Recovery expected to be slow

By Buck Wargo

Tuesday, Feb. 10, 2009 | 2 a.m.

Anyone looking to regain the appreciation lost on his home over the past 18 months is going to have to wait awhile, according to Scott Dugan, one of the leading appraisers in Las Vegas.

Dugan says the local housing market is about to be hit by another wave of foreclosures — possibly three to four thousand — that could send prices spiraling down even further. Fannie Mae and Freddie Mac had a moratorium on foreclosures that ended at the end of January, he says.

“We are going to get hit with another wave of listings that may, in turn, drive down the market further than where it is today,” Dugan says.

A flood of foreclosures could press the market down another 10 percent, says Dugan, who was one of the featured speakers at the recent Southern Nevada Housing Outlook seminar.

If that happens, it will take quite awhile to absorb that inventory and other foreclosures that may occur in the next three to five years, Dugan says. Many adjustable-rate mortgages will continue to reset through 2011.

“I wish I knew the answer of when this market was going to correct,” Dugan says. “I don’t think this market will correct for several years. The real key is the amount of foreclosures that have not hit this market yet.”

Dugan says he’s heard from many people interested in selling their homes that they are just going to wait out the market.

“When will the bottom be hit?” Dugan said. “I think we have been at the bottom for three or four months with pricing, and I can’t imagine it going much lower than it is today (depending on what happens with foreclosures). The question is how long will it last. I think we will be flat for two years and not see any real appreciation for five years.”

Foreclosures and short sales are definitely setting the market. Some lenders are even selling homes at auction for $60 to $70 per square foot and that has caused some problems in the appraisal process, he says.

Dugan doesn’t use such auctions because he doesn’t consider them appropriate to determine the proper values, but other appraisers use auctions to set the values of homes.

The buyers are coming back slowly because of the increased affordability and interest rates of 5 percent and lower, Dugan says.

But what has dominated much of the sales over the past year are investors who are looking at properties for rental income, Dugan says.

They buy a home for $150,000 and pay $1,100 a month on it and rent it out for $1,200.

“It is typical for the buyers to follow the investors, but it takes some time,” Dugan says. “The buyers aren’t as sharp as investors, who don’t look at it as an emotional purchase. They look at it as a financial situation to make money.”

Banks and other companies that are selling foreclosures have gotten smarter in how they go about listing them, Dugan says. Banks are taking homes appraised at $300,000 and listing them at $270,000 to $275,000 as a way to generate multiple offers.

“The good thing for us is it cuts down on the marketing time, and the market doesn’t get stagnant with properties,” Dugan says.

Even though sales of existing homes were up about 50 percent in 2008, Dugan worries about population growth slowing. That growth is what is needed to help the market recover.

A version of this story appeared in this week’s In Business Las Vegas, a sister publication of the Sun.