Analysts exaggerating foreclosure projections, broker says

By Buck Wargo

Friday, June 5, 2009 | 3 a.m.

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 [email protected].