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Old 05-03-2006, 10:22 AM
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Post Statistics from Las Vegas may not be as strong as they appear, analyst says

Las Vegas housing expert Dennis Smith is seeing mixed signals in the local market, which seems to be cooling like the national market.

Smith, president of Home Builders Research, counted 3,632 new home sales in March, bringing the first-quarter total to 9,366, an 18.6 percent increase from the same period a year ago.

Activity was also strong in March with 3,022 building permits pulled. The year-to-date total of 7,773 represents a 16.6 percent increase from last year, still short of the record 9,149 permits pulled in first quarter of 2004.

Pretty impressive, Smith said, but those numbers don't tell the whole story.

"To suggest this translates into a wonderful, booming housing market is wrong," he said. "Let's not get carried away."

Those in the home-building industry know that the permits are a "carry-over" from the last half of 2005, when builders encountered delays getting through the entitlement process, Smith said.

"Ask any builder. There's been slowdowns for a lot of builders in getting new projects started," he said. "Some of the permits that have been pulled this year should have been processed three to six months earlier."

The resale market is also showing declining numbers. There were 10,914 existing homes sold through the first three months of the year, down 14 percent from the same quarter a year ago.

The Greater Las Vegas Association of Realtors reported a 10.4 percent decline in home sales in January, a 12.3 percent decline in February and a 19.4 percent decline in March.

"For months, we have been saying that the resale segment would struggle in 2006. We still believe this will be the case," Smith said.

Realtors reported more than 17,000 listings on the MLS in March, a record, though they're saying 64 percent of the houses are selling within 60 days.

Smith has his doubts.

"We can drive through many neighborhoods and see listing signs that haven't changed for months," he said. "One statistic we haven't seen in print anywhere is how many of the active listings are vacant. Care to guess? Let's just say it is probably more than you think."

He calls it "investor hangover" from the last couple of years.

Resale prices have been stagnant since August. The March median of $285,000 is 10.9 percent more than a year ago and will probably show double-digit increases for the next four months. After that, homeowners can expect gains of 2 percent to 4 percent, Smith said.

The slowdown in the housing market is showing up in other areas.

Fewer home loans are being approved in the "slam dunk" category as lenders tighten the screws in a real estate market with narrowing margins of error, said Mike Ela, president of California-based Web site

Slam-dunk loans are those provided with a minimum of underwriting fuss when applications are subjected to collateral review.

While slam-dunk mortgage applications account for 66.5 percent of the volume nationwide, there are significant variations from state to state. Slam-dunk home loans range from 44.1 percent in Colorado to 84.3 percent in Massachusetts. Nevada is 11th-highest at 76.9 percent.

The result of increased lender scrutiny is that mortgage risk has declined by 34.8 percent during the past year.

"As appreciation rates come down, fewer mistakes will be submerged by a rapid rise in home values," Ela said. "There may be some added caution because federal regulators have told the lending industry to be more careful, especially when it comes to loans in the so-called sub-prime category."

A report from Hanley Wood Market Intelligence noted that new home sales in March jumped 13 percent to a seasonally adjusted 1.21 million units after a large drop the month before.

Susquehanna Financial Group home building analyst Stephen East said he's relieved that home sales in March reversed much of February's malaise. However, the first quarter was still down about 8 percent year-to-year.

"Concerning inventory, trends showed some improvement in certain respects, but continued its absolute level climb," East said. "A smoothed view of recent months continues to show a measured slowing in housing, roughly at the midpoint of what many market pundits are predicting for 2006."

The Federal Reserve raised a key benchmark used to set interest rates for the 15th consecutive time since June 2004.

That means consumers with a home equity line of credit have probably seen their monthly payments increase sharply as rates have moved higher over the past few years, said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Ill.

The average 7.75 percent rate for home equity loans could reach or exceed 8 percent by the time the Fed is done raising interest rates, he said.

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Workers build homes at Summerlin Centre off Sahara Avenue east of the Las Vegas Beltway, with Red Rock Resort in the background. A report shows that sales of new homes are up 18.6 percent in the first three months of 2006 when compared with a year ago.
Photo by K.M. Cannon.
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