BluefoxToday blog : February 2008

The condominium tower standing west of Palms Casino Resort was recently granted a temporary certificate of occupancy by Clark County. Buyers who have purchased property there may now close on them and start ferrying in furniture as early as February 29.

The project will add 599 units, ranging in size from a 600-square-foot studio to a 1,200-square-foot one-bedroom suite, to the already saturated Las Vegas condo scene. In addition, the buildings highest four floors hold 21 penthouses that are still being worked on and are scheduled for completion in May. Despite the currently soft real estate market here in Southern Nevada, the stellar, celebrity-flavored reputation of Palms should give it an extra boost in selling the condominiums. To read the entire article please click on the link in this paragraph. 

Where does it all end? The snowball effect continues to throw cold water on the entire home loan industry. Things started off with the subprime bombshell, which was soon followed by the rapidly rising foreclosure rate, then large investors purchasing bundled mortgage products on the secondary market got sucked in and now it's the mortgage insurance segment's turn. These sectors, and possibly others, are all being called on the carpet to answer for their sins.

Mortgage insurance companies offer coverage to lenders who underwrite loans with less than 20% borrower down payment or, in case of a refinance, under 20% owner's equity. In case the homeowner defaults, the insurance will come in to bail the lender out. Without them the recent residential real estate joyride would've been practically impossible since their policies enabled borrowers with weak credit to buy homes with no or low down payments.

The mightiest of them is MGIC which absorbed nearly $1.5billion in losses in the fourth quarter of 2007. That evidently prompted it to take a critical look at its underwriting criteria and then decided to drastically amend them. Starting in March it'll cease insuring cash-out refinances, low-doc paper, loans on investor properties and negative amortization mortgages. These guidelines do affect the entire states of Arizona, California, Florida and Nevada, the famous hardest-hit foursome, and also apply to nearly two dozen metropolitan areas. In other words, it's not a nationwide shift, merely covering markets that are most troubled for now.

Obviously the mortgage industry itself and related services supporting it are rolling back many innovative products and procedures they introduced to the marketplace several years ago. They fueled unprecedented buying opportunities in many regions, but the risk assessment on them was clearly a large gamble and as is now known, the gamble failed to pay off. MGIC's action will further pinch home purchase and refinance activity and is likely to delay an even, sustainable recovery.

Las Vegas is all about the Strip. Everybody knows what the Strip is, and means. To many visitors it's the only game in town, and why not? There certainly is within walking distance a whole slew of things to do, day and night.

Lately, though, several outlying properties in the valley have deftly created a niche market for themselves, not so much in gaming and entertainment, but in conventions. That business nowadays plays a major role in the city's diversifying economy, bringing in huge revenues every year. Among them are JW Marriott Las Vegas, Green Valley Ranch Resort in Henderson, South Point and Red Rock Resort. In the meeting industry they all can be categorized as mid-size in actual available space which is perfectly suited to what they want to do.

These venues appeal to the smaller conventions which generally get "lost" in one of the larger Strip hotels that continuously cater to larger events, starting, say, at 1,000 attendees and on up. People will enjoy the more personalized service they are treated to at these niche properties. Perhaps the best draw they have to offer is that conventioneers typically are more attentive and productive while attending them due to fewer distractions that the Strip environment can be full of.

Some companies that have considered taking their events out of the Strip for out-of-town locations have decided to stay and hold them at these suburban hotels. So, losing a convention there doesn't necessarily mean Las Vegas will lose it, which is a good thing. The market segment is right now doing very well and the future looks bright, too.

As the mortgage sector and the residential real estate market in the valley stumble along, the same type of instability is now evident in the raw land arena. The weakness in the former is clearly beginning to affect the latter.

In the fourth quarter of 2007 land prices here climbed to a $1.51 million per acre average over the same time period in 2006, announced local research shop Applied Analysis. That amounts to a 21.8% increase year over year. Now, if the comparison is made with the third quarter of 2007, the value in essence decreased 25%, giving it a totally different flavor. Prices are unmistakably floating back and forth and creating a large judgment dilemma for appraisers and banks.

Land on and near the Strip naturally commands a handsome premium, so when it is removed from the data the average price now comes to a much lower $939,400 an acre. That still is roughly a 20% hike from the same quarter a year before.

Residential land values, though, have lately been under a fair amount of pressure, reports Home Builders Research, so much so that they are actually losing ground now. Builders, especially the large ones, are selling some of their holdings and are also reducing new home permit applications.

Last summer a finished lot, typically 3,500 square feet, was appraised around Sam Boyd Stadium at $130,000. Recently similar lots in the same area were purchased from a bankrupt company for $55,000 a piece, according to Home Builders Research. A major price reduction that speaks volumes. What it also means is that homes built on these cheaper lots will be much more affordable, somewhere within a range where an average home buyer can again qualify for a mortgage.

The nation's home loan companies have been battling deteriorating housing market conditions for some time now and that has caused severe losses for many of them. Property values are dropping in several areas and borrowers in these markets increasingly face the threat of foreclosure as their exotic ARMs reset higher and make payments unmanageable. Times are tough on both sides of the fence, to say the least.

In an effort to stem the bleeding, mortgage firms have instituted a bunch of new policies, one of which has drawn pretty heavy criticism from consumer advocacy groups and some in the lending industry itself. They call it new "redlining". It all started when Fannie Mae in December announced that from mid-January on it would require an extra 5% down payment from loans originated in declining areas. A declining, or high-risk, area could be an entire county, a metropolitan area or a zip code. Since last summer Fannie Mae has been labeling certain areas as declining and now it urged banks to use practically any available statistics to do their own risk assessments. Several national lenders have followed that advice and promptly stirred up the controversy.

What the critics are saying is that to paint a whole county, for instance, high-risk is simply overdoing it. Las Vegas is in Clark County, let's take it as an example, and admittedly overall real estate here is challenged, but there are multiple neighborhoods in the county where home values are stable or even climbing some. To punish everyone across the board just doesn't add up. Homeowners and the mortgage trade would be better served if a mortgage application was judged by diligent underwriting instead of where its location is. That's the way it should be.

Furthermore, it seems that these declining market tags lean harder on areas with large minority and moderate income buyers, some critics claim. Many of them were able to get a mortgage a few years back when stated and low- and no-down payment loan programs were all the rage. Now they can't sell because buyers eager to purchase are unable to qualify, their homes could go into foreclosure and then the area's property values sink further and that, at the end, hurts the banks, too, when they get undervalued repos in their books.

The alleged modern "redlining" could've been designed with more foresight.

They say that if you build it, or build many of them, mega resorts that is, they'll come. That sounds very true right now as the Las Vegas visitor stats were released the other day and they show that 39.2 million travelers made a trip here in 2007. It sets a new record, besting the year before by 300,000.

These visitors filled over 90% of hotel rooms in town when the national occupancy average is about 27% lower. That is a large separation. Those who dared gamble racked up almost $11 billion in losses, another serious number. All these statistics were compiled by the Las Vegas Convention and Visitors Authority, the agency largely responsible for marketing our world-famous resort destination.

Local authorities and business owners certainly are ecstatic with these results, but they are already thinking about how 2008 will shape up amid the growing nationwide economic slowdown and also worry of the impact the mortgage industry tremors and other financial issues will have on them.

Actually convention and trade show spending here dipped 1.6% in 2007 and might stay on the same track this year. When storm clouds gather over the national economy, companies will start trimming budgets, curtailing business travel and event participation in town that nowadays relies heavily on this type of commerce.

Locals like to say that Las Vegas is mostly immune to national economic shifts and that theory will definitely be tested in the coming months.

Echelon at Centennial Hills, tucked away at a location in the northwest corner of the valley, is preparing to open its first building later this spring. The condominium development will have six four-story structures spread out over 15 acres with 372 units between them when everything is finished. Royal Construction Co., a Steve Aizenberg firm, is the builder, the same entrepreneur who also brought Spinnaker Homes to the Las Vegas community.

The complex has an urban life-style design and offers amenities such as underground parking with storage space for homeowners and each building has two trash chutes. In addition, a pool and a spa enhance the landscaped space between each building and a clubhouse will go up in the middle of the housing campus.

The developer has smartly opted to stretch out construction of the other buildings because of the current mortgage industry woes and generally weak real estate market conditions prevailing here in Southern Nevada. According to their own timeline right now it'll easily take over two years to complete a building and at this stage the second one is tentatively set to get underway in early fall. With so many unsold condominiums, townhomes and single-family houses looking for buyers here, this appears to be the only reasonable course to follow.

Single-family home inventory for January stayed flat, announced Greater Las Vegas Association of Realtors or GLVAR, after having declined gradually for four successive months. That can still be categorized as positive news on account it didn't go higher. The market appears to be firming up, possibly managing in the coming months to nurse the numbers further down.

The movement in prices, however, continues to be the sore spot. Single-family house's median price sagged 17.3% from January of 2007, settling at $249,900. Foreclosed homes made up 38% of sales, becoming a major factor to the rather steep drop. Please click on the link in this paragraph to read the entire article.

When Southern Nevada's residential real estate market began to slide a while back, much of the ensuing talk was focused on the single-family house segment. At about the same time condominiums below the ultra luxury level were also having their troubles, yet for some reason they seldom generated cat-size headlines. Recently, though, that has changed.

Pinnacle Las Vegas is the latest one to become a discussion topic. The planned complex in western Las Vegas was to have two 36-story towers containing 1,100 condo-hotel units, several restaurants and shops, a fitness center and a spa and a large wet deck.  The project's developers were last month served a class action lawsuit on behalf of upset buyers who were under the impression they'd be moving in by August, when in fact no ground has been broken yet.

The lawsuit claims breach of contract and is requesting a minimum of $5 million in deposit returns, damages and legal fees. The buyers who evidently saw no progress in sight ran out of patience and decided to turn to the legal arena to recover what they can.

Demand for the high-rise and luxury condominium product in the valley has certainly tapered off which puts more pressure on any project's presale stage. A viable development requires strong presale numbers to carry it on to a completion. In a soft market like today's it becomes a major hurdle to clear.

The home loan industry is buffeted by a major gale and so is in many areas the residential real estate business. They are right now battling the elements as they best can. While at it, mortgage lenders have made scores of adjustments out of necessity to their loan programs and business practices.

One of the adjustments is causing extra strain on homeowners and investors who are looking to refinance their properties. Now is as good a time as ever to find a more affordable product as the existing interest rate is about to reset upward and mortgage money can be had under 6%. No argument there. But many banks have placed limits on those plans if the home currently is, or has recently been, on the market for sale.

The thinking is that if an owner has tried to sell but couldn't and then he completes a refi, he's still likely to pursue the sale. And should he then manage to unload the property and the spanking new mortgage is paid off, that pretty much wipes out all the lender's profit. And banksunderstandably don't like that.

This so-called days-off-market policy actually dates back several years and has been largely ignored up until now when the financial turmoil has given it a fresh start. In general sellers are prohibited from refinancing within a certain time period after the property has been on the market, the range normally being between three and 12 months. Some lenders are implementing it and some aren't, so it isn't universal at all. It is, however, gradually gaining in popularity in the hard-squeezed industry.