It is, once again, time for my annual blog in which I like to comment on what the coming year could look like. But in order to see where we will be, we first need to see exactly where we are presently.
The election is behind us. The “fiscal cliff” issue is behind us, at least for now. Consumer confidence is on the mend. Inventory is tight. VERY tight, especially in the more affordable price ranges. We are face down in a full-fledged seller’s market. And most new listings are attracting multiple offers.
As I predicted one year ago, 2012 shaped up to be a fine year in Las Vegas real estate. Prices firmed up (up 8.4% in 2012), interest rates held at historically low levels, short sales moved through the banking system slightly more efficiently, foreclosures were mild, investors kept investing, and we definitely finished the year in better shape than when we started it.
So what about 2013?
Well, let’s look at the fundamentals. As I blogged two years ago, employment is critical to recovery. The unemployment rate in Las Vegas, one of the highest in the country, has been gradually ticking downward (around 11.1% as of this writing). That, combined with residents’ improved ability to adjust to today’s economic realities, tells me that demand for housing should remain strong, and most likely, grow even stronger as the job picture brightens.
Interest rates, the lowest in my lifetime, will most likely remain so. The Federal Reserve has pledged to keep interest rates low throughout and beyond 2013, so that is another positive piece of the puzzle.
Investors will continue to fuel the momentum. Although largely concentrated on the middle to lower end of the market, there continue to be multiple offers on most new listings, and it is the norm to see the final selling price to come in higher than the original listing price. Due to the decrease in the number of foreclosures coming on the market, I have seen a slight dip in investors’ appetite, but in my opinion, this is a mistake on their part. Granted, the rock-bottom fire-sale deals that dominated over the last two or three years are no longer in great supply as they once were. But if investors ignore or shun to any degree whatsoever the incredible investment opportunities that abound in Las Vegas, they are making a huge mistake. Prices are higher than they were when we bounced along the bottom, but they will most likely be higher still at the end of 2013. That is a relatively safe bet, safer than anything you could find in the stock market. So, a side note to investors: stop thinking about the deals that got away, and concentrate on the incredible deals that are available to you today. If you don’t grab up properties at today’s prices, you will come to regret it next year, I am sure of it.
AB 284, which I blogged about previously, has not been repealed. In fact, it has not even been amended. I stated in an earlier blog that I support the bill, and I predicted that it would still be with us. And it is still with us. For all the naysayers who predicted that the bill would drag down prices by kicking the foreclosure can down the road, I said it would not. And it did not. With AB 284 in place, we had the best year in Las Vegas real estate that we had in the last five.
For those readers saying, wait a minute, Brad, I thought foreclosures were up lately? Yes, that’s true; there was a slight uptick in the number of foreclosures. The reason for that is that banks have begun to process foreclosures “judicially”. Nevada is a non-judicial state, meaning that lenders are not required to ask a court for permission to foreclose. But due to AB 284, which requires proper documentation in order to proceed with a foreclosure, lenders have taken the judicial option in many cases as there would be no other way to foreclose. (Note: “non-judicial” means that lenders do not have to go to court for permission to foreclosure, but they still have that option. It is more time consuming and costly for lenders, but they prefer this to allowing a delinquent homeowner to remain in the property indefinitely). Having said this, I do not see any substantial increase in the number of foreclosures for 2013.
I am also seeing a decline in the number of short sale listings coming onto the market. Think of it this way: Las Vegas has a finite number of residential properties, around 750,000. Some of those are mortgage-free. Some of those have already been through a foreclosure or a short sale in the last few years, and are therefore highly unlikely to go through one again anytime soon. Some of those are occupied by owners who will continue to make their payments regardless of market value, either because they love the property and don’t want to move, or because they feel a moral compulsion to honor their debt. So after we deduct those sectors of the market, there were a number of properties that did or would go through the short sale process. We are already a few years into short sales, and therefore, the number of short sales is beginning to decline, simply because the number of properties in that group is getting smaller.
We have largely eliminated homeowners who needed to sell short due to adjustable mortgages or job loss. So that leaves those who wish to sell short “strategically”. As prices turn up, fewer and fewer mortgagors will find themselves under water, another reason short sales will be on the wane.
Want even more good news? The Mortgage Debt Forgiveness Act, which was set to expire at the end of 2012, has been mercifully extended another year. That means that HAFA will still be around, as will IRS form 982, which negates any tax liability in a short sale of a primary residence. Now that we have been given this reprieve by the federal government, there will be some additional short sale inventory coming on the market in the short term, by those who were waiting on the sidelines for the government to take action. But looking ahead over the course of the entire year, I do expect short sales to continue to decline.
Traditional sales will be on the increase this year, and in fact, non-distressed sales have been climbing and making up a greater share of transactions. The reset button has been pushed on many of these properties, and buyers were able to get in at a low price. Now, some of those properties are being listed again, this time, as traditional sales.
This blog is about predictions, right? So allow me the opportunity to make one. I predict that the topic of the year will be second-chance buyers. We are just beginning to hear the term, but I think, as 2013 unfolds, we will hear more and more about them. What is a second-chance buyer? It is someone who experienced a foreclosure or short sale, and is now ready to saddle up and become a homeowner once again. Millions of Americans who once were homeowners became renters after losing their homes through foreclosure or short sale. Rightfully or wrongfully, many of those feel that they have stepped down to renting. And they want their lifestyles back. They miss the stability of homeownership, the sense of community, the peace of not having to move, and the pride of owning the walls around them. I believe that the appetite for homeownership is once again beginning to gnaw at their stomachs. And, memories being short, a significant number of these folks are going to explore the avenue to homeownership once again. I predict that the number of them could rival the number of investors as the year unfolds. I say: keep an eye on this immense pool of potential in 2013.
So, in summary: 2013 will look better than 2012. Prices up, no substantive increase in foreclosures, fewer short sales, and (a note to my fellow Realtors), more transactions in the hands of (yet again) fewer licensees.
I must confess: I have a serious dose of optimism for 2013.