Las Vegas Sun

November 14, 2009

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Editorial: From boom to bust

Monday, July 18, 2005 | 8:44 a.m.

Home prices in Nevada are growing almost 25 percent faster than incomes, according to a report last week in The Wall Street Journal. This should serve as a warning to home buyers and lenders who are considering or offering "creative" -- read risky -- mortgages, the kind that are fueling a housing boom in Las Vegas. They are generally obtained with negligible downpayments and token interest rates for, say, the first three years. The assumption is that a homeowner's salary will rise with time, allowing him to absorb variably higher interest rates.

But after the low-interest period, during which the homeowner has paid nothing or virtually nothing on the principal, what happens when the monthly mortgage payment shoots up by a thousand dollars or so, and the owner's salary has remained fairly constant?

Many homeowners will default, leaving banks with foreclosed homes and a reluctance to continue with creative mortgages. It's a scenario that can turn a housing boom into a bust for people seeking the American dream.

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