The Las Vegas Valley is home to seven (eight if you include Henderson) of the top 10 zip codes and fifteen of the top 20 hardest hit by the housing/foreclosure meltdown.
The epicenter of foreclosures shifted to the booming city of Las Vegas at the end of 2007.
"What we're seeing is the impact of subprime mortgages coming due," said Rick Sharga, a spokesman for RealtyTrac.
These loans, which were particularly prevalent in Las Vegas, default at much higher rates than traditional, fixed-rate mortgages.
Zip code 89031 in North Las Vegas had the most foreclosures on its books as of December, with a total of 741 filings -- default notices, auction notices and bank repossessions. The nearby zip 89131 was second on the list with 665 filings, and illustrates just how the face of foreclosure has changed.
Unlike depressed Midwestern cities, the 89131 area is prosperous, with strong employment and income levels well that are above average for the state. The foreclosure problems in Las Vegas stem from the unaffordable terms of the mortgages themselves, rather than from local economic conditions.
"It's the [lending] products," said Gail Burks, president of the Nevada Fair Housing Center, "the option adjustable-rate-mortgages (ARMs) and hybrids. They're having a huge impact."
These loans feature low introductory fixed rates that reset to much higher ones, usually after two years, and adjust every six months or so after that. When they first adjust, the monthly payment on a $300,000 mortgage can jump by $600 or more, turning a barely affordable mortgage into a totally unaffordable one.
Contributing to the problem in Las Vegas was a steep run-up in home prices. In 2004 alone, the median, single-family home price in the city grew by 47 percent, and that was followed by another 14 percent rise the next year. By 2006, the median home cost $317,400, nearly 50 percent higher than the national average.
That compelled many Las Vegas homebuyers to use exotic ARMs to get the homes they wanted. Most intended to get a foot in the door, establish a good payment record for a couple of years, and then use their home's appreciation to refinance into an affordable fixed-rate loan.
But the numbers didn't pan out. "Prices in many Las Vegas communities have dropped tremendously," said Burks.
Top 20 Worst-Hit Foreclosure Zip Codes below--click here for entire top-100 list
So, LV is #1 in the Nation and it currently holds 15 of the top 20 places on the foreclosure board. Yup, pretty bad, but I think it's only going to get worse:
According to Housingtracker.net, Las Vegas inventories are beginning to rise again (27,000+) and median prices have already dropped 16% Year over Year (YoY).
Additionally, Clark County (LV) Realtytrack foreclosure listings are rapidly approaching the 40,000 mark (39,352 today).
When you take a look at recently sold homes, the picture gets even bleaker. Last month (January 08) a total of 983 homes were sold in Vegas (38% of which were properties taken back by banks after foreclosures) and less than 900 were sold in December.
After digesting the figures above, I'm certain you can see that we're staring at a tremendous inventory overhang, that when coupled with tightened lending standards and very serious nationwide banking/credit problems, prices have only one way to go--DOWN, much further Down!
The lack of buyer volume and continued downward price pressure will prevent tens of thousands of additional homeowners, who are sitting on the cusp of foreclosure themselves, from selling and they too will end up losing all. Their foreclosed homes will add to the huge glut of bank owned homes and the bank-owned discounted sales will continue to drive prices even lower--a downward, out-of-control spiral, feeding upon itself.
As I've stated previously: I believe we'll see AT LEAST a 50% haircut from 2005/6 peak prices and I don't think 60-70% off peak in some cases is too unrealistic.
Just a short 8 years ago (2000), I purchased a brand-new 3,100 SF home (5Br/4ba) with a 4-car garage on a 10K SF lot for $185,000. Less than five years later it sold for $450K--a 243% price increase. Now, if we take that same late 2004, $450K price and give it a 60% haircut for 2009-1010 we're back to ~ $180K (what my neighbor paid in late 1999).
I'm very confident we'll see these realistic prices again -- within the next couple of years. However, unemployment and inflation will be much higher and the economic sentiment of Las Vegas (and National) community will be significantly gloomier than that which we see today.
For more on the LV Housing Bubble Bust and the potential spillover effects see my December 07 post--LV Housing Bubble Update.