Wednesday, January 21, 2009

REPO's Effect On The Las Vegas Market

The huge number of foreclosed properties being marketed by banks is having a profound effect on the whole resal estate market in Las Vegas. The sheer number of REPOs is making them the dominant force in setting the prices of properties that are sold, and changing the average and median sale prices all across the state, and the nation. The Las Vegas Valley is one of the areas with the highest percentages of foreclosed properties, called REO by the banks (standing for Real Estate Owned.)

According to statistics extrapolated from the Greater Las Vegas Association of Realtors, between May 2008 and December 2008, monthly closed sales averaged 60% to 76% bank owned properties, with the percentage increasing each month.


MonthAll ClosingsREO Closings% of REO
May2451147160%
June2618169565%
July3057206868%
August2893198669%
September3115218570%
October3085219071%
November2541192376%
December2901220176%

Banks (and other institutional mortgage lenders) don't want to sell their properties lower than the other properties in the neighborhood, but they are working under a number of constraints that many homeowners are not. Agents often hear this statement from homowners; "I don't have to sell. I'll wait until I get my price." The bank will say, "Tell me where I have to price it to sell it in 30 days," and "We've had it on the market for a month, let's lower the price." Their carrying costs on the property are huge, making utitlity payments, sometimes paying for pool and lawn maintenance, accruing HOA fees and fines, and taking hits from the vandalism many vacant houses attract. But their biggest loss is the capital tied up in foreclosed homes that they can't use to make new loans and other investments.

These financial institutions also have deadlines relating to their balance sheets that homeowners do not consider. They may lower prices repeatedly to close by the end of the month, the end of the quarter, or the end of the year. Management may set goals to get rid of a certain percentage of properties by a certain date, and if that means drastically lowering the price, they will do it.
And lastly, they have no emotional attachment to the property. They don't care what color the walls are painted, (unless the color is preventing the property from being sold.) They don't know and don't care that someone put in a new hot water heater and air conditioner in the last two years. They just hope for a working one of each is in a property, and they protect themselves from the chance that they dont' work by only selling the property to buyers who will purchase "as-is." And buyers make lower prices on properties sold "as-is" than properties of which the owners have filled out the property condition statements, and are amenable to making small repairs.

This has created a dramatic downward trend in our median and average home sale prices, as those homes that are not foreclosures are forced to lower their prices to stay competitive. This is not great news for property sellers, but for property buyers it's a great time to buy. For investors, for the first time in years, they can purchase a residential property and expect to cash flow positive.