BluefoxToday blog : October 2007

It was just a matter of time when Nellis Air Force Base officials would start talking about the residential and commercial development creeping toward their runways in the northeast part of the valley. The time has come and they are rightfully concerned. The pressure is strongest from the south and is now growing in intensity from the north and northwest, too. At this pace it'll soon be coming from all directions.

The base has a sizable economic impact on the metropolitan area. According to the officials there, it's annually somewhere around $4.2 billion. Nellis buys a lot of supplies from local businesses, from construction materials and food to fuel and all sorts of parts. It puts up visiting service members in nearby hotels and motels, filling hundreds of rooms each year.

Besides that, about 313,000 retired military have chosen to live in Sin City, in part because of the base and the services it offers. That retiree payroll climbs to $520 million per year, while the active-duty payroll tops $850 million. The impact of the retirees on real estate alone is noteworthy. They need homes to live in, they need mortgages to acquire them and they need all the related services that go with these transactions.

There is fear that new homes being built near the base could eventually force its closure. Warplanes operating from there today carry live bombs and are now facing more and more restrictions in which direction to take off to. It would be unthinkable to have even one single accident. And then there is the noise. Rapidly advancing growth will ultimately force the hand of local and Air Force officials on this one.

What will happen when the residential real estate market is overbuilt, mortgage money is getting tighter and construction costs are heading up? All these aspects combined will typically bring you a soft market that will dampen demand for vacant land and will as a result put downward pressure on prices. That is exactly what is taking place in Southern Nevada now.

At the end of the third quarter, median raw land prices decreased to $677,000 per acre, which is down $41,200 from the quarter before, according to Applied Analysis. If you recall, earlier in the decade land prices were zooming to feed the feverish residential construction boom that was spinning the heads of anyone who knew anything about real estate. Since then things have changed dramatically and mellowed to a back-pedaling act.

As another sign of the slowdown, there were only 140 parcels totaling 484 acres sold in the third quarter, signifying a 45% drop from last year. One of the reasons to the downdraft is the lack of developable dirt.  The major landowner here is BLM, or Bureau of Land Management, and its next auction isn't scheduled until November 2008. Yes, a year from now. And it will at that time release for bidding only around 150 acres in small increments. That will have a marginal impact on the current situation, if any.

The underlying weakness is caused by the huge housing inventory presently hovering over the area, forcing developers to the sidelines where they are patiently waiting for the conditions to pick up. When it makes sense again for them to acquire land and build homes on it at a respectable profit.

The country's largest mortgage lender has received plenty of bad press lately, most of it the result of questionable business practices. Its subprime loans are defaulting in record numbers, it has well-documented liquidity problems and then it appears to be stonewalling in helping borrowers facing foreclosure. It isn't fun being the target of that kind attention.

In the past week or so it has abruptly changed course and is clearly trying to polish its tarnished image. Just earlier this week it announced that it'd orchestrate comprehensive workouts for ARM borrowers, including refinances, rate reductions and loan restructurings. In essence, the whole package of mortgage mitigation.

And it's going another step further. It'll be partners with NACA, or Neighborhood Assistance Corporation of America, an advocacy organization that has been pestering Countrywide for years about its mortgage practices. Somehow they are now best of friends and having cozy lunches in corner tables.

The former foes just announced a foreclosure prevention program that'll get results, they promise. The two evidently are serious about assisting distressed homeowners, prime and subprime customers alike. How the initiative works is that borrowers who desire a loan workout will have to pass NACA's semi-tough approval regimen. It consists of an application, a buyer's workshop and then a one-on-one counseling session where realistic budgets are prepared.

The process is not interested in debt-to-income or loan-to-value ratios, rather it concentrates only on incomes and expenses and what the homeowners can afford to pay. After that the loan's balance or the interest rate is carefully adjusted to fit within the established limits. There is a 6-month trial phase and if the homeowners make timely payments, the workout becomes permanent.

Hopefully the program works out for everybody.

Going short in this case has nothing to do with the short position people take in the stock market, hoping to profit from a declining price of a security. Short sale in real estate is a concept where the homeowner is allowed by the bank to sell his property for less than what his mortgage balance is. It's one way to avoid the dreaded foreclosure.

Before a short sale is even discussed, the lender needs a hardship letter from the borrower/ seller, a valid contract between buyer and seller and a preliminary settlement statement. The homeowner must prove a severe financial hardship to get the lender's ear. Once all the paperwork is in, only then the negotiations can start. Please click on the link in this paragraph to read the entire article.

Rebecca Reese is a retired home economics teacher originally from Indiana who likes to stay busy by entering cooking contests. Evidently her passion is to figure out new recipes, probably first test them with her family and friends and then take the better ones to actual competitions where her yummy creations go against the rest of the field. As you can tell, she has that competitive streak in her.

Sutter Home Build a Better Burger National Recipe Contest, they sure could shorten the name a little, was held recently in Napa Valley, California, for the 17^thtime. She and four others did battle in the alternative category which limits the burger's beef content to under 75%. She is a great fan of Italian sausage and used that as a starting point, adding to it pepperoncini, Asiago cheese, bread crumbs, but wait a second, if you really like to know the whole basket of items that go into it, just click on the link here, www.buildabetterburger.com/, and voila.

Anyhow, she won the contest with her Little Italy Sausage Burger and took home a cool $10,000 prize. That'll keep her creative juices flowing. And she is going for more. She's also among the finalists in the Bundts Across America challenge, after her Lemon Lime Easter Cake was given the green light in a bake-off in San Francisco. The National Bundt Day is in November when the winners are announced.

Entering recipe contests is good fun for her. If she keeps this up, local resorts might soon give her a call about possible celebrity-flavored employment.

I know there are quite a few trails around the valley and in the surrounding mountains because I've used some of them. Summerlin has several miles of them, Mount Charleston is famous for a few tough ones, Red Rock Canyon offers really nice and scenic routes, as does the Lake Mead area. But they are sort of scattered here and there and in many cases lack any inter-connections.

To try to improve the fractured trail network and to build it to meet the future needs of its residents, some valley enthusiasts decided to organize a high-powered meeting between local, state and federal folks. This kind of thing has been penciled in before on many a calendar, but continually failed to become a reality. Now it happened, though. The Outside Las Vegas Foundation and a few other groups hosted a summit recently at the Springs Preserve to hold deep trail discussions to everyone's delight. Including me.

Those at the meeting were exploring how best to use the money they already have to build an integrated trail system. If you noticed, the money is there. What usually happens is it's the other way around. No money. See, when federally-owned land is auctioned off in Southern Nevada, the proceeds by law stay here and are designated to go towards parks, trails and preservation of natural areas. Over $1 billion has been put aside for those purposes and so far only about 20% of it has been spent. You might ask; what are they waiting for?

The big picture has present and future trails, whether built by developers on private tracts or laid on public lands, combined into one large grid covering the entire valley. The ever-growing population here would then have an incentive to rely less on fossil-fuel burning transportation emitting greenhouse gases. And it'd be an open invitation for everyone to go out and exercise. Now the planners just have to find a suitable balance between the continuously rapid development in Southern Nevada and improving the quality of life for the residents.

It's uplifting to find a wisp of good news here and there in the otherwise cluttered collection of bad news that you keep reading in the national media about the mortgage and real estate industries. Positive stories have lately had a really hard time finding headline space for themselves.

According to First American LoanPerformance, a California research shop, more homeowners are making their payments on time in the last year or so. The data base the firm maintains includes about 80% of the overall mortgage market in the U.S. and they assess loans that are four months old or less.

In the third quarter of last year, 7.6% of subprime loan payments were already 60 days or more late in such a short time frame. That is kind of high. You might ask that how on earth is it possible? In four months? It can easily happen. When a loan falls behind this quickly, it often is taken by borrowers who had no plans to make the payments in the first place. Also, as home prices started heading south, people just decided to abandon their debt obligations and mailed in the keys.

That was then. The index had dropped to 7.2% for the first quarter of 2007 and went even lower in the second quarter to 6.6%. There is a clear improvement in the trend, as you can tell. Lenders, of course, have been tightening their underwriting guidelines and are also asking for more down payment, which have helped engineer the turnaround.

As to the prime mortgage sector in the same time capsule, new loans suffering from the bad flu decreased from 0.8% in the first quarter of 2007 to 0.6% in the second quarter. Just to give you something to compare with.

In the overall stats, however, we are still in the weeds. Loans issued between 2003 and 2006 are continuing to reset and as a result foreclosures are expected to climb which will likely hike inventories and further weaken prices.

A few weeks ago a House committee leader in Washington floated a draft on taking away mortgage interest deduction on houses over 3,000 sq.ft. in order to make housing more energy-efficient. His proposal at that time met with a mixed reaction from just about all sides.  

If you recall, it was only the first draft. Since then arguments have gone back and forth on the issue and new ideas have gained traction to a point that the flavor of the original proposal has changed somewhat. And it has become a little more detailed. For instance, a house from 3,000 to 3,199 sq. ft. would qualify for 85% of the interest write-off that now stands at 100%. And as the home size grows, the smaller the percentage. At the other end, any house over 4,200 sq.ft. wouldn't be eligible for any deduction at all.

The latest plan also includes some partial exemptions from this graduated scale, among them "historical homes" constructed before 1900, certified energy-efficient dwellings, farmhouses and homes whose owners buy carbon offsets in order to qualify as carbon neutral. The draft's aim is to cut our carbon emissions 60% by 2050.

Environmental and scientific institutes were initially skeptical about the draft's purpose and goals, but they have slowly come to put their arms around it. They now see it as a ground-breaking effort to decrease greenhouse-gas emissions and also direct needed attention to the current use of energy in the huge housing sector. It's the first major initiative to do something about this festering problem.

The National Association of Realtors, or NAR, and the National Association of Home Builders, or NAHB, have voiced their concerns about the proposal because it uses the square footage of homes as a measuring tool instead of their energy efficiency.

The all important thing is that the issue is being debated now and with that public awareness grows and eventually something will be done about it. What we need is action.

Photo by Shailendra Pandey

Southern Nevada housing market is nowadays on a wild ride, setting all sorts of dubious records. Here are a couple of them for your consideration. The MLS has more inventory than you care to admit and the current foreclosure rate here is beyond the pale. The thing is these are the kinds of milestones you try to forget as soon as you hear about them.

Just about the only right type of a record is being achieved in the ultraluxury real estate segment. Anything selling over $3 million is labeled ultraluxury in Sin City. There is this retired gaming exec who recently bought a house for $5.1 million in Promontory at The Ridges, paid cash for it and closed escrow withing days. Nothing to it. It took 81 days on the market to sell it. At least he got to bypass the currently exhausting mortgage approval process. Please click on the link in this paragraph to read the entire article.

It's truly a coveted honor for a hotel or a resort to earn the five diamond treatment from AAA. Owners of these establishments on the verge of getting there will do lots of different things to make it over the last final hurdle. It's even more difficult for the Vegas mega resorts because of their size. Calibrating a 3,000-room resort to that goal is much tougher than doing it with a 300-room hotel, don't you think. 

Regardless, the 4000-suite Venetian has finally completed its mission. It'll be awarded that long-sought distinction in next month's announcement from AAA. It appears word leaked out a tad early but for the Venetian staff it's all hand shakes and hugs for now. Once there, it'll be the largest hotel to accomplish that difficult feat.

Up until now the competition across the street, Wynn Las Vegas, has had an edge on the Venetian because it already enjoys the fruits of that honor. These two go pretty much after the same market segment, the high rollers, fine dining experts and the convention business, and this will mean the duel will only heat up. Isn't that what competition is all about? 

Other properties in town who have previously reached the five diamond plateau are the Skylofts Penthouse Suites at the MGM Grand, the Ritz-Carlton at Lake Las Vegas, the Four Seasons and the Bellagio. I'd say rather distinguished company. All of them, of course, are now anxiously waiting for this year's results.