Last year at this time, I produced a blog with my predictions for 2011. Before I gaze forward into 2012, letâ€™s look back at how things played out in 2011.
First of all, I predicted that there would be no major changes to the Las Vegas real estate market. And in fact, that seemed to be the case. In some pockets of the valley, prices dropped a tiny bit more, but we did continue to â€œbounce along the bottomâ€, as I put it.
Second, I said that an improvement in the unemployment numbers would be the key to recovery, but there was no substantial gain in hiring, and consequently, no great recovery in the market.
Third, I predicted that foreign investors would be the dominant force behind any strengthening of the market. I think this was very accurate. Without investors, specifically Chinese investors, the market would have fared far worse. Once again, roughly half of all residential transactions in the Las Vegas area were cash. Foreign investors usually cannot qualify for financing and therefore must pay cash. Also, banks kept up, and in some cases even strengthened, their qualification standards. Mortgage rates did not increase - yet; nonetheless, the requirements for obtaining a mortgage kept most potential buyers on the sidelines unless they have sufficient cash to complete a purchase without a mortgage.
Fourth, I said that after a dark beginning to the year, foreclosures would go on the decrease as the year progressed. Again: this was the case.
Fifth, I speculated that short sales would dominate the market, and that, too, was the case. Although the percentage of sales that were short sales did not get to the 50% that I estimated, it did increase and approach that number. Had banks cooperated more than they did, the number would have been substantially higher. In other words: it wasnâ€™t for trying; itâ€™s just that so many short sales ultimately failed.
Sixth, I said that the number of real estate professionals would decrease. Later in this article, I will comment on that as we move forward into 2012. But paying Realtor dues for many has become burdensome. As proof of that, our non-MLS company, TR Alliance, which does not require Realtor dues, has continued to grow and blossom.
So, all in all, my predictions for the Las Vegas real estate market, 2011, were highly accurate. Now what about 2012?
2012 promises to look much like 2011, which looked much like 2010. With one possible exception, which I will get to in a minute, 2012 will crawl forward toward â€œrecoveryâ€. But unfortunately, there will be no magic moment, no silver bullet, no watershed event.
Inventory of available residential properties will be tighter in 2012, as the results of Assembly Bill 284 will increasingly be felt. (In you havenâ€™t read my blog on this new law, it requires lenders to tighten up their paperwork prior to being able to file a Notice of Default, the first major step in the foreclosure process). We are already seeing a diminished number of foreclosed properties come on the market as we enter the new year, consequently reducing overall available inventory. And if banks canâ€™t file NODâ€™s, then they canâ€™t foreclose. Also, a reduction in the number of foreclosures, which are largely responsible for dragging down home values, means that prices will shore up. In fact, I believe that prices will be higher at the end of the year than they are at the start. I will go out on a limb and say that yes, prices will increase a bit in 2012.
I mentioned one possible exception: some pundits have expressed concern that once banks figure out the remedy to AB284, a glut of foreclosures will ensue. I do not think that will happen. I also do not think the bill will be repealed any time soon. I believe that AB284 will serve its intended purpose for the most part, and will curtail the glut of foreclosures entering the market. The oft-cited â€œwaveâ€ of foreclosures will ease this year, most assuredly.
If we see a reduction in the number of foreclosures, we will see another increase in the number of short sales. Some experts have said the opposite: that if people know banks cannot foreclose on them, they are likely to stay as long as they can in their property, especially if they are not making any mortgage payments at all. They can live for free! Well, some homeowners will do that for sure. But my experience tells me that in the majority of cases, people want to relieve themselves of the burden that is an underwater property; they do not want to simply delay the suffering.
Lenders, I hear, are already working on new programs for homeowners to induce them to cooperate with the short sale process. While this may be a Nevada-specific strategy, lenders know they have to do something. The whole foreclosure/short sale/loan modification debate really centers on lender attempting to minimize their losses. In other words, when property values fell, lenders took a hit. But that has already happened, and we cannot get the toothpaste back into the tube. So now, how can we move forward and minimize the loss that has already occurred? I think that lenders will see short sales as the least of the evils, and I think that lenders will cooperate more with the short sale process this year. Some of the new strategies that lenders are working on are variations of the â€cash for keysâ€ program, in which lenders pay foreclosed homeowners to vacate their former homes promptly and cleanly. I hear that some lenders are planning to offer cash for short sale cooperation way beyond what has been offered in a HAMP/HAFA short sale.
It is my opinion that there are other ways lenders could facilitate the short sale process beyond writing a check. They should streamline the paperwork; they should accept that a substantial drop in value IS a hardship and cease requiring any other evidence of hardship; they should allow real estate professionals the luxury of being able to complete the process quickly; and they should (if allowed under federal law) lessen the hit that short sellersâ€™ credit scores take.
I am not sure if we will see any real change in interest rates, but if we do, it will be up. I am inclined to believe that at the end of 2012, we will look back at this time and remember the opportunity that existed with the lowest interest rates in decades. I believe that interest rates should begin to creep upward soon.
I think 2012 will continue to be terrible for commercial real estate, which has not yet hit bottom. Commercial vacancies will remain at unprecedented levels throughout the valley, with North Las Vegas most likely the hardest hit.
What about the Las Vegas market as it pertains to the real estate professionals trying to work their way through these trying times?
Every January, when annual dues come up for GLVAR members, there is some attrition, naturally. Dues are not cheap, especially for part-time agents. Although I firmly believe that if a person has a real estate license, they should have Realtor membership, it will be quite difficult for some agents to pay. Speculation has it that membership may drop below 9,000 during the month of January.
Therefore, just as I said last year, there will be a slightly larger piece of the pie for those who are able to pay their dues and survive.
TR Alliance offers license-hanging without GLVAR dues, and with no monthly fee, for those who wish to pursue that option. Then, they may transfer over to TR Realty at any time, with no fees, when they feel ready to do so.
Another critical component of surviving as a real estate professional in this market is reevaluating the company with which a licensee is affiliated. Those offices that charge monthly fees, franchise fees, desk fees and the like should be shunned. Deals are not that easy to close these days, and sometimes, months can pass between transactions. Agents should not be paying fees to an office for nothing. Furthermore, commissions are smaller and more important than ever. The days of a Broker keeping a third or a half of the commission should be in the past. I have always believed in the 100%-commission method of running a real estate brokerage, and have always offered this at TR Realty. We are lean, efficient, tech-savvy, green, and able to pass these great savings and benefits along to our associates at every turn.
Last year, I said there would be more short sales, fewer foreclosures, fewer Brokers and agents, increasing interest rates and lots of foreign investors. Those trends should all continue well into 2012 and beyond.
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