Esko Kiuru

The two mortgage heavyweights have been the backbone of U.S. housing finance scene for decades and have provided the intended liquidity to the market. This in turn allowed more people to buy a home to live in, the ultimate goal of the system. Then in the early 2000's the real estate market grew hot, piping-hot in select states like California, Florida, Nevada and Arizona, and as history suggests all out-of-control booms come to a crashing halt sooner or later. Like now. To fuel the boom, mortgage lenders, large and small, jumped head first on the housing bandwagon to make enormous amounts of money with fancy loan products. The activity during these years was fast and furious wherever one looked.

As things were unfolding. Fannie and Freddie were watching all of this from the sideline and eventually the desire to increase their profits overruled prudence and they joined in on the feast. To make a long story short, now they are grappling with heavy losses, just like most banks are, from these boom-time loans and are nearly insolvent.

Washington and think tanks and others in the know are presently debating what to do with these bleeding mortgage players. Obviously they need to be restructured in some way to keep this from happening again. A few experts call for their nationalization, some suggest they should be sold in pieces and some would reduce their role in the vast mortgage finance system.

Whatever is decided, it should happen after the markets have returned to some kind of normalcy. If something is done now, as some experts suggest, it would just add to the credit scene volatility, causing more harm and prolong the long-anticipated recovery.

Moreover, the GSE, or Government Sponsored Enterprise, setup did work for a long time. The current turmoil is then clearly the responsibility of Fannie's and Freddie's boom-time leadership who were more influenced by profit prospects than following the mandates each institution had. And where were the federal regulators tasked with overseeing them? There were a few warning voices heard in Washington early in the decade but they were quickly shouted down and the show, unfortunately, went on.

The way the residential real estate market today is going in Southern Nevada it's no surprise that raw land values here are heading south. Demand for land is way down as the housing sector struggles with a large inventory of new and resale homes. Even if a builder wanted to purchase acreage for a project, getting financing now would be a challenge in this lending environment. The slowing economy doesn't help much either.

In the second quarter median vacant land price stood at $570,279 per acre which turns out to be $148,232 less than at the same time last year, or a 21% decline, reports Applied Analysis, a local market research firm. The frenzied speculation of a few years ago has come to a stop and actually reversed course. Prices are now somewhere near where they were about three years ago.

But there is a big difference if resort corridor dirt is included in the picture. The median price leaps now to over $4.08 million an acre which makes for a whopping 135% increase from the same quarter the year before. Some might scratch their heads at that because a few Strip projects have lately experienced difficulties in securing financing and Echelon actually decided to temporarily halt construction on its site where Stardust used hold court. Nevertheless, parcel prices are reaching for new highs and the reason is that there isn't that much land left for development sitting in prime location and zoned for gaming, hotel and condominium use.

The resort development community seems to feel comfortable about the long-range outlook for Las Vegas. They are already focusing on what will it be like ten years from now. The current economic, housing, mortgage and commercial finance struggles will be resolved down the road and they are counting on their current land investments paying off sometime in the future when it still makes business sense.

May housing numbers for Southern Nevada are mostly positive. Not too long ago all the key indicators were heading in the wrong direction, but that trend seems to be now history. Recent history for sure, but history anyway. The one truly worrisome category that keeps churning out high figures is the foreclosure filings and it may unfortunately stay that way for a while longer.

On the positive front, as reported by local research shops SalesTraq and Home Builders Research, resales grew 5.2% in May as compared to a year ago, totaling 2,606 homes sold. Bank foreclosures played a large role in this as lenders have slashed prices to unload properties they don't want to keep in their books. Attractive pricing has certainly nudged home buyers and investors off the fence where they've been sitting for the last couple of years. Median values have slumped over 20% from the high of $290,000 in October of 2006. As sales improve, it could also mean that further price declines are unlikely.

Roughly a half of all resales in May were foreclosures and sold for a median price of $215,000. On the other hand, non-foreclosure resales commanded a $239,000 price tag and new homes' median reached up to $269,990. Obviously the bank REOs, real estate owned, are very good value today and tend to drag down prices in the other two categories.

The gap between the REOs and new homes is especially wide and that has actually had a definite negative impact on the new-home sector. It has sold between 800 to 1,000 units a month for a while now when it used rack up figures double that just a year or two ago. Somebody might ask that why are they even building any new homes in this troublesome market. Bring it to a trickle, clear out the existing inventory and then start again with a nice built-up demand knocking on the sales offices' doors.

Anyhow, housing recovery is slowly gathering steam here in Las Vegas, but it'll have a rather long road ahead to real and sustainable health. The current tighter mortgage guidelines are complicating matters more than they should, as is the currently weak economy. With that said, there nevertheless is well-deserved optimism in the air.

This sector seems to have it all figured out. It's generally considered to include homes that go for upwards from $3 million at which level buyers seem to be little concerned about where the Las Vegas real estate market is, what mortgage rates are doing or how the national economy is behaving. They just go out to find a house to their liking and purchase it, often paying cash for it, too. As long as the money is available, it's usually going to be an easy closing since there is no need to deal with underwriting issues, meeting conditions and that sort of stuff.

Some of the ultra-luxury sales in the last several months took place at MacDonald Ranch, Shadow Creek, Queensridge, TPC Summerlin and Panorama Towers. In 2003 the top price for a home sold in Southern Nevada exchanged hands at $4.2 million while that number increased to $17.4 million in 2007 for a Shadow Creek property, according to GLVAR, or the Greater Las Vegas Association of Realtors. Clearly the values keep going up nicely in this market segment, apparently pretty much immune to what is taking place elsewhere in the valley.

To read the entire article, please click on the link in the first paragraph.

The last couple of years have been truly a large test for the Southern Nevada housing and mortgage markets. Property values were heading south, sales stalled, the mortgage community decided to label, although it's now lifted, the valley a "declining area" and buyers generally pulled back to the sidelines to watch the mayhem. Yet, this spring has brought along a few positive signs of life to the battered industry.

And recently another upbeat report makes a case for a nascent recovery. House Prices in America review is put together by a research shop Global Insight and a bank-holding firm National City Corp. According to its latest edition, the median Las Vegas home price of $232,600 in the first quarter dropped 3.1% under the historical standard, or a line, that is considered the norm. In essence, the market here is now judged to be slightly undervalued. If it is, it isn't by much, so it can really be called a level, sustainable condition.

In addition, House Prices in America discloses that in the first quarter of 2007, a year ago, the local market was 22.9% overvalued at a median price of $286,100. With that said, the figures during this current downturn were the worst in the third quarter of 2006 when the overvaluation stood at 30.4%. This rapid, steep and speculator-fueled appreciation was one of the main reasons to the market's spectacular reversal of fortunes the city is now wrestling with.

In the same report, among the regional cities Loa Angeles is tagged as overvalued by 15.4% at a median home price of $432,200. So is Phoenix by 20.2% with a price of 224,900. Reno, a fellow Nevadan, is right around par on the historic scale, undervalued a tick at 0.2% with a price of $251,500.

Is the real estate market in Las Vegas now fairly priced? It definitely seems to be. As long as the range either over or under the historical standard is within, say, 5 to 7%, the situation can be called stable and sustainable. When it races up to double digits, look out. That's when it's time to sit back and carefully evaluate what's going on.