Shadow Inventory, What is it and What does it Mean For 2010?

Mesquite Nevada Commercial Real Estate Market, information every investor should know.

In May of 2007 we had no shadow inventory, virtually everything listed was sold including the few foreclosures and banks were not holding them back off the market at that time.

Many questions surround this so called shadow inventory supply of housing, some even dismiss the idea as a scare tactic and illusion. Market facts are as varied as there are markets, many markets that did not experience the extreme boom are relatively healthy while others continue to get sicker. This information is definitely market specific.

Mesquite Nevada real estate statistics since May of 2007 show a steady, dramatic, and continual climb in failed listings. These properties were active for sale and did not sell and are not actively for sale today. Yet the reasons for needing to sell and the needs of seller's in most cases have not changed. In many cases the urgency to sell has only increased. How many people do you know who have put off putting thier home on the market until the market inproves, and how long can they wait?

Notice of defaults, those falling at least ninety days behind on their mortgage payments has spiked to its highest level in the second half of 2009. Many of these will become short sales or foreclosed bank owned properties. They have to be sold and are not currently listed as active.

Foreclosures and bank owned vacant properties in Mesquite NV continue to climb and the banks are not listing them. They appear to be holding them waiting for either a dramatic market change or more likely a change in government regulations regarding asset values and bank solvency. Realized verses unrealized losses on the books of the banks. They may actually believe they can release these at a pace they can control prices, manipulate the market, I know they have not acted rationally but this would be off the scale of stupid.

Today there are around 400 active listings in the town of 18,000 population or so of primarily retirees, at 2 per household that's around 9000 homes and condos. The shadow inventory is much harder to count. You have normal live changes that lead to people moving, health, death, jobs, family size changes, etc.

When you add in the mortgage loan resets, those arm loan adjustments where the payments increase, the walk aways from the under water syndrome, moral or not, it is becoming far more common, and the very high unemployment. Mesquite NV real estate is unique in that most of the people living here purchased either at the beginning of the boom or during and so nearly all paid more than they can net from selling today. Under water whether by mortgage or just cash loss.

Based on vacancy rates, notices of defaults, Mesquite's foreclosure filings, 400 active listings, builders inventories not listed, there may be as many 800 or 900 properties coming available. 2009 was a descent year for number of sales, MLS shows 365 closed as of December 31, 2009 for the year. It was not so good for prices the average sold price was $110 per square foot. That number dropped to $89 per foot in December 2009.

At the absorption rate of 365 per year, it could take until 2012 just to clear the inventory sitting out there today. This of course does not consider new builder competition, which with Sun City in town and plenty of new choices coming soon in Canyon Crest, is going to remain fierce. Supply and demand will dictate pricing.

I believe there is another possibly more important factor driving demand. During the boom years the emphases was "A Rich Rewarding Lifestyle", "The Next Palm Springs" was often heard around the city halls. Many larger and expensive homes were built. The bulk of the market selling to today is the lower end smaller more efficient homes. Expensive gated HOAs and the higher end housing sector is really being hit hard on pricing. The 2009 Median price for all housing sold and closed in Mesquite was $165,000. If you are builder there is a target number for you.

The retirees of tomorrow are focused on preservation of capital, conservation, comfort, and affordability. Few are going to extend themselves beyond their budgets, and most will try to stay in a comfort zone which will allow for more than living month to month just to make house payments. The days of Baby Boomer's spending like they are the weathy class may be gone forever. Bankruptcies have shot through the roof and will continue to go up well into 2010.

Mesquite Nevada's real estate challenge ahead will involve working our way out the hole we currently in, and that could take two to three years. Most importantly though Mesquite 's challenge will be to bring a product to the market in the future that will meet the needs of this retiring generation. Affordable housing must top the list of priorities (think $110 per square foot), solar orientation, efficiency, comfort and livability.

Some may say that Mesquite was built by the wealthy and must remain that way, I say if that be the case it is going to become mighty lonely around here.

Chris W. Miller

ERA Brokers Consolidated

Mesquite NV 89027

702- 346-7200

435-862-5951

Mesquite Market

chris@mesquitemarket.com

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