Home prices plunge as rising defaults take their toll
Fri, Apr 24, 2009 (2 a.m.)
Nevada set a record in March with more than 10,000 homeowners defaulting on mortgage payments, and the price of existing homes sold last month in Las Vegas plummeted to its lowest level since 2001, raising the question how much further they can fall.
Since June 2006 the median price of existing homes sold has fallen 53 percent from $289,500 to March’s $134,900. The price fell $7,600 from February to March, according to research firm SalesTraq.
“Every time I see it go down $3,000 to $5,000, I am surprised,” said Dennis Smith, president of Home Builders Research. “I don’t know how low it can go. I remember when I thought it would be difficult to go below $200,000.”
Steve Bottfeld, executive vice president of Marketing Solutions, said he thinks the price is “pretty close to the bottom right now.” He said it could fall another $3,000 to $7,000, but doesn’t see it dipping much below $130,000.
Smith said the median price is deceiving because few homes priced above $400,000 are selling because of the inability to obtain financing. That is skewing the numbers downward, he said.
Foreclosures are the key factor driving prices. Sixty-six percent of the 3,626 existing-home closings in March were bank-owned homes with a median price of $127,500. The median price of the nonbank homes was $149,900.
Banks don’t have an emotional attachment to a property and have shown a willingness to drop prices to make a sale. Although the number of homes repossessed fell in March to its lowest level in one year with 1,846 homes foreclosed, a large number of foreclosures are expected in coming months.
Nevada set a record in March with 10,351 homes defaulting on mortgage payments, which lead the nation in foreclosure filings.
California-based RealtyTrac reported Nevada had 19,849 foreclosure filings in March, a 26 percent increase from February, and 159 percent higher than March 2008.
The previous record was set in February with 8,406. The increase paves the way for more bank repossessions and foreclosure sales, which depress prices in the market.
“I think prices will continue to come down,” said Daren Blomquist, RealtyTrac’s marketing communications manager. “I just don’t think they will be at the rate they were because you have already seen massive depreciation in places like Las Vegas.”
Las Vegas, by the way, was ranked No. 1 in the nation in the first quarter in foreclosure filings with one for every 22 households. That’s 19 percent higher than the fourth quarter and more than double the filings in 2008’s first quarter.
“There appears to be no end in sight,” Smith said. “I am very concerned because it is not going to help prices as long as you have foreclosure inventory. I think right now it is going to take the job situation to flatten out first.”
Repossessions were held down during the first months of the year because of a moratorium by lenders, Fannie Mae and Freddie Mac, observers said.
Bottfeld said he’s not surprised that delinquencies are increasing in light of job losses, but that doesn’t mean all of those late payments are going to turn into foreclosures.
He said he expects a bump in foreclosures by the end of the second quarter, but suggested it will be short-lived because of a $350 billion federal program targeting foreclosures.
“There are enough programs in place right now, and hopefully that will slow it down,” Bottfeld said. “It will not stop it. Nothing it going to stop it, but it may be slowed in the second half of the year.”
Not everyone, however, takes that view. Blomquist said his firm expects foreclosures will remain at a high level in Nevada for at least the rest of the year.
“That is a big concern for the housing market in Nevada, especially Las Vegas. But the good news in some of the hard-hit areas is that we are starting to see home sales rise because prices are so low. That at least is creating a market for these lenders to clear their inventory of foreclosures. That is a hopeful sign that markets are trying to stage a recovery.”
Las Vegas recorded 3,626 existing-home sales in March, the most since August 2006 and 86 percent higher than March 2008. In February 2,759 existing homes sold.
Blomquist said it’s impossible to predict when the price slide will end or when foreclosures will start to drop. The federal program to stem foreclosures may not help markets like Las Vegas because homeowners aren’t eligible for part of the program if they are more than 5 percent underwater — they owe more on their mortgage than their home is worth, Blomquist said.
Those homeowners are still eligible for loan modifications by lenders, but the question is whether lenders are getting enough incentive from the government to do that in markets where prices have fallen so far, he said.
Blomquist said his firm is hearing anecdotal reports from real estate agents that many homeowners who can afford to stay in their homes are choosing to walk away because the values have fallen so far.
“I think it is already a problem and will continue to be a problem,” Blomquist said. “A lot of owners don’t have motivation to stay in their home. I don’t think we have seen the full extent of the people who have walked away that we will eventually see. There is no incentive for people to continue to make that payment on homes that are vastly underappreciated in value.”
In March the new-home market improved for the second consecutive month with 468 sales reported by SalesTraq. That’s up from 353 in February, but 57 percent below March 2008.
The median price of new homes edged up slightly to $218,000 in March from $216,334 in February. The price, however, is 39 percent below the peak of $355,435 in June 2006.
Builders took out 242 permits in March, the most since 396 were issued in October, SalesTraq reported.
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