Countless agents and customers have been asking me lately to predict what I think 2011 will look like for the Las Vegas real estate market. While prognosticating is never easy or certain, I thought that this would be a good time of year to proffer some opinions.
I think that 2011 will be a year in which we largely continue to bounce along the bottom. I do not see a large-scale real estate recovery for Las Vegas. I also do not see conditions worsening, with the possible exception of commercial sales.
The commercial sector will most likely continue to be hard-hit. One of the reasons I predict this is due to the large number of vacant parcels and incomplete projects. But during this economic retraction that has taken place over the last few years, many businesses have retooled and streamlined their operations, and they have learned to do more with less. Businesses are functioning with fewer employees, fewer locations, fewer operating hours, and consequently, they will be highly unlikely to expand into additional locations or space. Another problem with commercial real estate is that unlike times past, when many new businesses were launched with capital obtained from home equity lines of credit, many new ideas will never see the light of day now, as home values have dropped, wiping out equity for most of us, along with dreams of entrepreneurship.
The fundamental key to recovery here in Las Vegas is jobs. The employment picture, while showing some minor improvement of late, is stubbornly bleak, and will most likely remain so throughout the next year. With so many families touched by unemployment, or at least underemployment, qualifying for a new mortgage has become difficult. And at the same time, many families have lost their appetite for large purchases and debt of any kind.
Another consideration as we look forward is interest rates. The United Sates is buckling under immense debt, and at some point, for government borrowing to continue, interest rates will have to increase. Otherwise, foreign investors will no longer be attracted to purchasing US securities and other debt. When those rates increase, mortgage rates will rise also, making qualification for the average family even tougher.
The one area that I predict will continue to flourish is foreign investment in Las Vegas residential real estate. Right now, we are closing in on half of all residential purchases being completed with cash. I believe that we could see the percentage of cash purchases increase even further, as investors from all corners of the globe increasingly realize the great values to be had here. The Chinese are leading the way (thankfully), of course, but investors from Europe, Canada, South America and other Asian nations will be gaining ground in 2011. Las Vegas remains a highly-desirable place to visit, invest and live, and the whole world knows that.
I think that the number of foreclosures could bump up slightly after the new year, but overall in 2011, they will decrease, as more government programs and loan modifications take hold, markets stabilize, and more people understand the benefits of doing a short sale instead of just letting their homes go into foreclosure.
Short sales will continue to dominate the Las Vegas marketplace, in my opinion. Especially: strategic defaults. I have blogged many times about strategic defaults, when a homeowner has the ability to pay, but not the willingness. Short sales have been making up about a third of local transactions. I think that number could approach 50% in 2011. Banks have finally realized, using their fancy gold-rimmed calculators, that facilitating short sales is a far better option than repossessing homes. So the process may get a little easier and quicker in 2011.
For real estate professionals, I predict a slightly larger piece of the pie for each of us. I have blogged this year about how I feel that part-time agents are no longer viable. As I asked before: would you hire a part-time lawyer? A part-time doctor? A part-time mechanic? Of course not. If you want a job done well, you must hire a professional who does that job full-time. In other words, someone dedicated exclusively to that profession. Someone who keeps up with the laws, trends, markets, training and the like. Someone who is fully invested in their real estate career.
Next week, January 5th, 2011, Realtor dues become payable. I predict that the Las Vegas area association, GLVAR, which once had a membership of around 19,000, could sink below 10,000. While not great news for the association, per se, it really is good news for the real estate market. Transactions have become increasingly difficult and time-consuming, to say the least. Even full-time agents, some in the business for many years, have been struggling under the difficulties of today’s marketplace. This is no market for part-timers. To succeed in this unprecedented market, agents must have stomachs of steel, current and ongoing training, and the ability to concentrate all of their efforts on real estate. The business of real estate sales can no longer be considered a hobby. It is a vocation, front and center. Darwin’s theory of the survival of the fittest shall be the law of the land next year, and the weak, unskilled, undedicated agents (and brokers!) shall be no more.
Also, a real estate agent cannot function in the residential market without Realtor membership. It is, for all intents and purposes, mandatory. Without it, there is no MLS, no forms, no electronic lockboxes, no advocacy, and little, if any, training. Therefore, I predict that membership will drop to, if not below, 10,000. And I say that is actually good news became those who do stay in the game will be better suited to performing under today’s strenuous conditions.
So, bottom line: fewer agents, slightly more deals per agent, fewer brokers, lots more short sales, fewer foreclosures, increasing interest rates and lots of foreign investors. And actually, come to think about it, as I write those words, it seems to me that 2011 will actually resemble 2010 in many, many ways.
Looking beyond 2011, I do see significantly sunnier days ahead for Las Vegas real estate. But those days are still ahead of us, to be sure. In the mean time, we must learn to function with what we have. For those looking for 2011 to be a return to what they remember as “normal”, welcome to the new normal.