Mesquite Market

Three new homes closed this month at $165 or below per square foot. The average price per square foot for new homes year to date has been $197 per foot, that has dropped since June 1, 2006 to $189 per foot and now we see these closing below $165 per square foot. These prices per square foot do not take into account other incentives being offered, which effectively lowers the price further. This builder is clearing out inventory by giving the buyers the incentive they are really looking for: A Better Price. 

As an outside observation, it looks like they are getting prepared. These guys running this building company were all Boy Scouts I’ll bet. In Boy Scouts you learn many things including the Scout oath and the law, to be trustworthy, loyal, etc but the Scout Motto is “Be Prepared”. Funny that’s what they say about many things in life, to be prepared, for storms, earthquakes, attacks, budgets, what ever life throws at you, its always more comfortable if you are prepared for it. This builder has made some other changes as well; I noticed they closed an office. It looks like they are tightening their belt. They know how to play the game, they are the pros. 

Apparently they are not comfortable gambling that the market will bring the prices they wanted, so they lowered the prices and Bingo the homes sold. It is almost like magic, a home sits and sits and sits on the market, with hardly a looker, drop the price and bang it’s gone! 

The message is clear to all sellers out there today, the future market is a gamble. So how much do you want to risk, how far are you willing to push it? What is at stake, can you afford the loss if things don’t work out? For some the consequences will be severe and avoidable. Strange contradiction severe and avoidable. 

I don’t worry too much about those who have their eyes open and are going forward; they apparently are willing to play the game. It is the folks who have been given bad advise or no advise that I feel bad about. They seem to be drifting blindly ahead, holding tightly to the idea that they can’t lose money in real estate. Comforted by the higher asking price. 

So some will gamble, some will get prepared, and some don’t have a clue.
 

First Pacifica is pulling up stakes and packing their tents to go home. According to the gentleman at the front desk in the First Pacifica offices in Mesquite, they are outa here and Friday is his last day. This building company from California had over 750 lots in the Canyon Crest area. They have been moving dirt for two years up there, but they never started a single home. 

While some pull out others are moving forward, building streets and new model homes. Yet others are dropping prices through the floor on the most recent closings, two new homes closed this month in Shadow Hawk, one at $147 and one at $163 per square foot.

That’s new construction north of I-15 selling below $163 per foot! 

Are builders headed off a cliff like Wall Street thinks? 

 If you feel confused, you are not alone.     

Some are waiting for Lucent to get back to $54; it was at that price in 2000 because of irrational exuberance, market hype and speculation. Today it sits quietly at around $2.

In late 1999 fundamentals in the stock market were considered by many to be an old fashioned way of looking at value. 

The vacancy rate in the rental market grows daily and is a sure indication of supply and demand at work. Demand for rental housing in Mesquite most likely has grown from years past, but not as fast as the supply. Today it looks like the number of rental units being advertised as available has gone well over 100.  Speculators are offering more units, in many cases not because they want to be landlords, but because they can’t get out. At least not at the price they want. 

Real estate like stocks does best when bought low and sold high, and generally is considered a long term investment. Sellers today seem fixated on last years prices or what they could have gotten at the market peak, or what they paid for it. Of course none of those factors have anything to do with today’s market value.
 
This is not just about making money though, it seems to be about the fact that if they sell for less than they paid or less than their neighbors sold for, then they have to admit they made a mistake. Not many are willing to publicly (or even to themselves) admit they missed the boat. That they might have screwed up. 

Since the stock market ticker tells us by the minute exactly where we are, what the current price is, there is no illusion involved. Real estate on the other hand allows for a great deal of illusion and misinformation.  You hear so and so sold for this or they are asking that, we point to comparable sales and they say but mine has a better view, or nicer tile work. 

As the number of sales slows and inventory grows, those still selling will say the market is ok, not what it was, but still ok. Those sitting with over priced property for sale are really saying we don’t want to sell at today’s real market price. Rather than accepting the fact that the market has changed they chose to stubbornly resist reality. Living the illusion and denying the facts. 

In a market where buyers from out of town do pop in and buy, often paying cash and using their home market as the only comparison, with no need for an appraisal, some sellers have been lucky. It looks like as the market adjusts we see fewer and fewer of these types of lucky transactions. 

Many of the asking prices we see today are real only in the minds of the sellers; they never were real, even at the market peak. Like a beautiful mirage in the desert, speculators and dreamers dealing in illusions to set prices. 

The term caveat emptor should be taken to heart by buyers today. There is a real danger if you don’t know the market and trends, you could easily over pay. 

The only way to get past the illusion and get a true current market reality check is to sit down with an open mind and a knowledgeable, experienced real estate professional who is willing to spend the time to educate you. 

Many sellers are going to have to swallow their pride and take the market as it is, or keep the property.

If you are wondering about pricing your home right and looking at your equity position, you better think fast. In the last six weeks in Mesquite, Nevada prices have dropped 2%, that’s $ 7,000 on a $350,000 home.

Year to date, new homes sold and closed as listed in the local MLS shows 78 sales averaging $197 per square foot. Existing or resale homes sold this year, MLS shows 108 closed at an average of $184 per square foot. Condo/town homes sales, 146 sold and closed year to date, with an average price of $165 per square foot.

To put this in context for today’s sellers, there have been 17 new or under construction homes closed since July 1, 2006 with an average price per square foot of $193, which is $4 per foot below the year to date average. There are 38 on the market with an average asking price of $212 per square foot!
 
There have been 20 existing or resale homes closed since July 1, 2006 with an average price of $180 per square foot; this is $4 per foot below the year to date average, and represents a 2% price drop.
GET THIS; the average asking price today for the existing homes “for sale” is $205 per square foot.

Condo/ town homes show 29 sold and closed since July 1, 2006 with an average price of $158 per square foot, which is $7 per square foot lower than the year to date average at $165, or a 4% price drop. The average asking price in this category is currently $172 per foot.

This appears to be a trend and with inventory growing, the best idea might be to price your property right today. That is if you plan to sell any time soon.

Losing two percent per month it won’t take long for seller’s to recognize the value of full service professional real estate brokerage that gets fast results.
 

A quick look at history and you will know that seven percent fixed rate home mortgages aren’t bad for home sales. Since 1969 mortgage rates have been above seven percent with only two exceptions, once in 1993 and once in 1998 until 2001. Both times rates hit seven percent and stayed at or below seven percent for a very short period of time. So basically all during the 70’s, 80’s, and 90’s we bought and sold real estate above a seven percent mortgage interest rate.

We have had some very good markets during this thirty year period, with nice rates of appreciation to go along with those markets. Appreciation rates at six percent will double the value of your home every twelve years. No reasonable thinking person would complain about doubling their money over twelve years while getting a huge tax write off and a place to live! 

So what is all the fuss about the fed and rates slowing everything down?

Income, whether you are still working or retired, most likely your income did not go up 30 to 50% in the last eighteen months.

So when you want to move, don’t spend that equity on a new boat or a big TV. You may want to move it into your next property, if you don’t then be prepared to make bigger payments. Property costs a whole lot more now, than it did five years ago. 

Unfortunately for many of us, we are not making that much more by comparison to a few years ago. Cost of living increases are not tied to real estate appreciation rates. We have three choices, move the equity, make bigger payments, or get exotic.   

The mortgage industry has the answer in adjustable rate mortgages, interest only, option payment plans, and now the new 40 year mortgage. While all these programs do have a place and can be used as the right tool, many consumers need education. 

Hopefully not too many will be hurt as rates and payments move up. One thing is for sure, there is no free ride and the time to pay will arrive. 

Time will tell the story and so will the market.    

As you look around Mesquite, Nevada you see Pulte-Del Webb, Wal-Mart, Mesa View Hospital, Barcelona, and around 10 to 12 thousand new housing units planned. Plenty of very smart people, and they are expecting some very big things to happen here in the next few years. 

The streets are going in, along with the water lines, walking trails, and even parks. The City of Mesquite is planning, and positioning for the best quality of life possible for the local residents. Quality of life today, and for the future.  While the rest of the world talks about bubbles, we are looking into affordable housing. While they worry about the fed raising rates, Mesquite is approving new subdivision plats, and issuing new business permits. Mesquite offers everything the boomers are looking for, low taxes, great weather, and quality lifestyle. 

When preparation meets opportunity magical things happen, on second thought maybe you don’t need your crystal ball to see into the future of Mesquite, Nevada. 

In Mesquite, Nevada today, with mortgage interest, taxes, insurance, PMI, HOA dues and maintenance it cost you over twice, in many cases nearly three times as much monthly to buy your home as it does to rent the same property. (Even with tax deductions allowed to home owners.) 

So why would people be willing to pay so much more to own? 

They expect it to be worth substantially more tomorrow.  They are willing to gamble on future value. This attitude and belief that property will always keep going up at the rate it has the past few years has lead to a perceived added value.
 
It caused buyers to bid one against the other and in the frenzy make decisions based primarily in emotion rather than well thought out judgment. Many believe the demand created by all the speculation in the market is responsible for artificially driving up the prices. 

Their home is not just a place to live it has become (at least in their minds) the money tree in the back yard. It is the definition of speculation. 

The word Speculation is a noun and is defined as follows; Engagement in risky business transactions on the chance of quick or considerable profit. A venture depending on chance. 

Why would anyone take out an interest only or negative amortization loan, unless it was a bet on future value. It is very much like buying stocks on margin, which is very risky. 

You may question the thought of buying real estate as a risky business transaction;
“Tuesday, August 19, 2003.
Property Value Fall a Tale of Caution
By Keith Bradsher
New York Times Service
HONG KONG — A long, steep fall in property values has wiped out the savings of a generation of homeowners in Hong Kong, fed political unrest and caused deflation that makes even Japan’s falling prices look modest by comparison.
The Hong Kong Monetary Authority announced Thursday night that 22 percent of all residential mortgages are now larger than the current value of the properties they financed.”

There is another motivator behind the buyers willingness to pay twice as much as they have to, and that is the fear they will be left behind, or priced out of the chance to ever buy. Traditionally real estate investment of the type we are discussing has gained value slowly over a long term, which has allowed incomes to keep pace. This fear of being left behind stems from price increases exceeding income growth. Has the fear factor caused many to over extend, bite off much more than they can chew? 

If the pace of home appreciation slows, and home prices flatten out then this attitude and fear will begin to fade, what happens to that perceived value? People may begin to ask, why are we paying so much to buy, when we can rent for so much less. What if this house is worth the same five years from now as it is today or worse, the inconceivable…less? 

What is the real value, minus the speculative factors, based on fundamentals like cost basis and real rate of return. Could it really be half? 

How much of the over all market value is based on demand created by the speculative mind-set and fear? Is it speculating to pay twice what you have to live in home? 

There are plenty of good reasons to buy a home, and home ownership has advantages. Mesquite will continue to grow and be the focus for many retiring baby boomers. The question is about value. Looking for help in the Mesquite Market go to Mesquitemarket.com