real estate column:

Analysts exaggerating foreclosure projections, broker says

By Brian Wargo (contact), In Business reporter

Fri, Jun 5, 2009 (3 a.m.)

LV reclaims top foreclosure ranking in U.S. (3-20-2009)
Las Vegas leads nation in foreclosures (3-11-2009)
Nevada's foreclosure rate tops nation once again (2-12-2009)
Analysts disagree on timing of real estate turnaround (2-11-2009)
Home sales slow as prices continue tumble (2-10-2009)

Jim Donohue says he believes some of the discussion by housing analysts about Las Vegas foreclosures is getting a bit out of control.

Donohue, a broker with Prudential Americana, says he’s not disputing that foreclosures are a painful process but calls some of the stories on the subject amazing.

Donohue is responding to suggestions by analysts that lenders may be holding thousands of homes, maybe more than 20,000, that could be dumped on the market and further depress prices. He also cites analyst projections that thousands of homes are about to be foreclosed on by lenders this summer.

“This all defies good sense,” Donohue says.

He says banks hold 13,500 homes, according to the Clark County assessor’s office. The Multiple Listing Service shows 9,800 homes, which means banks hold about 3,700 of these homes that are not on the market, he says.

About 10,100 homes have returned from the lender inventory to private ownership, while banks have acquired about 8,900 homes from private owners this year, Donohue says. That means the inventory of homes held by lenders has decreased by about 1,200, he says.

Another way to look at this is that the current available inventory of single-family residences has declined from 6,000 at the start of the year to about 2,500 at the moment, Donohue says. That is just under one month of sales, and it is still decreasing at more than 150 a week, he adds.

Although the rate of actual trustee sales may have picked up slightly, it is still insufficient to support the current volume of foreclosed properties, he says.

“I remain quite skeptical that the system is in fact capable of doubling or tripling, which would be required to maintain the existing inventory level. There simply are not enough people to do that task,” Donohue says.

Dennis Smith, president of Home Builders Research, says he wishes Donohue was correct in his assessment but he stands by what he has said about the market.

Smith says he spoke to a broker working with foreclosures who told him that she attended a conference last week in which people were told there were 30,000 foreclosed homes in Nevada with about 75 percent in Southern Nevada.

These are homes owned by banks or near foreclosure that will start hitting the market in July, Smith says.

IRAs and housing market

The downturn in the stock market combined with the growing affordability of purchasing a home has prompted increased interest in using IRAs to help fund the purchase.

Qualified retirement plans, in particular traditional or Roth IRAs, may be used to provide a down payment without penalty for early withdrawal, according to George Chamberlin, vice president of Financeware, a financial advisory firm. This allows for a withdrawal of up to $10,000 for a first-time buyer to acquire a home, he says.

Add in the $8,000 federal tax credit for first-time buyers in 2009, and that provides the down payment assistance that they may need, Chamberlin says. Couples with their own IRAs could have $20,000 to draw from, he says.

“I am betting that using the IRA in combination with this new homebuyer credit is going to be very appealing,” Chamberlin says. “It hasn’t been heavily used in the past, but I know people who have done this. “With the new strict lending rules, it maybe more appealing because they need more money for the down payment.”

With so many people losing money in the stock market, it appeals to them to use the money for something that will give them satisfaction, Chamberlin says. They have to wait until they are 59 1/2 to withdraw money from IRA’s without a penalty.

“Equities are not doing well and people are not sure when or if they will rebound,” Chamberlin says. “This gives people a chance to use the money in a positive way and grow it over time if they are looking at a long-term investment.”

Although there is no penalty, Chamberlin says income taxes must be paid on the amount taken out of the IRA. That could reduce the amount available for the home purchase if the taxes aren’t paid from another source, Chamberlin says.

Putting down a larger down payment can help lower the interest rate to finance the mortgage and possibly avoid the need for mortgage insurance, Chamberlin says.

There are other opportunities for people interested in using their IRA’s as a vehicle to invest in real estate.

Most people don’t know they can buy real estate with their IRA instead of stocks, and it’s up to Realtors to educate them about that, says Charlie Bross, a principal with the Real Estate Training Center. That could spur a lot of sales that would otherwise not take place, he says.

With the stock market in decline and home prices looking like a much better value with some upside, it makes IRA holders more receptive to the concept, Bross says. Homeowners already understand the value of investing in a home and that makes it easier to pitch, he says.

“Investing in real estate through an IRA is poised to be one of the hottest new areas of investment,” Bross says in citing the decline of the stock market. “Even with the recent rallies, it will be a long time before investors regain their confidence completely.”

While people are wary of the stock market, they don’t want to leave their money in the bank and earn minimal interest, Bross says.

By purchasing real estate for their IRAs, people aren’t changing what their retirement plan funds do but simply changing the investment vehicle, Bross says.

Even if it takes five years for real estate values to get back to where they were two years ago, there are many prognosticators who believe a bet on real estate will perform better than the stock market, Bross says.

Brian Wargo covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at wargo@lasvegassun.com.

Discussion: 10 comments so far…

By mikenyc

6/6/09 at 6:25 a.m.

Suggest removal

Yes, that's the ticket. Use your meager IRA, already decimated by the stock market to buy Las Vegas real estate. That way the broker can pocket a commision, the bank can make money on the mortgage and you can watch as your house drops in value. Sounds great.
By 2zero

6/6/09 at 6:56 a.m.

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The "Broker/Realtor" needs to consider that the Nevada Legislature just passed a law that will require banks to "mediate" prior to foreclosure.

June will be a "block buster" month as banks are now motivated to "take" the house before the new law is in effect, July 1st.

After July there will be a lag as "homeowners" demand the court mediation process....

Then there is the "buy and bail" phenomenon going on where many vegas residents are buying cheaper homes and walking away from the old mortgage. Thus you have an increase in home sales and a 4-6 month process of foreclosing on the bailed house, after the lag it nets into zero net gain!
By OpenRange

6/6/09 at 9:54 a.m.

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It's a pretty simple analysis. Assessor records show ownership (name of financial institution) and type of dwelling (single-family or condo/townhome). Using parcel numbers or addresses, eliminate those records that match with the MLS listings, and viola! You now know the number of bank-owned homes not on the market.
By LasVegasMax

6/6/09 at 11:58 a.m.

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I respectfully disagree with Mr. Donohue. According to 1st American Title and their trustee sales reports REO's acquired by Banks in February 2009 were 3,408 units while MLS listings were 1,999 units. This same scenario also occurred through most of last year. Only in March and April have the REO's acquired started to match the REO listings in the MLS. I do see a shift in the number of REO sales exceeding the REO listings and REO's acquired as of April 2009. I can share my data with you if you contact me through Gmail.
By stevem

6/6/09 at 1:06 p.m.

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i've said a million times.

the only data that we need to concern ourselves with is the number of tourists coming to town.

as long as that stays down, foreclosures will increase.
By neiman1

6/6/09 at 3:13 p.m.

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Interest rates have risen a full percentage point in the last 45 days. This raises a payment from 1200 a month to 1400 a month for the same mortgage. That means whatever loan someone qualifies for, it is now a much smaller amount and going down. The pressure on home prices will continue down for the next year or longer.

40% of all adjustable mortgages are still coming in the next 24 months. That is going to add thousands of homes to the inventory.
By olecapt

6/6/09 at 8:34 p.m.

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At present it is very difficult for an owner occupant to buy a home below 75K and practically impossible below 50K.

Why?

Because investors with cash have taken over that market and have moved the terms and conditions out of reach of the owner occupant. You simply can't buy anyting with an FHA mortgage.

So the latent demand at the bottom is there and will likely be stoked well up by the present situation. It all keeps indicating stability sometime soon.

As to LasVegasMax's views...we do agree on one thing. This all comes to a head in July/August...will the tens of thousands of missing foreclosures fall from the secret closets of the bankers?

Or will things roll along with less and less foreclosed inventory and stabilization?

Stayed tuned...won't be long.
By CynicalObserver

6/6/09 at 11:02 p.m.

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One other point in "counting" foreclosures through assessor's records. If people are only counting houses where title is vested in "ABC Bank", the count is way low. Many lenders and MBS pools hold title in their loan servicer so the name on the deed might be "Smith Brown Co."

Since mortgage lenders pay full transfer tax on closing, unlike California where foreclosing lenders pay little or nothing in transfer tax, even looking at the transfer tax amount paid on a conveyance to "Smith Brown Co." doesn't tell you anything.
By perry161492

6/7/09 at 9:36 p.m.

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will i am sending out my second request for modification of my loan to indymacbank this will be my second and final time the next time i talk to them will be at mediation i will start missing my payments
By perry161492

6/7/09 at 9:37 p.m.

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sorry broker foreclosure is not exaggeration

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