Spooky Real Estate Predictions

Doomsday Real Estate

There is no shortage of national media data crunchers giving bad news about Las Vegas Real Estate. The problem is… they don’t actually practice real estate and they seem to interview agents that really are not involved in day to day Las Vegas real estate in the form of representing buyers and real sellers.

Take a Look at the Las Vegas Bank Owned Properties for Sale compared to January of 2009.

Notice of Trustees Sales in Clark County, NV through July of 2009

Quite a significant decrease in inventory despite all of the reports of how Nevada leads the country in foreclosures. We probably also lead the country in the amount of offers that come in on a Bank Owned home for sale. I’m certainly not going to venture out and say the foreclosure crisis is behind us because I’m still trying to figure out where all of those foreclosures that were supposed to be on the way in the form of bank owned homes for sale went. Remember this Post about the Number of Trustee’s Sales filed in Clark County, Nevada through July?

The Notice of Trustee Sale is the next to final step in the lender actually taking the home back. Generally… the homeowner has 30 days of ownership left before the lender officially owns the home so you would think with the huge numbers filed in June and July… that they would have hit the market by now.

But… for those of us with Real Estate Investors patiently waiting for a bunch of good deals to come up on the Las Vegas REO market… it’s just not materializing. When we do find something worth purchasing… chances are there are going to be multiple offers on the property and more likely than not… it’s going to sell for more than the list price that attracted us to it in the first place.

There are certainly plenty of theories out there of what is taking place (and I certainly agree with some of them) but nobody has been able to provide substantial proof of where the Disappearing Las Vegas Bank Owned Homes for sale went.

Do Spooky Predictions Matter with current

Las Vegas Home Values?

I came across this post over at Dr. Housing Bubble concerning the nasty Option Arms coming up to reset in the next couple of years. There has been quite a bit of speculation on what this is going to do to further decrease home values but when you look at the % numbers of where the majority of these types of loans exist… it’s primarily in Southern California. According to the pie chart below… only 3% of these types of loans exist in Nevada.

3% of Option Arm Loans are in Nevada

However… you certainly need to respect the fact that the Las Vegas economy is certainly dependent on the Southern California economy. So the big question is… what effect will this have on the Southern California market? From what I hear.. they have a shortage of homes priced right also.

Something else very interesting that popped up in the Dr. Housing Bubble blog post:

And for those looking at the Case-Shiller or other data showing a minor move up in price, remember that prices are still dropping but the way the data is calculated, it does show minor moves up because of the shift in market sales.  Lower priced homes, that subprime and foreclosure wave, made up a bulk of sales for the past year.  Now, we are seeing more expensive homes sell but for cheaper prices thus the mix is moving up.

Keep that in mind when you see marketing reports released by the Greater Las Vegas Association of Realtors®. I primarily specialize in areas of Las Vegas where the average prices are over $200,000 and there has certainly been an increase in sales activity from what I see… which raises the median home prices of all sales.

So.. Do the Spooky Predictions Really Matter for Las Vegas Real Estate?

Very tough to say. Las Vegas real estate prices have already been decimated in value and all of the current programs in place (that have to eventually end) are benefitting (artificially propping up values) other areas of the United States… for right now. Our prices are already decimated and throw in the low tax environment (while other states/cities are raising taxes), and I see no shortage in the interest of people wanting to relocate to Las Vegas.

Case in point… the newest offer I wrote for a Lady who just sold her $460,000 condo with a $600 a month association fee in Hawaii to buy something three times the size in Las Vegas for $340,000. Oh.. it’s also 15 years newer and the association fee is $520 cheaper a month. She’s one of the lucky ones that gets to travel all of the time and the convenience of all the flights coming in and out of Las Vegas is certainly more convenient for her to set up home base in Las Vegas. (From what I remember… the buyers of her Condo are taking advantage of the $8,000 tax credit. See a relationship here?)

The big unknown is what happens if and when all of the subsidies disappear? $8,000 first time homebuyer tax credit expiring, extending, expanding… whatever. Primarily a so called need fueled by special interest groups and since over 70% of all transactions for Las Vegas have been bank owned properties Year to Date… you have to wonder who is really benefitting. (I don’t think all of these cash buyers for Las Vegas Bank Owned Homes need or are buying because of the $8,000 tax credit.)

Would if the Bank Owned Homes Magically Re-Appear for Sale in Las Vegas?

Not so Scary after all

Just ask all of the Las Vegas Real Estate agents representing buyers trying to buy one. I have not come across one Las Vegas Realtor® in the past several months complaining about the inventory surplus. If anything… I’m hearing nothing but complaints about the lack of quality inventory available.

Las Vegas real estate prices have attracted people from all over the world. Despite some of the recent negative news concerning the Las Vegas economy and predictions by some economy experts (where were you three years ago? -or – old news) concerning inventory… the reality is that if it’s priced right… there is ABSOLUTELY no shortage of interest. Key words.. priced right.

High Prices created from cheap and easy credit, increased inventory from overbuilding and a return to traditional loan products are what eventually killed Las Vegas real estate values.

It was unsustainable and Las Vegas Real estate prices were starting to drop long before the unemployment came. Just think about all of the jobs created during all of that building and that helps explain why the unemployment rate in Las Vegas is so high. You can’t have explosive growth forever… it’s never happened in the entire history of the world for any city and Las Vegas is no exception.

Wells predicts the housing market will suffer through what he calls the “W” effect with prices going up, down and back up again. The concern is what happens with the Federal Reserve and need to raise interest rates to keep inflation under control. That will keep a lot of buyers from the market, he said.

A “W” shaped Recovery (or W effect… LOL!) is certainly something to be leary of with all of the unsustainable Government subsidies in place such as the $8,000 first time homebuyers tax credit and purchasing of mortgage backed securities to artificially lower interest rates. Yes.. the Federal Reserve will need to eventually raise interest rates to take back in all of that printed / borrowed money being used to pump up the economy back  to the la-la land years but you really have to wonder who that is going to hurt the most when it does happen.

Wells said that homebuilders can’t compete with existing homes selling for $70 a square foot and that the lack of job growth will hinder that recovery going forward.

I’ll refrain from posting all of the news reports from 2004 of developers paying obscene amounts for BLM land for now. Besides that, My area of specialty is averaging over $100 a square foot which says something about carefully planned development anyways. As for Commercial real estate.. just hop on down to Town Square and see what kind of business a well planned development does. In other words… just another strip mall going down in flames is more of a casualty from lack of creativity and high development costs based on unsustainable numbers to begin with.

Federal Spendulous Funds

Nevada has actually received a very small share of the pump it up money so when it ends… it’s going to hurt the big beneficiaries such as California more. (Do they slash their spending or raise their taxes?) Las Vegas casinos did not get bailed out and they are still open so that should be a positive sign.

Confused Yet?

Making Homes Disappear is a Great Magic Trick

Good… so is everybody else who has a clue of what is currently taking place and trying to make future real estate predictions with the consideration of the magically disappearing Las Vegas bank owned homes for sale.

Regardless, The reality is that current Las Vegas home values are very affordable considering what Las Vegas has to offer and further price declines from this point are not going to BK any current buyers unless they were heading down that road anyways. (A 10% decline of today’s current median price is certainly much different then a 10% decline from the 2006 median price.)

Las Vegas real estate was certainly a much spookier concept in 2006 then it is today if you look at things the right way. I’m pretty certain that it’s much cheaper to Live in Las Vegas then Honolulu, San Francisco, Los Angeles, Chicago, Boston, New York, Washington D.C. and several other cities and at a time when you have millions of baby boomers retiring… Las Vegas is certainly in a position to capitalize if we can just forget about the la-la years and focus on a new destination.

Happy Nevada Day and Happy Halloween. Be Safe at all of the Great Halloween Parties taking place in Las Vegas.

Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate – Summerlin Homes
702.592.3058

Oversight Panel for Tarp

Releases Report / Highlights

Future Challenges for Housing

Administration Criticized for Loan Modifications

The full Report with loads of information concerning foreclosures is available by reading the link below:

Congressional Oversight Report on Foreclosures

Foreclosures Accelerating in Activity

Very interesting charts on page 9. Page 10 starts with the different waves of foreclosures and then finishes up with the next potential wave of foreclosures in the form of Option Arms, Negative Equity and Unemployment.

A Chart on negative equity by state can be found on Page 16. Nevada leads the way with over 50% of the homes estimated to be worth less then what is owed on the home.

Redefault Rates Loan Modifications

Of particular interest was a chart on page 63 that gives the statistics of home loans that have been modified and their re-default rates.

Is Money Being Wasted on Loan Modifications?

Statistical numbers right now don’t look too good for loan modifications. I don’t know how well they are working out because when home sellers come to me… they already tried a loan modification and were denied and then we do the short sale.

However.. the comment on page 73 of the report concerning JP Morgan Chase just reducing interest to a really low level and keeping the principle the same coincides with some of the loan modifications that I’ve come across that were simply smoke and mirror programs. (Reduced payments with negative amortization, temporary reduced payments, etc..) For the non savvy consumer, they may not realize that they are delaying the inevitable when you consider reports such as the one I highlighted concerning When Home Values will Return in Las Vegas done by Moody’s.

And… I’ve also come across potential short sale sellers who have no intention of keeping their home after the loan modification ends. The only reason why they are sticking with it is because it’s currently cheaper than rent but when their temporary reduced payments end (all the meanwhile the principle of what they owe is growing) they have every intention of doing a short sale or walking away if that does not work.

Is the Inevitable being delayed?

Looking over this report, you have to wonder if the billions of dollars being used are just delaying the inevitable and/or prolonging the correction. There are several suggestions on how to spend even more money along with several charts including the big Option-A reset charts showing all of the loans due to reset and go to higher payments. This is where you wonder if the over analytical with no actual experience of what is taking place in the trenches really knows what is going on out there.

Home Price Decline Protection Program

Starting on page 77 is an interesting suggestion on what appears to be a pay off for lenders to do loan modifications in hard hit areas to take on the risk in home values declining further and homeowners then walking away with the loss in equity. As I’ve seen in Las Vegas… loan modifications performed in 2008 just delayed the homeowners from making a move by doing a short sale or going to foreclosure later on as their equity declined. I’m not sure how payoffs to delay the inevitable are going to help in the long run.

Foreclosure Alternatives Program (FAP)

Page 78 goes into the incentives for lenders to work with homeowners when a loan modification cannot be performed and deals with short sales and deeds in lieu of foreclosure in order to avoid foreclosure since foreclosures tend to cost everybody (including neighbors) more. The program was announced on May 14th and included incentives for lenders to do the short sale, and even provides a payoff to encourage homeowners to pursue a short sale along with a standardized procedure for the short sale process. This program still has yet to be finalized. In my opinion… it’s the part of the report for suggestions that makes the most sense considering the big picture of what is taking place.

Unemployment Crisis Impact on Future Foreclosures

Page 106 — This is interesting how the report basically just comes out and states the Making Home Affordable (MHA) program was looking at past results and not future indicators. (Such as the charts provided earlier concerning all of the future Option Arms that are going to be resetting.) While the program might have worked in other areas.. I highlighted the Help for Homeowners Program for Las Vegas back when it was announced in February and questioned if it would work for Las Vegas.  Obviously… I think I was right that it would do little to help Las Vegas Home sellers due to what was taking shape.

From the Report:

The Result is that MHA programs may not be adequate for the present and coming phases of the foreclosure crisis.

Is this an admission that real estate values are not getting better and the billions already spent have been a failure?

Here is an interesting quote from the article on page 107 where it appears that paying for mortgages of the unemployed is being suggested / proposed:

Unemployed Homeowners to have their Mortgages paid?

Dr. Willen certainly touches on something here. While much of the blame for the foreclosure crisis has been put on sub prime mortgages and exotic loan products.. the fact of the matter is that when High home values created by lax lending standards and easy credit….  job relocations, illness and loss of income can have a huge impact when people are mortgaged to the hilt and do not have a backup savings account. In other words.. it comes down to being debted out.

“Married to your Mortgage”is something that I learned long ago and basically this means telling clients you don’t want to be strapped out on your mortgage in case something happens. Worst case scenario… buy something with your means that can be rented out to cover your mortgage if something does happen and you don’t have enough equity to sell. Certainly something you could not do in Las Vegas mid 2004 through 2008 unless you put down a huge down payment.

This is an interesting suggestion for the benefit of lenders to pay the mortgages of people who have been laid off which I’ll assume is going to get really, really pricey for taxpayers. It may also just be delaying the inevitable since the promise of high paying jobs coming back anytime soon appears to be pretty slim in these days of bargain hunting.

Who is this Really Benefitting?

Perhaps my interpretation of who all of this really benefits is wrong but it appears that lenders and investors are the primary concern in this report. While it is extremely noble to come up with programs to keep homeowners in homes with loans they can’t afford… in the long run… it’s draining capital that could probably be better served elsewhere then what statistics are showing as just delaying the inevitable.

And honestly… I have yet to have a Las Vegas short sale seller contact me after doing a short sale regretting that they got out of a home to move forward in life. It’s been a long time since May 14th when the Foreclosure Alternatives Program (FAP) was announced and it’s not that difficult to come up with a program so people can move on in life.

However boring you found the report… it is a fascinating insight into what our elected officials are hopefully reading… and thinking as they spend the next trillion or two..

Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate
702.592.3058

Banks gone Wild

Banksters??

This latest news story that came out goes over some pitfalls that you should be aware of.

Banks Monitoring Sellers Credit for Six Years to Go After them

For Nevada Homeowners who have either done a short sale or walked away and let the home go to foreclosure… some big name banks have openly stated they have no problem coming after them for up to six years by basically monitoring their credit to wait until they get back on their feet…. and then coming after them for the deficiency amount.

Where are our Lawmakers?

I’m currently dealing with CitiMortgage who is attempting to hold one of my Sellers hostage by not approving a short sale they are in second position with. They are holding my sellers hostage demanding a $20,000 payoff for them to release their junior position on a home only worth $100,000. The first mortgage approved the short sale and now everybody is waiting around for Citimortgage and dealing with the games they play.

Bank of America and Countrywide are also very interesting to deal with when it comes to short sales and agents need to have experience with them before even submitting a short sale proposal. On another note… my latest short sale closing with Wells Fargo was absolutely a joy and kudos to Wells Fargo for being SO professional. Banks… take notes… Wells Fargo is one of the best when it comes to short sales. They tell you want they want… you supply it.. they ask a question.. you answer it.. they do what needs to be done so everybody can move on. I’ll be sharing this latest success as soon as I get time.

Ok.. back to Citimortgage and Bank of America / Countrywide…

Notice Anything in Common?

Some of the hardest lenders to deal with when it comes to short sales were recipients of massive amounts of taxpayer dollars to keep their doors open.

Citigroup — $50 Billion in Taxpayer Bailouts

Bank of America – $45 Billion of Taxpayers Money

It’s interesting how some lenders treat Las Vegas home sellers who are trying to do the right thing by doing a short sale and not just walking away. Sellers receive no funds and have to do a ton of work to get a short sale approval… I can understand them going after people who just walk away and let the home go to foreclosure without trying to do something… but going after Sellers who do the right thing and do a short sale?

Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate – Summerlin Homes
702.592.3058

Federal Reserve to Ease off In

Housing Recovery

From the Boston Globe:

Fed will slow efforts to aid Housing Sector

WASHINGTON – The Federal Reserve will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.

“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,’’ the Federal Open Market Committee said yesterday in a statement after meeting in Washington.

Home Values Rescue

The 1.45 Trillion dollar program to keep interest rates low to help revive the housing market was set to expire at the end of the year. Due to the belief that the economy is in recovery, the Fed will slow down in its purchase of mortgage securities with the hope that other investors will step in and take over.

The Fed’s “primary goal is to avoid a shock to the market by suddenly shutting the programs down all at once,’’ said Christopher Low, at FTN Financial in New York. As the Fed eases out of purchasing mortgage securities, “they’re hoping other buyers will step in to avoid a sudden increase in mortgage rates.’’

While the National Association of Realtors® is lobbying for an extension / expansion of the First Time Homebuyers Tax Credit as buyers and their real estate agents scramble to meet the deadline, the Federal Reserve sees signs of recovery and there is a very real chance that interest rates could be rising by the first quarter of 2010.

Rates for 30-year fixed home loans averaged 5.04 percent in the week ended Sept. 17. A sudden end to the Fed’s purchases might push up rates one-half to one point, said Peter Hooper, chief economist at Deutsche Bank Securities. Reducing weekly purchases and stretching them beyond the end of the year will have a more muted effect, but still push rates up at least a quarter-point, he said.

If the First Time Homebuyers Tax credit is not extended and the Federal Reserve continues with its plan and interest rates rise next year.. will this combination hurt Home Values?

And herein lies the problem with

Government programs when it comes

to real estate.

What may be a good program for Las Vegas, New Mexico … may be a terrible one for Las Vegas, Nevada.

Much like the exotic loan products that helped create the real estate bubble and really whack out home values in speculation states such as Florida, Arizona and Nevada… Blanket Programs such as tax credits and purchasing mortgage securities to the tune of over $1.45 Trillion dollars are unsustainable when it’s borrowed money.

On one hand, it slows down the free fall of home prices and has helped the Las Vegas real estate market tremendously… on the other hand it may just be delaying a further decrease in home values when the programs are removed.

Notice of Trustees Sales in Clark County, NV through July of 2009

For Las Vegas real estate, home values have already gone down to pre real estate bubble values so these programs may just be creating a mini bubble. Let’s face it… the programs are not working for current Las Vegas Home owners that are completely underwater on their mortgages and are more beneficial for the Banks in getting rid of their Real Estate Owned (REO) properties.

Cash Buyers that currently own real estate and can’t take advantage of the current programs may want to wait until they end. I get calls every day for my Las Vegas short sale listings from buyers real estate agents asking where they are in the process and if they have a chance of closing by 11/30/09 (tax credit deadline day). It’s very obvious that a lot of activity going on right now is from buyers scrambling to purchase a Las Vegas home before the deadline.

For other real estate markets across the country… these programs are helping actual homeowners from keeping their home values from falling further and letting them get out while they can.

As they say… Real Estate is local but lending is global. What may be good for one real estate market… may cause problems for another and time will only tell if real estate markets are really heading to some form of recovery/normalcy when the subsidies end.

Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate
702.592.3058