trickle of homes they sell, higher prices means more families that are priced out of the market and forced to rent. Increased rental demand means higher rents and greater profits.
Together these factors indicate that, although there might be some seasonal flattening in home prices, at least in the near term the Las Vegas residential real estate market will continue to recover with an overall upward price trend.