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Foreclosure Outlook

April 15, 2010 By

The exact level of Las Vegas foreclosures coming onto the market is unknown, but there are indications from analysts that they may depress pricing levels further:

  • Trulia.com in December 2009: “the market is still on the decline…A lot of cuts are at the top of the market. It would not surprise me to see double-digit declines, unfortunately, in Las Vegas over the next 12 to 18 months. Until unemployment levels off and starts to get better, we expect foreclosures to continue to play a big role in the 2010 housing market.”
  • SalesTraq in December 2009: “Hundreds if not thousands of Las Vegas homeowners haven’t made a mortgage payment in more than a year and still haven’t received a foreclosure notice…that’s how backed up it is. The banks are overwhelmed…If two out of three homeowners in Las Vegas are upside down, it’s a matter of time. If the economy doesn’t improve, a lot of people are going to take a walk and they’re not showing up on the radar right now.”

1 in every 102 housing units received a foreclosure filing in February 2010, and 1 in 89 in Clark County, most of which are in Las Vegas.

February 2010 Foreclosure Map

Source: Realty Trac

In addition to the uncertainty surrounding the shadow inventory, 76% of Las Vegans are currently upside down on their mortgages. If the economy does not improve, or worsens, there could be a further wave of foreclosures. On a more positive note, the recent dip in the number of foreclosures that are coming to market indicates that there may be price appreciation once the shadow inventory is worked through. The time horizon and rate of such capital growth is far from certain.

Las Vegas Foreclosure Activity

Source: Realty Trac

Filed Under: Foreclosures, News Tagged With: , , , ,

Values Plummet in Foreclosed Vegas Neighborhoods

April 5, 2010 By

The current market conditions in Las Vegas are creating trauma and delight. Which of these emotions you are experiencing depends on the price point at which you entered the market. Unfortunately around 75% of folks are upside down in their mortgages, so the majority of homeowners are enduring some stressful times. On the other hand, cash-rich investors are swooping in with their eyes on some healthy capital gains once the world stops coming to an end. Welcome to the world of Las Vegas foreclosure homes.

Fifth and Farm subdivision as an example (near North Fifth Street and Tropical Parkway) is a microcosm of the Las Vegas market as a whole. Built in 2004 and 2005 this North Las Vegas community is in line with North Las Vegas’s foreclosure rate of one in fifteen properties. The Las Vegas Review Journal examined over 100 properties in the Fifth and Farm subdivision, and reported that 50 were owned by the original buyer, who purchased for roughly between $150,000 and $220,000; 25 had been purchased in 2006 or 2007 for as much as $330,000 and $325,000. The later you were to the party, the worse its music sounds. And moving to the reality of today’s post-party devastation the journal notes that over the past 18 months, 26 homes were purchased for prices between $80,000 and $185,000. Almost all of these were foreclosures.

Half of the houses in Fifth and Farm are owned by investors for rental income, and it is a familiar story across the valley to see new homes acquired for rental yields being the first to foreclosure. This is creating a situation where new communities are becoming low-level rental resorts. What do we mean by this? Well, consider that 25,000 homes built in Clark County between the boom years of 2004 and 2007 have been foreclosed on since 2007, whereas 24,700 of foreclosed homes were built between 1980 and 1999. The new investor-driven communities are if not crumbling, then under extreme pressure.

One of the factors compounding the problem of Las Vegas foreclosure homes is that as foreclosed properties are bought by yield-driven investors they end up lowering the community standards, and this in turn encourages other under water homeowners to walk away from their debt obligations. It sounds rough in black and white, but it is a fact that investors buying at lower acquisition prices need lower rents to meet their returns, and tenants paying lower rents are from lower income brackets. So now you have a family that paid $300,000 for their house living next to a family that pays $700 a month for rent. I am not saying that either social group is better that the other, but they are two different social groups, and that is having one major impact: the homeowners at the higher price points are walking away from their mortgages because they want to walk away from their neighborhoods.

Filed Under: Foreclosures, News Tagged With: , , , ,

HOA Fees can Kill Your Yield

March 28, 2010 By

If you are looking at purchasing in a gated community, or guard gated community then you should carefully examine the rule of the Home Owners Association, and the fees it charges. These are defined in the Covenants, Conditions & Restrictions (CC&Rs). For example, the Lake Las Vegas HOA fees are some of the most expensive around at approximately $1 per square foot of your home’s area. Your get immaculately landscaped grounds for this, but on the other hand it puts downward pressure on net rental yield if you are purchasing as an investment.

Another thing to watch out for is any HOA fees that are outstanding at the time of purchase, particularly if you are venturing into the Las Vegas foreclosure market. Not only do you need to look out for the fees themselves, but also the charges from the agencies that collect delinquent payments. With no cap on these collection charges they can accumulate to a significant percentage of acquisition cost on low value properties – i.e. they can be a yield killer for the foreclosure investor.

On 24th March 2010 a home owner regulatory commission approved the first draft of rules that limit the amount of fees that collection agencies can charge for chasing delinquent payments. The Nevada Commission for Common-Interest Communities is made up of seven members, and they voted to set the limit as $1,950 as the amount that collection agencies can charge homeowners for collecting fees. The limit of $1,950 was suggested by Red Rock Financial Services, a collection agency, and accepted by the commission. The regulation also defined limits on specific services such as $400 for default notices, and $150 for demand letters.

If the regulation is eventually passed then it will not include the HOA fees that are due, late fees, or interest payments. Beyond the amounts due you should also look into the contents of the Covenants, Conditions & Restrictions and their implications. They include the policies that HOA Boards adhere to, such as the collections policy. Following on from these policies are the procedures that are used to enforce them. Once of the most important procedures to investigate is assessment collection. The rules and regulations of the CC&Rs are often geared towards uniformity of properties, and control of pets and parking. Finally, the HOA Board will make resolutions, which are a way to introduce any new policies, procedures, rules and regulations. If you are investigating a community such as the Lake Las Vegas HOA, that is showing some signs of stress, then it is worth asking about any resolutions that are currently tabled for possible inclusion in the CC&Rs.

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