Vegas Home Foreclosure Auction Results
This past weekend there was a huge house foreclosure auction here in Las Vegas. There were roughly 300 bank owned homes on the block and the turnout was impressive. It was standing room only when you first got there. Wall to wall people trying to get a read on where the market is sitting right now.
As I suspected, the Las Vegas real estate market is still in VERY strong demand. The pricing across the board started at about $50/SQFT (with some outliers of course). The bidding was fierce early on and people seemed like they really knew what they were doing. In some of the past auctions, there were tons of lookers and not much experts. It seems with foreclosures coming mainstream, a lot of people are jumping on the bandwagon.
Where most of the homes ended up is in the $100/SQFT range. Again, some exceptions to this rule, but this was the norm. This number is very important. Since one of the businesses I help manage is a new homebuilder, I know what replacement costs are for building a new home. This number is the proverbial “Mendoza” line of homes in Vegas.
Here is the breakdown for a new production home
- Vertical costs (lumber; concrete; labor; framing; etc) is roughly $50/SQFT
- Land Development costs (the lot; undergrounds; utilities, etc) is roughly $30/SQFT
- Marketing, Sales, General Expenses, carry costs, etc are roughly $20/SQFT
I know this is very simplistic and not always true, but this is generally correct. When you get below replacement costs of that magical $100/SQFT, then there is quite a bit of rehab work to complete or you are looking at one seriously motivated seller. In either case, this is a completely different business.
Why am I telling you all of this? I am a huge fan of the Las Vegas real estate market, but we have been getting murdered out here over the last 18 months. Some people simply believe pricing will continue to fall. This is not possible in this type of market because of the physicals. Vegas has 6,000 people moving here every month and that has not dropped during this downturn. We have $50 billion being spent on The Strip in new hotels. There are 500,000 new jobs coming in the next 20 years. I can go on and on.
If we were in back in my hometown of Detroit, then I would agree that you can go way below replacement costs because of the supply demand dynamic. (BTW, houses there are actually trading for half of replacement costs in a lot of cases.) But here in Vegas, all the physicals point to not dropping below this fabled number. That is good news for those of us in this market - new homes or not. This means there is a bottom in place and we should be seeing the light at the end of the tunnel.