Research has indicated that Las Vegas land values held up relatively well in the first half of 2008.  While sales were down dramatically, the few sales that were transacted did not reflect large discounts from 2007 prices.  The waves of negative announcements regarding bank failures, stock market declines, residential home foreclosures and significantly increasing unemployment rates shook the real estate markets, and the second half of the year saw a crack in what once was a resilient land market. 

Real estate markets often “plateau,” or reach a point of “suspension” after a strong upward or downward movement.  Market participants hold title to land, and pay their sometimes large underlying mortgage payments, rather than sell.  They gamble that the market will change direction, and that their land assets will increase in value.

The market for vacant land in Las Vegas went through a period like the one described in 2008.  In 2009, however, brokers anticipate only “vulture” buyers looking for 50% or larger discounts will be in the market.  Developer buyers evaporated from the market in 2007.

Appraisers research market sales information to establish a list of “comparable” sales during their appraisal process.  When markets are in transition, like they are in late 2008 and early 2009, few sales are made and it is difficult to find “comparables.”  When properties begin to be sold at discounted prices, however, appraisers can gain valuable information via a “paired-sales” analysis.  “Paired-sales” can provide information on the size of the increase or decrease in sales prices seen over time.

The land market is not the housing market, and the average 32% annual sales price decrease in the housing market does not tell an appraiser anything specific about the market for vacant commercial land.  Yes, the market for residential real estate provides a great indicator of direction, but information from that market cannot be readily converted to the land market.

As a broker and an appraiser, I have had numerous conversations with vacant land owners.  Those carrying significant debt are feeling the pain, they understand the “alligator” nature of their vacant land investment, and most are willing to provide a deep discount to make a sale in 2009.  Even with newly motivated sellers, there are few buyers in the market, and it appears that upcoming sales data will reveal large discounts.

In the residential market sales prices are back to 2005 levels and they will soon be at 2004 levels.  Land prices increased dramatically in 2004 and 2005, and segments of the land market may mimic the residential housing market that has seen 50% or larger losses since its peak in 2006.