Waiting for a Crash? Only 1.1 Percent of October Las Vegas Home Sales Were Distressed

by Ryan Rose

What Happened in the October Numbers

Las Vegas REALTORS released its October report on Nov. 6, and FOX5 Vegas covered it. Short sales and foreclosures combined were 1.1 percent of sales. A year earlier, that share was 0.9 percent.

A short sale is when a home sells for less than the owner still owes, and the lender agrees to take the smaller amount. A foreclosure is when the lender takes the home back after the owner stops paying, then sells it. People lump the two together as "distressed" sales because the owner usually did not have much choice.

In total, 1,895 existing homes, condos and townhomes sold in October. If 1.1 percent of those were distressed, that works out to about 21 sales across the whole valley, by our math. The coverage does not give an exact count, and it does not split short sales from foreclosures. Those two details are NOT FOUND here.

Here is the rest of the picture from the same report:

Cash deals were 26.2 percent of sales, close to 26.5 percent a year earlier. The peak was 59.5 percent in February 2013.
Homes sold within 60 days were 72.4 percent of home sales, up from 71.7 percent.
Condos and townhomes sold within 60 days were 62.5 percent, down from 67.5 percent.
Single-family sales fell 11.9 percent from a year earlier. Condo and townhome sales fell 23.6 percent.
The median single-family price was $475,000, up 0.1 percent from a year earlier and $15,000 below the $490,000 record set in May and June.
Supply reached about six months at the October sales pace, up from just over four and a half months a year earlier.

Las Vegas REALTORS President George Kypreos tied the slowdown to borrowing costs. "We're seeing the impact of the recent rise in mortgage rates," he said. He also said, "I suspect these statistics would look a lot different if rates went back down by a percentage point or so," and that demand in Southern Nevada "is still strong."

One thing to know about how this is measured. The 1.1 percent is a share of existing property sales. So it tells us what closed in October. It does not tell us how many owners are behind on their payments right now, and it does not include brand-new homes from builders. It is one useful number, and it works best next to the others in this story.

Las Vegas hotel towers at dusk with snow-dusted mountains behind them

Why It Matters to Las Vegas Residents

If you are a buyer waiting for a crash, this is the number to look at. Bargains in 2010 came from forced sellers. Banks owned the homes, owners were in trouble, and many sellers had no choice about the price. Those forced sellers are a very small part of today's market.

That does not mean buyers have no power. It means the power is coming from somewhere else. There are more homes to pick from. At the end of October, 8,112 single-family homes were listed without an offer, up 7.6 percent from a year earlier. With about six months of supply, many sellers now have real competition. So you may be able to negotiate on repairs, closing costs or price. You are just negotiating with regular owners, and most of them are not desperate.

If you own a home, the number is reassuring in one specific way. Prices in a neighborhood get hurt when lots of homes sell at forced discounts nearby, because appraisers use those sales as comparisons. A handful of distressed sales spread across a whole valley is not the same as a whole street of them. With only about 21 sales valley-wide, most owners will not have one next door.

If you are thinking of selling, the speed numbers tell a mixed story. Nearly three out of four homes that sold in October sold within 60 days, a slightly better rate than last year. Condos and townhomes went the other way. So a house that is priced right can still move, while a condo may need more patience. Keep in mind that the figure only covers homes that actually sold. Homes that sat and never sold are not part of it.

Cash buyers matter too. A little more than one in four sales was paid in cash, which works out to close to 500 deals in October, by our math. Those buyers do not care what mortgage rates do. Their share has barely moved in a year, even as rates climbed. That is a steady layer of demand under the market, and it is one reason a slow market is not the same thing as a falling one.

If you rent and hope to buy someday, the same idea applies. It may not be smart to build your whole plan around a wave of cheap foreclosures, because the numbers do not show one right now. A plan built on your savings, your credit and the monthly payment you can live with will still work if the market changes. And if a real wave of distress ever does come, you will be ready for it.

Background: How Different 2010 Really Was

Southern Nevada was one of the hardest-hit places in the country when the bubble burst. A HUD and Treasury report found that house prices in the Las Vegas area fell 60 percent, nearly twice the national rate. A 2013 Urban Institute study also put the decline from the 2006 peak at roughly 60 percent.

The sales mix back then is hard to picture today. Greater Las Vegas Association of Realtors numbers from 2010 show how bad it got. In February 2010, 22 percent of existing home sales were short sales and 53 percent were bank-owned. Together, that is 75 percent. By August 2010, the two still added up to 73 percent. The Urban Institute study says foreclosure sales alone peaked in 2009 at nearly 75 percent of single-family sales in the area.

Put it next to October. A 75 percent share is about 68 times higher than 1.1 percent. These figures are from different years and different reports, so treat that as a rough comparison. But the gap is too wide for the fine print to change the point.

The damage went well beyond sales. The share of Las Vegas mortgages in distress reached 19.8 percent by early 2010, compared with 8.0 percent nationally, according to HUD. By the second quarter of 2012, 59 percent of mortgaged properties in Nevada were underwater, the Urban Institute reported. Underwater means the owner owes more than the home is worth. That is what makes a short sale or foreclosure so likely when someone loses a job. They cannot sell their way out.

State law changed too. Nevada created a foreclosure mediation program in 2009. In 2011, Assembly Bill 284 added felony penalties tied to foreclosure paperwork. New foreclosure filings dropped sharply after that. Investors had been a big part of the market since about 2009, and the cash share hit its 59.5 percent peak in February 2013. Compare that with 26.2 percent today.

Paper For Sale sign taped over a sign post in front of a beige garage door

What Happens Next

Here is the part a crash-watcher should keep an eye on: the direction. The distressed share is low, but it has been edging up from a very low base. In September, it was 1.1 percent, up from 0.5 percent a year earlier. In October, it was 1.1 percent again, up from 0.9 percent. Small numbers can jump around from month to month, so we would not read much into any one report. A steady climb over many months would mean more.

What would a real shift look like? We would want to see three things at once: the distressed share climbing for several months in a row, foreclosure filings still rising, and prices clearly falling. Right now, only part of that is true. The median price is up 0.1 percent from a year ago and about 3 percent below the record. That is a flat market, and it is a long way from the 60 percent fall of the last crash.

Foreclosure filings are the early signal, and they are worth watching. ATTOM reported 40,277 U.S. properties with foreclosure filings in August, up 13 percent from a year earlier. Nevada had the worst state rate in July, with one filing for every 1,703 housing units. The Las Vegas metro ranked third worst among larger metros that month, at one in every 1,394. In August, Nevada ranked second, at one in every 1,920.

Those are real numbers and they should not be brushed off. A filing is also not the same as a finished foreclosure. It can be an early default notice, and many owners catch up or sell before the process ends. Some homes also sell at public auction and may never show up in a report like this one. We could not find a September or October ATTOM report at the time of writing, so the most recent filing data here is from August.

Interest rates are the other thing to watch. Freddie Mac's 30-year average was 7.18 percent on Nov. 5, the third straight weekly drop, and up from 6.22 percent a year earlier. Rates affect how many people can buy. Jobs affect how many people can keep paying. A current Clark County figure for how much equity owners hold is NOT FOUND in the coverage we reviewed, and that would be one of the most useful numbers to have.

The next Las Vegas REALTORS report should come out in early December, based on the usual monthly timing. When it does, look at the distressed share, the listings without offers and the cash share together.

Ryan's Take

I hear it all the time: "I'm just going to wait for the crash." I get it. People here remember 2008, and a lot of families got hurt. But this report tells me we are in a slow market, not a distressed one. Those feel very different when you are the one making an offer. A slow market gives you time and room to talk. It does not hand you a bank-owned house at half off.

I would also look at what waiting actually buys you. Take a $475,000 home with 20 percent down at 7.18 percent. Principal and interest comes to about $2,574 a month, by our math, before taxes and insurance. If the price dropped 5 percent, the payment would fall about $129. If the rate dropped one full point and the price stayed put, the payment would fall about $252. So for a lot of buyers, the rate matters more than a small price drop. Nobody can promise you either one. I would watch those filings, stay honest about what could change, and decide based on your own budget and your own timeline instead of a headline.

Two people reviewing a paper contract, one pointing to the page and the other holding a pen

What You Can Do

If you are buying, run the full monthly cost first, with taxes, insurance and any HOA dues. Then look at what you can ask for. With more homes on the market, it is fair to ask about repairs or help with closing costs. If you do find a short sale or a foreclosure, plan for extra steps. A short sale needs the lender's approval, which can slow things down. A bank-owned home may be sold as is, so a good inspection matters even more.

If you are selling, look at what homes like yours have actually sold for in the last few months, and at what is sitting. A valley-wide report does not break out Summerlin, the southwest valley, Henderson or any one community, so your own street matters more than the headline. Price it where it can compete from day one.

If you own and you are falling behind, please do not wait. Call your loan servicer early and ask what options you have. A HUD-approved housing counselor can also help with defaults and foreclosures. You can search for one by ZIP code on the Consumer Financial Protection Bureau's housing counselor page or call 855-411-2372. If you have equity, selling on your own terms is usually far better than letting it get to foreclosure, and a lawyer can answer questions about your specific situation.

Small model house and a magnifying glass resting on printed floor plans

Have questions about how this affects your home or neighborhood? Reach out to Ryan Rose or text/call 702-747-5921 anytime. Happy to go through the numbers for your street or your budget, with no pressure at all.

Ryan Rose | Real Broker, LLC | 702-747-5921 | ryan@rosehomeslv.com | rosehomeslv.com