Cheap houses in Las Vegas
It is well established common knowledge that many service jobs in the Casino/ Hotel industry rely on tips as a major portion of these workers income. From about 2004 through 2006 with historic low interest rates and the ability of these workers to use “Stated Income” rather than prove their income these workers who were locked out of home market previously started buying homes in record numbers and seeing their homes values rise at an unprecedented rate. This lead to more of these workers jumping into the home buying game to get their piece of the appreciation pie further driving up prices and attracting a national feeding frenzy of investors to crowd the market and further drive up prices. Finally the appreciation spiral abruptly stopped in late 2006 and the loans began to unravel in early 2007 as these sub-prime loans monthly payments began to reset from their unrealistic low starting payments to as much as 40% more. Suddenly the people were unable to meet these steep payments and the finance companies started taking them back and selling them for less than their original value as R.E.O’s (Real Estate Owned) properties. This resulted in surrounding houses being valued lower preventing others from refinancing, resulting in additional repossessions further driving down prices and thus the downward spiral of prices began. As home prices fell in value creating more foreclosures in Las Vegas the defaulted loans caused a meltdown in the secondary mortgage markets and financial institutions all over the world no longer knew what the value of the mortgages or even worse what their mortgage back securities were worth. They therefor stopped buying any more mortgages and world financing started drying up. We are now trying to drink from a dry well.
In an emergency effort to free up credit so that business could continue in the U.S., and world wide, our government created the $700 billion dollar TARP (Troubled Asset Relief Program) asserting that it will help rescue the home owners from foreclosure and thus strengthen the failing mortgage backed securities.
Our governments first act was not to rescue the home owners, it was to rescue the banks using $250 billion dollars and leaving the balance of $450 billion to rescue the home owners at a yet to be determined date and program. Please keep in mind the $250 billion was that all that congress initially authorized under the plan. The President can now authorize an addition $100 billion for distribution.
Now the government is offering some non-banking organizations TARP monies. These corporations, such as General Electric, are not under federal banking controls. The reasoning is that it will further free up commercial finance in an effort to curb job losses. How much money they will lend to these corporations has not had any limit set to date.
Next in line for TARP money are the many U.S. insurance companies and the big 3 auto makers are lining up as well as other commercial finance companies who are not banks but may be labeled as “to big to fail.”
Let’s not forget that when TARP was enacted it included the all important $3.92 billion of the $700 billion for neighborhood stabilization (just above one half of 1% of the total budget). Las Vegas areas share of the money is approximately $46.6 million dollars to buy up vacant homes in distressed neighborhoods and get them back into the housing pool. With the average price of a Las Vegas foreclose home selling at $190,000 the budget would allow the valley governments to purchase 245 homes (or 1.6%) of the 15,000 now repossessed homes in Las Vegas. And this would assume any further discounts the local governments could obtain from the bulk purchase of these R.E.O’s would pay for the overhead and management of the program. I think that any reasonable person can see the lip service provided by our federal government in solving our empty neighborhood problem here in Las Vegas.
On October 15, 2008 Ben Bernanke address the “New York Investment Club.” During the question and answer session after his written speech he revealed that the mortgage debt in the United States is about $14 trillion dollar problem which means our government is using $450 billion dollars to solve a $14 trillion dollar problem (3.2%). It becomes very apparent that this program along with hunting elephants with fly swatters is not going to have any success. I think the Fed’s already know this.
The longer you can hold main street off and prop up the financial sector the sooner we will get to the bottom of this real estate devaluation thereby allowing a real valuation of mortgage back securities.
There has been a huge impact on the Las Vegas travel industry due to high oil prices and a melt down of the financial markets. Tourists visitation is down, gambling revenue is down, convention attendance is down and thus the need for workers is down. Las Vegas has 7.4% unemployment rate and a great many workers are under employed only working 30 hours a week thus reducing their incomes by 25% or more. This adds to the pressure as sub-prime mortgages reset because these workers can no longer prove their incomes to rewrite their loans. Thus the numbers of home forclosures will continue to climb.
There is a solution that is fair and equitable but the power of the Washington Bank lobbyists will not allow the solution to ever be enacted.
Bankruptcy courts do not have control of home mortgages in the United States. If they did they could work out an equitable solution for all parties by standing in the middle and deciding the resolution of the home as they currently do with all other assets of the bankruptcy petitioner. Yes the banks would loose control of managing their assets in these situation and yes it may affect mortgage loan rates in the United States. The problem is the current mis-management by the mortgage companies are already affecting mortgage rates. Mortgage rates are already much higher than they should be given the 10 year Treasury bill rates of 3.75% if the mortgage rates followed historical patterns the the current 30 year mortgage rate would be 5.75% but in fact we are currently paying over .25% higher reflecting the damage that has already been done in the mortgage industry.
The mortgage industry and the Bush administration have been featuring the success of the “Hope Now” program. A voluntary program for the mortgage industry that has resulted in few principle write downs and generally just an extension on the loans tacking on additional principle for the home owner to pay longer on their home. These rewritten mortgages are now failing at a 47% rate again! This program should be renamed “Hype Now.”
If the bankruptcy courts would be allowed to renegotiate and make decisions on mortgages then all parties interests and welfare would be represented. So long as our government fails to withdraw this special exemption from the mortgage industry, property values will continue to spiral down, bankrupting our smaller banks who will be acquired by the banks “to big to fail” and driving property values below their true worth.
This damages every American that has a home as our homes are one of our biggest assets. Most Americans have made the prudent choices in purchasing and loan decisions. Most Americans are now being damaged by property values plummeting below their replacement costs. Weather it be their personal residence or the retirement program they are invested in that has purchased mortgage backed securities. The real victims in this scandal is not necessarily the person loosing their home but the person who has not lost their home but has lost their equity, their retirement and most importantly their trust in their government to do the right thing for the interest of all of us, not for the few on in the banking industry.
Without further change Las Vegas will continue to see record foreclosures as we enter into a new set of loan problems. We are just over half way in the Sub-prime loan crises. But in February of 2009 we face a new problem with the failure of Alt-”A” loans. It seems much more likely that with the opening of the new major properties in Las Vegas that the current under employed and unemployed work force will be redistributed into the jobs being created by theses new resorts creating almost no new employment opportunity and thus no rush of new residents to fill our empty houses.
So when will things turn around in Las Vegas? Probably in late 2010 or early 2011 when tourism and the economy begin to recover and people seek cheap vacations close to home. Perhaps building high end casino properties may have been the wrong bet for the next 5 years.
I think that housing will bottom out sometime in December 2008 through June 2009. My reasoning is that the mortgage markets will become more open to qualified Buyers. The replacement costs of homes will be far higher than the prices that people can purchase existing homes, creating a opportunity for equity gain as the market recovers. The opportunity for foreign and American retirees are now seeing the fantastic purchasing power they now have in this market. Their purchases are for retirement and winter homes. They don’t need employment, they don’t even need schools and most don’t even need financing. And most can start now purchasing at 50% off the price at the height of the Las Vegas real estate home market.
If you would like to see the latest Las Vegas real estate market statistics click on this link. If you would like to see specific details of current Las Vegas home purchases and what great deals people are making in this market please contact Max here.
For the Latest in Las Vegas real estate call Max at 
702-334-2200
. Or email me at:Max@MaxSellsVegas. com. Your comments and questions are welcome.
