This house is located in a small rent restricted community, therefore difficult to sell. (photo provided by Binghe Shui)
Recently a house was put on the market, with asking price at $110,000. This house is tough to sell because it is located at a small community which prohibits leasing. For several years, approximately half of houses sold in Vegas have been bought by investors, and the houses which can be leased, so that they can be bought by investors, are priced much higher than those houses located in communities that do not allow leasing. The reason is that most owner/occupiers do not have ability to buy houses with all cash and have to obtain loans. Overwhelming number of them cannot even put down 20% as down payments and have to resort to loans guaranteed by the federal government (the FH loans, which requires monthly insurance payments). They therefore often cannot obtain loans due to various restrictions laid down by banks. On the other hand, investors usually purchase with cash, so they do not suffer from banks’ demands.
Ever since the financial tsunami, the prevailing complaint of real estate practitioners is directed at banks. Even though the financial tsunami is caused by these huge financial institutions, they somehow received 700 billions of tax-payers’ money from government. Of course, the government was expecting them to use the money to provide loans, so as to stimulate economy. However, while banks were very relaxed prior to 2008 in their loan requirements, they went to the other extreme after the financial tsunami: they became absolutely cautious in providing loans. They set up very restrictive conditions, including lowering the appraised values of properties. If the asking price of a house is higher than the appraised value of their designated appraiser’s, they absolutely refuse to raise the loan amount. In the case of the house mentioned above, the appraised value was $90,000, which was $12,000 lower than the asking price. Fortunately, the buyer was determined to buy, and also had extra cash on hand, so, after some bargaining, bought the house.
According to the report issued by the Las Vegas Real Estate Association, at the end of May, house prices in Las Vegas have moved up consecutively for five months, and it is believed that it will move up for sixth month by the end of June. The number shows that we have only one month supply of houses that are not under contract. In a normal market, we should have about six month’s worth of supply. That is to say, we have a market where supply is way short of demand. If a house is priced between $100,000 to $200,000 when it comes on to the market, it immediately attracts large number of investors making offers. In order to have the offer accepted, very often the offering price has to be higher than the asking price. Just think, in the market this tight, if banks relax their loan standards just a bit, so that borrowers can compete with investors, also can make offers higher than asking prices, then wouldn’t our market returning to normal sooner?
Many people are still worrying about the large number of underwater houses, which reportedly at one time amount to 60% of total number of houses. If banks push out large number of them, like they did three years ago, wouldn’t the house prices sink again? On this point, nobody can be certain. However, it should be pointed out, the number of underwater houses is inversely related to the prices of houses. If the price increase continues, then the number of underwater houses will be reduced. The supply and demand relationship will not swing from ultra tight to ultra loose. That is to say, the house price maybe stabilized fairly soon.