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Shadow Inventory Keeps Las Vegas Real Estate Market Weak

In an article by Keith Jurow for Minyanville, he writes, “[In Clark County, an] additional 32,000+ properties had been placed into default by the banks but had not yet been foreclosed. That is a total of more than 65,000 properties which are almost certainly going to be thrown onto the market as either foreclosures or short sales — 18.1% of all properties with first liens.” (source: http://www.ritholtz.com/blog/2011/04/housing-market-report-is-now-the-time-to-invest-in-las-vegas-properties/)

Keith Jurow of Minyanville also states that many of the bank owned properties are not listed on the MLS, which reflects that there is a much larger inventory than what it seems.  The only floor that supports the current price level is cash buyers.  There will be many more foreclosures in the years to come because of underwater homeowners and high unemployment.

Many of these cash investors come from out of town.  People from other states, India, and Canada all are buying in Las Vegas.  This includes big purchases in commercial real estate.  According the Las Vegas Sun, “International investors are swooping into Las Vegas and purchasing distressed commercial real estate, many times blowing away much lower offers from domestic buyers.” 

In February, sales volume was at a five year high according to dqnews.  This was from distressed sales and it’s still not enough to make up for the pipeline of foreclosures that will eventually be dumped on the market.

Tighter lending standards also place an added burden on buyers.  Financing is now more expensive in relation to the purchase price of a property.  This further depressing prices and gives cash buyers an even bigger advantage.  Cash buyers can act quicker, banks are more apt to sell to them, and the escrow process is less painful. 

On a square foot basis, prices in Las Vegas are back to 1995 levels ($70 per square foot).  Although valuation currently looks attractive, it is still likely for prices to fall further.  According to the Dept of Numbers, prices have been falling each month for the last five years.  Catching a falling knife in investing is a dangerous practice. 

Low interest rates, on the other hand, offer opportunity for those with a long-term time horizon.  If interest rates were to rise significantly, the cost of buying may be more expensive than waiting for prices to drop a few thousand dollars more. 

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