BluefoxToday blog : December 2007

Nevada has been in the news a lot lately for problematic reasons related to the mortgage industry and residential real estate issues. But after a long drought it again has something to cheer about. It once more is the fastest-growing state in the union, after being edged out last year by Arizona. The official growth rate is 2.9% for the calendar year closing out July 1, bringing its total population to over 2.56 million, as was reported by the Census Bureau.

The trend is expected to follow the same path in the coming years. Clark County, home to Las Vegas, holds well over 70% of the state's population and is its growth engine. Currently there are several mega resorts and condominium projects under construction or will soon break ground on or near the Strip that will add thousands of jobs and bring more people to the valley, according to UNLV's Center for Business and Economic Research.

In the national growth picture Arizona claimed second place with 2.8% rate, leaving it only a half step behind Nevada, so the race is close. Western states continued to show their attraction power as Utah and Idaho took the next two spots on the list.

Las Vegas housing market has been suffering lately from overbuilding and this favorable population growth trend will undoubtedly provide a catalyst to pull it out of the morass. As builders are cutting back the supply is diminishing and new arrivals will help improve the demand side which then will bring more balance to the equation. And perhaps even start putting upward pressure on prices.

The November residential real estate indicators for Southern Nevada were recently published by Home Builders Research and SalesTraq, two local industry research shops. In general the numbers are down, an altogether familiar pattern for the past several months.

In the new home category sales are off by 47.5% from last year and the median price declined 20.2% , to $271,228. The drop in the price is meaningful, as it now reached over 20% year over year, a moderately high number. Resale house sales decreased 42% and the price was cut back 10.5%, to $257,000. During the boom years in Las Vegas the new home prices were racing well ahead of the existing stock and now the reverse is taking place, the new homes having given up roughly double the amount of value in comparison to the resale sector.

According to SalesTraq, builders in November filed for only 343 new permits, a dismal total. For the future, though, that will translate into a fewer homes being built which will predictably lower the supply and moderate the price structure. That is exactly what this market needs to turn itself around, less inventory and pricing closer to the lagging median household income.

The once-thriving condominium conversion market has also suffered a significant downturn. Prices in this sector can go well under $200,000. In December of 2005 when the segment was cruising on all cylinders it sold over 1,000 condos and this November just 67 homes were closed. The lack of availability of subprime mortgage money for the marginal borrower and the disappearance of the investor have clearly put a crimp on the buyer traffic.

All in all, the news for buyers remain very positive as the marketplace offers them plenty of inventory and soft prices. Mortgage rates are still low, although the market continues to search for a higher level of confidence.

Another Las Vegas mega resort development obtained its preliminary approval this week from the Clark County Planning Commission. The $5 billion Plaza is planned for the New Frontier's old location at the north end of the Strip. If the final approval is granted in January, construction is set to begin later in the year and completion is estimated for 2012.

The developer is Elad IDB Las Vegas, a joint venture of Elad Group and Property & Building Corp. which is a subsidiary of IDB Holdings Corp. The property is designed to emulate the famous Plaza Hotel in New York that features French Renaissance architecture.

The current plan has seven towers in total built on the 34.5-acre site that will house 4,100 hotel rooms and 2,600 condos spread throughout the buildings. In addition, it'll have substantial space allocated for a casino, a host of restaurants, a large convention center, a health club and of course retail. To read the entire article, please click here. 

The residential real estate market is still in a state of upheaval in many regions of the country. Overbuilding, investor speculation and lax mortgage lending standards are mentioned as some of the key reasons to the contraction. In many respects, however, it's merely a market economy at work which has its periodic ups and downs. With proper government controls these turbulent periods can be softened, but not eliminated. Yet, the blame game is in full force from coast to coast and the home loan sector, for one, was caught in the cross-hairs of many regulators who are now busy rewriting its rules.

Is it necessary? Maybe, but maybe not.

In the present state of affairs the lending industry is regulated by a host of governmental agencies, including the Federal Reserve, Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), Federal Deposit Insurance Corporation (FDIC) and the Conference of State Bank Supervisors (CSBS). There are others, but the picture is clear that the field is quite crowded. Whether it has evolved to this by design or not is irrelevant.

With that many participants it is inevitable that some enforcement functions are overlapping and causing either duplication of the enforcement effort or none at all because the other agency is supposed to cover it. It's typical for rivalries to develop between entities that frequently leads to withholding of information and sometimes misleading data to be disseminated to gain favorable publicity and additional congressional funding. Sharing information is mandatory for this complex setup to work properly and the more departments, the more difficult it gets.

For truly effective oversight, the mortgage regulatory body should be under one roof. To get there from where it is now would be a massive task, but it certainly would help smooth out severe market downturns like this.

Moreover, the existing laws governing mortgage lending are by no means ideal, but they are functional and with periodic adjustments serve the consumer and the financial industry relatively well. It appears that the past enforcement of the regulations was more or less casual. When the barn door was only open a foot or two a few years ago, the regulators chose to ignore what was bound to happen. As the doors were flung wide open and the cows were all out, they jumped into action and quickly realized it was too late. That's where we are today.

Perhaps the elected officials and the federal government should look at themselves in seeking solutions to the current predicament. Debating new laws now and enacting them will offer some short-term answers, but will predictably lead to another mess down the road. A more comprehensive solution ought to be on the drawing board.

Be prepared. The scam artists are on the move. The inevitable byproduct of any market distress is the introduction of them to further complicate the already confusing situation. According to the FBI foreclosure fraud numbers are as high as they have ever been, having received 35,000 reports last year that adds up to almost $1 billion. The key is to be able to identify the foreclosure rescue scams and steer clear of them. Here are some pointers.

Equity skimming is one of the more widespread tricks. In it the homeowner would temporarily convey ownership of the property to the shady operators while they supposedly consult with the lender and he tries to get his financial affairs in order. The homeowner is now paying rent to them, but instead of negotiating with the bank, they are busy using the bogus ownership to place another loan on the house and suck its remaining equity out. At the end the scammers keep the rent money and whatever equity was there and they are gone forever, leaving the homeowner several steps closer to a foreclosure because the rent was not forwarded to cover the loan payments.

A mortgage counseling service may sound very appealing to a worried consumer, especially when it promises to bargain with the lender on his behalf, but it wants an upfront fee to do so. It's the upfront fee request that should trigger the alarm bells. There are some reliable businesses he could turn to, but to get this type of assistance should cost nothing. The best way to handle a possible foreclosure issue is to contact the lender directly. Or to find a free service, HUD provides a list of approved housing counselors.

Basically, the best practice is to not sign a quit-claim deed to assign the property rights to a third party, unless an attorney or a HUD-approved housing counselor gives his consent. Authorizing a counseling company to represent the homeowner in order to stop foreclosure at once is generally a bad idea. Also, hiring a third party to handle mortgage payments while it promises to handle a looming foreclosure often leads to pilfered payments and a bankruptcy filing that will not stop foreclosure, merely delay it.

All in all, never sign a piece of paper that is not fully understood and always seek legal counsel when in doubt.  

Springs Preserve is a cultural and historical site in the heart of Las Vegas. It primarily observes the city's past, but as it does so, it also looks forward into the future, offering a vision of sustainable living and what it entails. It is a 180-acre attraction with Nevada State Museum and other historical exhibits, hiking trails and about 50,000 square feet of banquet and meeting space.

While the conference area is rather small compared to many of the vast facilities on and around the Strip, it has managed to draw the interest of the national convention industry with its eco-forward approach. Something that is largely unheard of in the business. As the country is becoming more and more aware of green living and its benefits to the global community, meeting planners are heeding the increased demand for eco-conscious events. And Springs Preserve is on the forefront of that trend.

Las Vegas today is one of the world's leading convention destinations, putting Springs Preserve in an ideal location to spread the message of sustainable meetings and shows. Some of the green concepts applied there are natural light, or day-lighting, wherever possible and solar panels provide most of the power that is still needed in the buildings. Wall insulation in the meeting rooms is made of straw and compacted dirt and a computerized heating, ventilation and air conditioning system automatically balances the indoor climate between hot and cold. Recycled plastic soda bottles and corn husks were used to manufacture the indoor carpeting.

A few of the organizations that have reserved event space at the preserve include the Andre Agassi Charitable Foundation, Wynn Resorts, Sherwin-Williams, the Southern Nevada Home Builders Association, the Urban Land Institute, U.S. Bank and the National Association of Realtors. The corporate responsibility issue is on the rise and Springs Preserve offers a textbook setting to address that.

Locals and visitors to Las Vegas do know that fine dining has in recent years made strong inroads into the city's restaurant milieu. Most of them are located in the Strip resorts or their adjacent shopping emporiums. The historically affordable meal remains available, it's the gourmet edition that has been added to the global menu.

With fine dining comes higher prices is the assumption. The Zagat Guide for Las Vegas proves that correct with a firm assertion. In its latest edition Las Vegas moves to number one for the most expensive restaurant city in the nation. Average meal here costs now $44.44 which easily beat the perennial list topper New York at $39.46. The next three were Long Island, Miami and San Francisco.

The reasons to the increased prices are various. The Strip resorts nowadays compete in a passionate manner which of them can next successfully recruit a world-famous chef to open a new fine dining spot on their premises. The bigger the name, the higher the cost to bring him on. These restaurants typically serve more people than is the norm, so they need larger kitchens and storage spaces and more staff, which naturally push the expenses higher.

Most of the ingredients are flown in, if not daily, at least several times a week. The greater Las Vegas area has a very limited supply of anything going into these exotic menus, seafood being a prime example of that. Besides, the high-end bistro wants to hire and keep gourmet-level service staff and that forces them to pay above union-scale wages, otherwise common in most of the large resorts.

Simply put, to do business here costs more and that shows up on the menu pricing.

A lot of attention has lately been directed toward the mortgage industry where lenders continue to struggle with rising foreclosures and try to keep their balance sheets somewhat respectable. Washington also announced an interest rate freeze plan that on the outset received proper headlines, but on closer scrutiny it appears to be more politics than a sincere attempt to help those in need.

In the meantime, Greater Las Vegas Association of Realtors, or GLVAR, compiled its monthly statistics for November and one sector indicates that the market is working actively on trying to right itself. It's the single-family house inventory that deserves a special mention, as it dropped slightly to 23,494 from October. The significance actually is that this is the third consecutive month it moves lower. If it is a lasting trend it might be justifiable to say that the bottom is here or at least very near. On the other hand, the winter months are typically slow and sellers may have withdrawn their listings for now and sign up again in a few months.

In other news on the Southern Nevada market, the median single-family home price was reported at $273,500, a decline of 11.2% from last year. Although it is double digits, it still can be called reasonable and non-alarming. Whereas sales are off the pace 37.4%, about where it has been for months.

The condominium and townhome median price is at $180,000 and it signifies a 10% fall from a year ago, mirroring closely the single-family drop. This category is doing a little worse on the sales side which gave up 50%.

If the market can sustain the downward movement in the listing inventory, then there is reason to be optimistic about a soon-to-begin recovery. But the road ahead can remain bumpy, as foreclosures and short sales are expected to trouble the real estate market for some time to come.     

 Sin City is working diligently to bring a professional sports franchise to Southern Nevada. Whether it can support one at this stage is a different matter. The other thing is that the city presently lacks a modern arena to house such a team. Thomas & Mack on UNLV campus seems to have what it takes, yet when the new sports palace is being discussed, the university facility isn't even mentioned as an option.

Now there are two separate stadium proposals on the drawing board. One is by Anschutz Entertainment Group, or AEG, and Harrah's Entertainment and the other by REI Neon/ Warburg Pincus.

The AEG/ Harrah's intends to develop a parcel just east of Paris Las Vegas, easily within walking distance from the Strip. The partnership will soon turn in plans for a $500 million arena to the county for approval and is set to break ground this spring. If everything falls into place, it should open in the fall of 2010. They already are in discussions with both the NHL and the NBA about available franchises.

REI Neon has its eyes focused on downtown where it hopes to develop a large parcel into a massive $10.5 billion multi-use complex, including a modern arena. Project Pulse, its trade name, would have 1,500 condominiums, 6,000 hotel rooms, three casinos and a huge allocation of convention, office and retail space. But it has hit a snag in securing financing for the ambitious effort as many large-scale lenders are experiencing liquidity difficulties and are carefully re-examining their real estate risk factors.

Without a sports team such an arena would face an uphill battle, although AEG/ Harrah's could fill it with other events tied to the Strip environment. Building two of them would surely be overkill and again, should it happen anyway, the near-Strip facility would have an edge. Who first breaks ground is certainly in the driver's seat and most likely to make it.

It soon will be, in a small scale.

This month Nellis Air Force Base located just north of Las Vegas will start up this continent's largest solar photo-voltaic system, built by the partnership of U.S. Air Force, MMA Renewable Ventures and SunPower Corp. It will generate over 30 million kilowatt hours of power annually and provide 25% of the base's total electricity needs. The system is projected to save the installation $1 million every year, making the source at the same time sustainable and more independent.

Nevada can do much better than that, however. There are more sunny days here than you care to admit. It is estimated that it has the potential to produce 100,000 megawatts of solar power. That was megawatts. Once harnessed and converted it would supply 20 million homes with clean electricity from a reliable source. No disruptions to its delivery, no fluctuating prices and of course no pollution.

The Nellis system is a small step in the right direction. To build a clean energy industry requires ample financing, careful planning and a long time frame. Progressive federal tax policy has been the backbone of the efforts so far and the U.S. Senate is currently debating new energy legislation. One of the critical items on the agenda is the approval of an eight-year extension to the solar energy investment tax credit. Without its passage the nascent industry would face severe obstacles to go forward.

Sen. Reid is for its extension, while Sen. Ensign is still undecided. It would do more than just provide clean energy, it would also create a host of jobs and bolster the state's economy. It could even make Nevada a significant exporter of solar power to other states. Not only our senators should support it, but all senators.