Mesquite Market

New home building permits are up 56% with 351 issued year to date in 2007 and that is not the only thing different here in Mesquite, Nevada from what you hear daily on the national front. 

New home sales are down 49% with only 21 closed and prices are down 7% to $178 per square foot, at least in the local MLS. However, add in the Pulte Del Webb, Sun City Mesquite numbers and sales are up! The best information sources say they have sold 160 to 180 units and closed around 50 of those. The recordings are not showing up in the Clark county records yet and we can only guess at prices per foot, but we believe it is well below the $178 number. They have offered standing, completed units for as little as $125 per square foot. 

Existing single family homes sales were down by 32% with 26 closed units and prices are up 5% to around $186 per square foot. Marketing time or days on market is longer and the number of units to choose from has ballooned. New highs in the inventory available for buyers to pick from are reached almost everyday! 

Town home/condo sales are down 35% with 33 closed and prices are lower by 6% from third quarter of 2006. The average price per square foot dropped from $162 to $152 per square foot and average marketing time reached over 4 months. 

No commercial land or commercial building sales were recorded this quarter. Commercial building permits for new construction are up 200% year to date in 2007 from 10 last year to 30 permits so far this year. Vacancy rates look to be at staggeringly high numbers for retail/office space around town with lots more about to come  online.                                                                               
                                                                                                         

Residential land or vacant lot sales picked up with 4 sales recorded verses 1 during the third quarter of 2006; however the average price dropped by a third. Inventory will be the story here also going forward, with over 70 active listings and whole subdivisions being offered for barely over half the price of two year old appraised prices. Banks are going to end up holding the bag, full of vacant lots. Write downs on these will be huge. It is estimated there are as many as 14,000 platted and approved and as many as 40,000 more planned in the Toquop area north of and adjoining Mesquite in Lincoln County.

During the past twelve months there have been 75 NOD’s (notice of default) recorded with Clark County in Mesquite, these are loans in danger of going into foreclosure. Vacancy rates in residential properties have skyrocketed and the speculators are hurting with no cash flow. Inventory of residential real estate “for sale” at this time stands over 370 available, a new historical high and based on year to date closings represents a one year supply. Newly listed property is exceeding units going out of the system as pending by 6 to 1 year to date. Most of what is going out of the system is in the failed categories, either expired or withdrawn, that likely will be back on the market at some point. Average asking prices per square foot have edged down only slightly on existing units. Builders continue to offer huge incentives to buy new.

As the markets struggle to reprice risk and lenders make money harder to borrow, the level of awareness that there is risk investing in real estate is rising. Investors hoping to cash in on the opportunities which are being created will want to go back to the basics. The fundamentals are relatively simple and easy to understand. Most of the problems in the market today can be traced back to the point where leverage was used to purchase/refinance real estate without regard to cash flow and supply /demand principles. The leverage by nature increases the exposure to risk and as we are seeing that risk extends to the lenders and loan insurers as well.

When you borrow against an asset which can decline in value, you must have a plan to repay. Margin calls in the investment world are common and a normal part of every speculative investment backup plan. Selling at a loss to cover margin calls is also a normal part of speculative investing. Whether you are betting on long shots at the horse races, investing in the equity markets or real estate, the risk reward factor is always there.Those investors looking for large short term gains in real estate while it may be too late for many should have understood the risk. The idea that this is somehow new news or that people should not be expected to sell at a loss now is absurd. This reality will hold true for the first time investors with a single small vacant condo, just as it will for seasoned, well healed large vacant land tract speculators and home builders.

Sellers today are determined to go against the current market trends.  In many cases because of the fact that their cost basis in the property they wish to sell is above current market value.  Combine this with negative cash flow, increasing mortgage payments, vacancy rates and other unsecured consumer debt financed at extreme rates and it leaves many with no other options.

The problem is the buyers don’t care about any of those factors.  Buyers are looking at prices and comparing their own debt to income ratios, specifically housing cost debt. Today the buyers and loan underwriters are more aware of the term affordability in terms of housing and their own monthly budget. 

Overall residential sales increased during the second Q compared to the same time period during 2006 by nearly 10%. While average prices dropped by 3% on a price per square foot basis and days on market grew by 20%. Pulte Del Webb opened the much acclaimed new Sun City Mesquite. The increase in sales could be attributed to the “Pulte Factor” they claimed to have over 13,000 interested potential buyers just prior to the Grand Opening. The average sales price fell from $291,379 to $249,659, inline with smaller average unit size which averaged 1646 square feet in the second Q 2006 and came down to 1447 square foot average this past quarter. Smaller units selling for less and taking longer to sell seem to be the current trend. 

2007 has started out with dropping sale prices, slowing sales, and rising inventory across the board. In the Mesquite market we reached some new record highs during the first quarter, first inventory numbers of property “for sale”, next asking prices of single family homes reached a new all time high at $210 per square foot. In spite of these new asking prices there are some sure signals that the buyers are winning the battle over pricing.