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February 22, 2019

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Q&A: Nasser Daneshvary, director of Lied Institute for Real Estate Studies at UNLV

nasser

Sam Morris

The era of crazy price appreciation is over. I think the whole attitude of households in the United States has changed,” says Nasser Daneshvary.

Nasser Daneshvary thought teaching economics in college would be his way to make a difference in the lives of young people.

The 60-year-old Daneshvary, however, thought he would be teaching in his native Iran when he decided more than 35 years ago to pursue a degree in economics and study in the United States. In a country ruled at the time by the iron-fisted shah of Iran, free speech wasn’t a tenet of the nation. But being a professor, even at that time, gave him some freedom.

“Economics is something that deals with people, society and an individual’s well being,” Daneshvary said of his decision to pursue economics instead of mathematics. “And I realized being a college professor you have more leverage to talk and make a difference.”

With the financial support of the government, Daneshvary came to the U.S. to pursue studies in economics and international trade, only to have his funding pulled after the overthrow of the shah and the formation of the Islamic Republic of Iran in 1979. Daneshvary stayed in the U.S. rather than return to his country and face an uncertain future.

Upon completing his studies at the University of Tennessee, Daneshvary taught economics in Vermont and Missouri before 1990 when Keith Schwer, then leader of the economics department, said he wanted Daneshvary to take a position at UNLV.

Two years after taking the job as an associate professor of economics, Daneshvary became chairman of UNLV’s economics department and later associate dean of the College of Business.

Daneshvary returned to teaching in 2005. He started conducting housing research two years later and began publishing reports before he was named director of the Lied Institute last summer.

IBLV: Why return to teaching?

Daneshvary: I realized I was too far away from academics. I didn’t see students, and I didn’t have time for my research.

What research have you done?

One study asked whether brokers sell their own properties for higher prices and shorter time on the market than they do with other properties. We found out they sell them for a little bit more but equal time on the market. Prices were about 1 percent higher.

What else?

In 2010, we published a study about options lenders have when properties are distressed. One is short sale and another is foreclosure. We wanted to see what was optimal. The results showed that short sales were much better because they draw higher prices and properties are in much better condition.

What is the latest study you released on the toxic effects of foreclosures on neighborhoods?

We know foreclosed homes sell for a discount, but what do they do to the neighborhood? We found out that the first few foreclosures have a big effect, and then five and six and seven don’t matter, and then eight, nine and 10 matter a lot. The negative effect on your value keeps declining until it reaches around 40 homes within a half a mile from you. You have lost 33 percent. More than that doesn’t matter.

What about short sales?

We found out that short sales don’t have the same effects. Yes, they reduce all valley prices, but having short-sale neighbors does not have extra effect.

Are you worried about foreclosures continuing?

Absolutely. More foreclosures mean home prices continue to drop. I have friends who bought a home for $700,000, and now it’s worth $300,000. They can afford it because they have jobs, but they keep looking at me and asking if I think they’re crazy if they pay on it for the next 20 years while the value is $300,000. If they don’t, that’s a strategic default. People are starting to do that. They see neighbors who gave up their homes through foreclosure and how they got rid of their debt and are rebuilding their lives. They are saying: “Why shouldn’t I do that?” That’s why I call it the toxic effect of foreclosures on neighbors.

How big of a problem do you think strategic defaults are?

I am guessing 25 percent of our foreclosures.

Are banks turning to short sales?

There was good news until the end of November because short sales were increasing and foreclosure sales were declining. But December’s numbers showed foreclosures were higher. I think 2011 will be the year that short sales surpass foreclosures, but that’s optimistic. Everyone is talking about this shadow inventory of foreclosed homes with banks and lenders.

What do you want to see?

I prefer principal reduction, but banks are worried about the moral hazard of encouraging people to choose that option who can afford their mortgages. They don’t want to open the floodgates.

Do you have concerns about those who do short sales?

I hope banks will put in contracts that they will not go after deficiency judgments. Banks can recover that money from their insurance. A lot of those properties were insured.

What else can be done?

Maybe you can do principal reduction where you get a share of the future appreciation.

Where are home prices going?

I think the price has bottomed out. Maybe we lose 5 percent or we gain 5 percent next year. The decline is possible because of this shadow inventory of foreclosures.

When do you expect prices to recover?

We will not see price recovery for at least three years. Even then, appreciation will happen in the 2 or 3 percent range.

Could that be wrong?

Unless Baby Boomers realize how undervalued we are in Las Vegas. We’re 25 to 30 percent below the cost of replacement. I think the national economy is recovering, although construction is holding it back. That recovery will start to have people go back to their household formation rate — a son doesn’t have to stay with his parents anymore.

Where will prices be in the next five to 10 years?

The era of crazy price appreciation is over. I think the whole attitude of households in the United States has changed. More and more people are accepting that having a house is not a quick investment. Having a house used to be called a long-term investment but even that’s gone. Having a house is a long-term savings.

What do you see happening then?

In think 40 percent increase in 10 years. A $100,000 home today in 10 years will be worth $140,000.

What about in five years?

I think a 6 percent increase. A $100,000 home would be worth $106,000 to $107,000. The next three years we aren’t going to see appreciation. I don’t know if the Las Vegas oversupply will disappear that fast.

What lessons should we learn from this?

We should be patient and not look for quick turnarounds on our returns — both investors and individuals. There were regular people buying three to four homes hoping in six months they could flip them for 20 percent profit. There’s nothing wrong with that if it’s sustainable, but it’s not sustainable.

What is the Lied Institute and why is it important?

It’s in the College of Business and a degree is offered by the Department of Economics. We have continuing education, professional development and community outreach. Some 72 percent of all nongovernmental tangible assets in the United States are real estate. That’s huge and means it has impact nationally and internationally. We have seen that in the last three to four years.

What are some of the things you’re doing?

Increasing professional development opportunities. Laws and regulations are changing and financial processes are changing. Who is going to train the professional people? I hope Lied is the one working with that. Another important avenue is to be a source of public policy information. I don’t claim I can influence politicians or big business, but if they want to have information, I would like Lied to be a source.

Is enrollment in the program down?

Yes. Young people are reacting. They see all the bad news about real estate. Our enrollment is down by about 30 to 40 percent. Right now we have 45 majors and 45 minors. It was 70 majors two years ago.

Are you concerned?

No I’m not. Young people react to market news. It’s temporary, and we have to do a better job in telling young people you don’t decide for the next year but the next 30 years. That’s the message I would like to send. This is an amazing place of resiliency and a can-do attitude. That’s the reason I ended up staying 21 years.

The Lied Institute publishes a white paper on a major public policy question. What was it about and what is its importance?

It was that we were 50th in the nation in education and what it takes to eliminate that title and start improving. And what education means to Nevada. It’s a hindrance. Companies do not just pay attention to low taxes. They actually pay more attention to what’s available — how many educated businesses are available and what other businesses are available. Then they start thinking about the market and the transportation network. When they narrow it down to two to three places, then they start looking for tax advantages. For relocation of companies with high-paying jobs, the importance of education can’t be overlooked. You can’t have a diverse economy unless you have an educated public.

When will the local economy recover?

The U.S. economy is improving, but because of the problems with construction here it will be very sluggish. Over the next two years, we will have a stable economy and after that it becomes natural growth. I don’t think Las Vegas will jump to be such a hot market without long-term planning and diversification.

What research do you plan to focus on next?

A lot of people are talking about associations and whether there’s any reason to changing them. The question is: Are they a hindrance to expansion or a hindrance to home development and prices going up? Is there is something that exists that’s not good for our economy?

What else?

Henderson passed a law requiring every new house have a sprinkler system. I don’t have data, but that definitely will affect affordability. It will take a couple of years before we get the data and we will do the cost benefit analysis.

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