The End of the Beginning

The Micro View 
By Pam Junge, CCIM  Friday, April 20, 2020

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Winston Churchill delivered these famous words in a 1942 speech at London’s Mansion House just after driving German troops out of Egypt. The battle marked a turning point in the war. Have we also reached a turning point, the beginning of the end of COVID-19 in our great state? New normals continue to shape how we behave and maneuver in the world, and it’s apparent that some of these measures are here to stay, while more are bound to be revealed.

Winston Churchill

On Friday, President Trump unveiled the guidelines for Opening Up America Again. Unlike previous plans, it recommends that governors phase out mitigation measures when data, not dates, show progress. That data includes satisfying a specific downward trajectory in case numbers in a 14 day-period, robust testing and the ability to treat patients without crisis care. This three-phased comeback is a state-monitored plan to open up our economy and get our people back to work. Governor Sisolak has made it very clear that changes will be incremental and further insisted he won’t succumb to pressure from critics demanding reopening of casinos and nonessential businesses for short-term economic gain.

The Silver State, which has a population of almost 3.08 million, had 4,209 loans approved by the SBA, totaling $1.25 billion as of April 13. It’s the least amount of aid received by the seven states with populations between 2.9 million and 3.5 million over that time frame.

On Thursday, U.S. Senator Jacky Rosen (D-NV) announced that she has accepted an appointment by President Donald J. Trump to join the Congressional task force to re-open America. “Nevada is one of the states whose economy has been hit hardest by the coronavirus crisis,” Senator Rosen said. “We must work together, not only to overcome this pandemic but to plan for what comes next. Our small business owners and workers are facing unprecedented challenges and we must work to alleviate the incredible financial strains they are experiencing. In the Senate, I have worked time and time again for commonsense, bipartisan solutions that put working families first. As a member of this Task Force, I will bring Nevada’s voice to the table as we work to protect the health and well-being of our country.”

Senator Jacky Rosen (D-NV)

Thank you, Senator Rosen, because by all accounts, the CARES Act Loans afforded in the stimulus package have failed Nevadans and small business owners, or rather, Nevada failed in implementing them. The entire event could be summed up as “failure to launch.” The Silver State, which has a population of almost 3.08 million, had 4,209 loans approved by the SBA, totaling $1.25 billion as of April 13. It’s the least amount of aid received by the seven states with populations between 2.9 million and 3.5 million over that time frame. According to the Wall Street Journal, Nevada also ranks near the bottom for loans per 1,000 businesses with fewer than 500 workers. The state’s congressional delegation has been critical of the program for using criteria that excludes small gaming businesses – an essential piece in the Las Vegas economic quilt. “Nevada small businesses that engage in legal gaming make up key parts of our state’s economy,” Rosen said. “These businesses should be given the same access to coronavirus relief as any other small business.”

So here we sit with unprecedented unemployment, very little financial assistance, and a phased rollout that appears to prolong our reopening for at least several more months. Let’s investigate how that’s affecting the Las Vegas property market.

It’s been rumored that a few of the larger land purchases for future home sites have already been defaulted on.

As the world sits on pause, so follows the housing market. The opportunists are gone and we’re left with only those that have to move. The previous week brought another 805 houses on the market, however, year-over-year, we are down approximately 1,500 listings. This puts us at four months of inventory, with a little cushion before the alarm bells start to ring. Price reductions continue to climb, with another 638 downward adjustments this week. This could be the reason that accepted contracts and closings came in strong and over-produced. The closing numbers undoubtedly speak to a relatively high amount of consumer confidence, despite living in a pandemic. While this is great news on the resale housing front, without being too pessimistic, we will know the overall impact and if values are declining by the end of the month.

As previously reported, large institutional buyers pulled out of the market in mid-March due to uncertainty, citing plans of re-opening with the economy. While their entire business portfolios are wrapped around the housing market and ancillary services, they are also feeling the pain of the pandemic. Opendoor announced this week that they had to lay off 35% of their staff – approximately 600 employees. Quite possibly, their comeback was optimistic and their business models need to be diversified. Ironically, this takes us full circle back to the title of this article, and the song by Black Sabbath with the same title, which was inspired by the fear of how “technology is going to completely take over the human race.” Computers were going to upend the home-buying process. Companies like Zillow and Opendoor were supposed to lead a revolution in real estate by using algorithms to flip homes. However, A global pandemic brought those plans to a screeching halt. I suppose the iBuyer ZOO didn’t count on COVID-19. While Zillow alone accounted for a mere 2% of the national market share in 2019, these sellers will now remain in our local database of inventory, until a future in which these giants find the market and pricing tolerable again.

New home builders are not exempt from the pain of cancellations caused by buyers’ unintended lack of financial qualifications. In this arena, it poses a slightly different obstacle to the builder, since part of the allure of purchasing a brand new home is designing it to the buyer’s specific tastes and needs. Once that house has been through the design process, it’s likely less appealing to another consumer in that space due to restrictions on changes and enhancements. While builders are embracing virtual tours and social distance showings by appointment, sales are way down. The telltale sign of lackluster sales is always Realtor incentives, which are coming out in droves. While builders were pulling back on agent commissions and relationships going into 2020 with a thriving market, they are back and knocking on our doors again. It’s been rumored that a few of the larger land purchases for future home sites have already been defaulted on. It’s a gamble – take a strategic loss of earnest deposit and hard costs, now betting on lower land costs in the future and/or making the decision to re-size developments that will better fit the future needs of consumers and cut losses now. We will be watching for lapsed builder permits in the coming months as another economic indicator of this market sector.

While it’s difficult at this time to track local numbers, nearly three million borrowers, or roughly 5.5% of all mortgage borrowers, have taken advantage of mortgage forbearance. With cash running dry for a lot of families, we expect those numbers to increase in May. While every debt servicer operates slightly differently, it’s up to the borrower to ensure that they are agreeing to terms they believe they can comply with at the end of the forbearance period. Time is the mortal enemy for many right now. While mortgage services are under federal guidelines to cooperate with borrowers at all costs, eventually they will gain back their rights to foreclosure. Since they will be burdened with what some estimate to be three billion dollars in unpaid debt in just the next month, they will be forced into massive asset repossession through foreclosures. We’ll undoubtedly start to see this fallout in twelve months or so (post-forbearance timelines), but the numbers are still anyone’s guess. Should the mortgage deferment backfire on Las Vegas, we could see a largely disproportionate amount of homes hit the market in a short amount of time, shifting the inventory quickly.

With the financial markets in turmoil and creditors trying to find the balance of competitive rates and terms, coupled with the likelihood of how many people will still make their payments, the game has drastically changed.

Those buyers that decided to wait to purchase homes, hoping for a better price, may have temporarily disqualified themselves due to reactive lending guidelines. With the financial markets in turmoil and creditors trying to find the balance of competitive rates and terms, coupled with the likelihood of how many people will still make their payments, the game has drastically changed. There are severe loan restrictions in the FHA and VA sectors, calling for minimum FICO credit scores of 700. The Jumbo market is drying up and is only processed with caution right now. Interest rates will remain low and those consumers with excellent credit and significant down payments and reserves can take advantage of these historic lows. This story will continue to unfold with more economic developments. As the economy heals, guidelines will eventually loosen in response.

If we had a chance to look into our future, we’d be paying attention to Macao right now. Macao and Las Vegas, respectively, rank as the largest gambling markets in the world. While most of Macao’s casinos were only in a 15-day shutdown, by all accounts, their slow and methodical re-opening is anything but glitz and glamour. According to the Las Vegas Review-Journal, “To gain entry, visitors were required to undergo a temperature check, submit a health declaration from a cellphone app and don a face mask — which casino employees also were required to wear. Once inside, players found half of all slot machines and table games sitting idle to maintain social distancing protocols. At some properties, a maximum of three players were allowed at baccarat tables that normally seat seven and are crowded by onlookers making bets of their own.

Guests at Macau casinos undergo temperature checks.

Workers were tasked with wiping down each poker chip after it was handled by a player. Time will tell what it will look, feel and sound like when the casinos reopen in Las Vegas, but Macao’s experience may hint at what is to come and how a recovery could slowly unfold here. Though the two markets are very different, there are lessons to be learned as Vegas looks to return to the 24/7, glimmering disco ball of a city that it was.” The Wynn was one of the very few casinos that took proactive action before government mandates. To protect their workers and the public, they shut down and set in place a plan to pay all employees, including estimated tips, through May 15th. The closure is costing them an estimated three million dollars per day. They’ve also pioneered a well-thought plan of re-emerging in a safe and sustainable way, leading the charge for the community’s main industry and the largest revenue generator.

The dominoes fell and we traversed the eye of the storm. As the country rallies to gain ground and turn towards healing our economy and our livelihood, we have to wonder what this next chapter of adaptation will bring as we enter the end of the beginning. Be well and stay safe. We’re all in this together. #vegasstronger

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2 responses to “The End of the Beginning

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