Rate of Las Vegas homes bought with mortgage hits 17-year low

By Buck Wargo

Monday, April 4, 2011 | 12:44 p.m.

More than half of the investors buying up Las Vegas homes live in Nevada and nearly one quarter are based in California, a San Diego-based research firm reported.

The report from MDA DataQuick comes as cash sales, the method of purchase primarily used by investors – accounted for a record 57 percent of sales in February. The firm has tracked Las Vegas sales since 1994.

In contrast, the percentage of homes bought with a mortgage dropped to its lowest point for any month in 17 years it has tracked such sales in Las Vegas, the firm reported.

In February, investors and second-home buyers purchased nearly 50 percent of all homes sold – the highest level of any month since 2000, when DataQuick began tracking that data. That’s up from 49.2 percent in January and 44.6 percent in February 2010.

Some 53 percent of the area’s cash buyers live in Nevada with nearly all of them in Clark County, said DataQuick spokesman Andrew LePage. Another 23 percent were based in California and 24 percent lived in other states or abroad, he said.

When all sales are calculated, not just those purchased with cash, 66 percent of buyers lived in Nevada, 16.7 percent were from California and 17.3 percent were from other states and countries, LePage said. The investors target foreclosure properties.

The heavy presence of cash buyers and other investors with their focus on lower-cost properties explains why nearly 40 percent of all sales in February were for less than $100,000, up from 34.5 percent in February 2010 and from 25.3 percent two years ago, DataQuick reported.

The homes purchased with cash in February rose to 2,198, the highest for any month since December 2009 and highest for any February since 1994, DataQuick reported.

LePage said the unusually high number of cash buyers reflects tighter lending standards that force some investors and other buyers to pay cash; cash buyers’ ability to move at the head of the line with sellers where there are multiple offers; a preference among some to invest their cash in real estate; and retirees or those close to retirement who sell more expensive properties and pay cash for a retirement home.

LePage added that the lower level of purchases with mortgages reflects Las Vegas’ high unemployment rate, buyers’ concerns about job security, tight lending standards and the inability of many to sell their homes.

The government’s recent changes to qualifying standards for FHA mortgages along with lenders’ requirements for these government-insured loans have contributed to the decline in buyers using low-down-payment FHA mortgages, LePage said. In February, FHA loans represented 42 percent of all purchase loans uses, the same as January but down from a peak of 55 percent in September 2008, he said.

Investors and second-home buyers paid a median price of $96,500 in February, down from $100,000 in January and $104,000 in February 2010. Cash buyers paid a median price of $90,242 for a home, down from $99,000 in February 2010, according to DataQuick.

Distressed sales, which includes foreclosures and short sales in which the buyers owes more on the mortgage than the home is worth, accounted for 71 percent of transactions in February, DataQuick reported.

Foreclosures resales, which is homes foreclosed up in the previous 12 months, rose to 56.7 percent of sales in February. That’s up from 54.7 percent in January but down from 59.6 percent in February 2010. The market peaked at 73.7 percent in April 2008.

As for short sales, they comprised 14.3 percent of sales in February, down from 14.4 percent in January but up from 6.8 percent two years ago, DataQuick reported.

The median price for new homes and resale homes and condos was $118,500 in February, which is 62 percent below the peak of $312,000 in November 2006 and second lowest price since April 1996. The lowest was $118,000 in January, DataQuick reported.

New home market

The 19 percent decline in new home sales during the first two months of 2011 appears to be a worrisome sign for the home building industry in Las Vegas.

The median price of new home sales in February fell below $200,000 for the fourth time since 2003, according to Home Builders Research. Excluding high-rise purchases, the price was $193,000, which is a year-over-year decline of $15,634 or 7.5 percent.

DataQuick said the new home sales in February were the fewest since 1994.

Home Builders Research President Dennis Smith said people should be careful of jumping to conclusions after two months and price drops for the new home industry may have fit into the long-term puzzle of the market’s recovery.

“Some will jump on this news as more gloom and doom, but let’s give it time to see if prices will decline another 5 to 7 percent during the remainder of the year,” Smith said.

Smith said he’s seen builders in a few communities cut prices in the last couple of weeks, but others have also increased them as well.

The lower median price of the February closings could mean that many consumers weren’t buying homes priced more than $225,000, Smith said.

One of the problems is the lack of equity that exists in the Las Vegas housing market, Smith said. Many homeowners want to move into a bigger home or newer neighborhood, but they can’t do that until they sell their existing home. With their equity dropping 30 to 50 percent in many cases, that’s discouraging and prohibits them from having enough for a down payment to qualify for a mortgage, he said.

“If owners had more equity available, there would definitely be more move-up new home sales,” Smith said, adding that’s creating pent-up demand that will serve the industry well in the future.

Smith argues that the federal tax credit that effectively expired April 30, 2010, created an artificial stimulus that increased new home sales by about 700. The new home market must be changed in that light and therefore doesn’t look as bad, he said.

The permits taken out by builders has fallen 45 percent through the first two months of 2011 and should continue to decline for the next several months because builders took out additional permits in early 2010 to deal with the demand for new homes, he said.

Despite the weakness in the new-home market, demand remains strong among investors looking to purchase foreclosures and other distressed properties. That inventory needs to be taken off the market before demand picks up for new homes, analysts said.

Smith said the 3,241 sales of existing homes in February brings his yearly total to 6,339, a year-to-year increase of 4 percent. Based on that pace, the market should match its 43,000 resales of 2010, he said.

Through the first two months of 2011, DR Horton has taken out the most building permits at 112, Smith said. They are followed by Lennar, 90; KB Home, 74; Ryland, 58; Pulte/Del Webb, 58; Harmony, 49; Dunhill, 44; American West, 42; Pardee, 40; and Woodside. 29.

Builders picked up their land purchases this year after a lull in the fourth quarter, Smith said.

Shea Homes acquired 10 lots for $40,650 each in the Ardiente community in North Las Vegas. Richmond American acquired eight lots at $25,000 per lot at their Westwind in North Las Vegas

Great Western Bank bought 30 finished lots in a trustee sale for $7,667 per lot at the La Madre subdivision in North Las Vegas. The bank also acquired 15 lots for $9,333 per lot at Bebe Court in North Las Vegas.

One group bought 3.65 acres at Kyle Canyon and Wagner Ranch for $25,027 per acre in northwest Las Vegas, Smith said. Another group aid $113,968 per acre for 23.4 acres for unimproved land in Mountain’s Edge.

Smith will host a housing conference April 14 from 8:30 a.m. until 10:30 a.m. at Springs Preserve, 333 S. Valley View Blvd. Besides Smith, other speakers include Bob Potts, the assistant director at the Center for Business & Economic Research at UNLV; Len LoBene, the field office director of the Department of Housing and Urban Development; Cheryl Moss, vice president of the appraisal department at Bank of Nevada and other experts in land sales, high-rise sales and real estate.

For more information, go to homebuildersresearch.com.