PRICE RISES THREATENING A LAS VEGAS REAL ESTATE BUBBLE NOT
The possibility that a Las Vegas real estate bubble might be forming again is a subject that draws everybody’s attention. For all of us who went through the subprime mortgage mess and drop-off in Las Vegas real estate prices, the possibility that the current ongoing rebound might be evidence of another price bubble is a matter of serious concern. For anyone who bought their home near the 2006 peak—then had to wait for a decade before its nominal market value returned—it was an unpleasant interlude. Even if any ‘loss’ was actually only a paper abstraction, “My nerves!” could have been rattled aplenty. Whether you are a first-time homebuyer or someone who is plotting out the move to a next house, the main deciding factor will probably be a simple necessity. First-timers will do the math and deduce that it’s simply too costly to continue renting. Existing homeowners will be motivated by the need for more living space (or less)—or see a financial path that makes possible a move to a more desirable neighborhood or school district. But hanging over such major factors are the uncontrollable surrounding conditions, like the national and world economies. And the presence—or absence—of a real estate bubble. Last week came an examination of the real estate rebound that at first looked like bad news, but actually convincingly scotched any Las Vegas real estate bubble concerns…at least for the next 17 years. It appeared as an entry in The Wall Street Journal’s economics blog, wherein the author examined national measures of home prices (the S&P/Case-Shiller Index, NAR existing home sales report, CoreLogic’s Home Price Index) all of which pointed to the fact that “Home prices have been growing at a rate that some see as alarming…” Why any such alarm bells needn’t be sounding for a while is due to a simple fact. Yes, home prices may indeed be nearing or surpassing peak levels touched in early 2007; but, No—that does not a bubble make. The reason: those steadily-rising price numbers don’t take inflation into account. Now, most everyone would agree that although inflation is an ever-present fact of life, lately it has been so tame as to be barely perceptible. The rise in supermarket prices may have been noticeable on some aisles, but lately, more than offset by falling energy prices. However, the cumulative effect of 10 years of inflation, tames or not, can make a big difference. Today’s dollars aren’t what they used to be. In fact, when inflation is taken into account, at the current rate of residential price appreciation, it will be 17 years before the old real estate ‘bubble’ levels are equaled. So as a practical matter, fears that a new Las Vegas real estate bubble is being inflated seem to be overinflated…because they aren’t inflated…(well, you know what I mean)! As prices continue to strengthen at sustainable rates, the truth is, you can find a lot of good values on the Las Vegas market. Give me a call to discuss investigating what’s out there!
NO DEBT GURUS VS TODAYS LAS VEGAS MORTGAGE REALITY
This past week, after a Thanksgiving feast wherein the average American is said to have enjoyed chowing down 2,000+ calories (equivalent to 3 Whoppers), the average American is said to have either trooped off to an early bird Black Friday sale mob scene or else (more likely) settled onto the couch to behold, in tryptophan-induced stupor, either the NFL football marathon or a Thanksgiving special like When Turkeys Attack! (“home video footage plucked from real families terrorized by turkeys”). For those who waited until the actual Black Friday sales, some may have experienced moments of hesitation as they opened wallets and purses to hand over the credit cards. Certainly those who listen to the financial gurus would have had second thoughts— the basic wisdom of a debt-free lifestyle has been pounded into their consciousness. One radio expert had been exhorting everyone to shop with cash and cash only as the singular way to hold to a holiday gift-buying budget. The expert did admit that store clerks would probably suspect you of being a Mafia family member every time you pulled out your envelope stuffed with cash—but the rewards would be worth it (never mind the security issues). Las Vegas mortgage holders (and soon-to-be Las Vegas mortgage holders) who listened would have had to be wondering how many typical families actually succeed in following that advice. However laudable the whole idea of a no-debt-at-all lifestyle might be, you wouldn’t think it works out to be terribly practical vis-a-vis home ownership. For those of us who interact with the Las Vegas mortgage industry, it certainly feels like a non-starter. But what are the actual numbers? There is statistical mumbo-jumbo galore when you try to dig into the official stats, but if you take the middle of the middle group (‘middle quintile’), the givens are as follows: • Median American family income is $67,802 • After taxes, that works out to $59,000 • Median American single family home costs $223,500 Now, the most recent median annual American family savings is nothing like 10% (some say it’s closer to zero); but for those who could manage the 10%, even pre-tax that works out to socking away $6,780 per year. In other words, you could finally buy your median American home after saving up for (wait for it)…33 years. I’d say that should alleviate any residual guilt Las Vegas mortgage holders might have felt about not living a totally debt-free existence. All the more so when you take into account the minuscule interest rate that savings accounts are currently earning (again, closer to zero than not)—as well as the historically low-interest rates being quoted for today’s Las Vegas mortgages. You might still try the all-cash holiday shopping experiment, but probably don’t need to put off your homeownership hopes for that three decades. A better idea: give me a call to work out the real-world details!
A LAS VEGAS FOR SALE BY OWNER SIGN CAN BE A PRICEY PURCHASE
If you go down to any Las Vegas hardware store, you’ll be able to find them. They are right there in the corner, somewhere on the rack that has all the ‘GARAGE SALE’ and ‘BEWARE OF DOG’ placards. They’re the ‘FOR SALE BY OWNER’ signs. They cost about $8.99 ($17.98 for two). Or, it is also possible to buy a couple of “For Sale by Owner” signs online for about the same price (although getting them delivered to Las Vegas might run extra). No matter which way you would get hold of the signs, you should be alerted to some possible extra costs. I don’t mean ‘shipping and handling’ charges you sometimes find tacked onto other offers. These are extras that have cost other sign purchasers thousands of dollars. Naturally, anyone who buys a ‘For Sale by Owner’ sign has decided to sell their Las Vegas house on their own rather than going with the crowd and listing through a Las Vegas REALTOR®. The sign purchaser has probably made that decision for one of two reasons. The first is the less likely—namely, being convinced that he or she will do a better job. Selling your house without the specialized tools—the marketing connections, office backup, support of the professional real estate community—lacks most of the appeal of other Do-It-Yourself projects. Even just handling the technical details (hmmmm…where am I going to put the deposit money so it’s in escrow—or whatever they call it…). The second reason is much more likely: saving commission dollars! Just thinking about the car you could buy with the savings makes for an appealing daydream…until you remember that you will probably have to pay half of the intended savings to the buyer’s agent. Maybe it’s a used car you could buy…after you’ve paid to post the listing; bought media advertising; maybe printed up some full-color marketing materials… But those aren’t the most crucial ‘extra’ costs associated with those ‘For Sale by Owner’ signs. The extras are head-turning. The latest figures from the NAR show that the ultimate price paid for a FSBO home was $39,000 less than for agent-assisted sales (which typically sold for 98% of their listing prices). The reasons may be many—the most frequently cited being that real estate professionals are experts in attracting qualified buyers. It is, after all, what we do! So the all-in cost for a couple of ‘For Sale by Owner’ signs could be calculated using a whimsical formula like: FSBO Cost = 2 x $8.99 + Y Where Y=a total unknown, but it well might be as much or more that the cost of the car the signed buyer had been hoping to save. More seriously, though, only 8% of U.S. homes wind up being sold by owners acting alone. Something like 70% of homeowners who tried to sell their homes themselves eventually goes with an agent. Then their outlay for ‘For Sale by Owner’ signs is a 100% loss (the hardware store won’t pay anything for the used ones). The good news is, you can avoid all those costs—hidden and otherwise. Just call me: I’ll provide the signs!
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