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twitterBuilder: It is ‘rational’ for homeowners to walk away
Fri, Mar 13, 2009 (2 a.m.)
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Sun Topics
Sun Archives
- Las Vegas leads nation in foreclosures (3-11-2009)
- Homes at half price from 2006 peak (3-10-2009)
- Home prices key to economic turnaround, economist says (3-6-2009)
- Report: 58.2 percent of Las Vegas homes have negative equity (3-4-2009)
- ‘More pain to come in this Vegas land market’ (3-1-2009)
- New-home sales plummet again with no signs of improvement (2-27-2009)
- Las Vegas counts on Obama housing rescue (2-27-2009)
- Report: Las Vegas home prices at July 2003 levels (2-24-2009)
- Economist: Vegas housing market to recover in 2010 (2-23-2009)
- How Obama's mortgage relief plan pencils out (2-21-2009)
If the Las Vegas housing market didn’t have enough bad news, the picture has gotten even gloomier when it comes to falling prices and the frightening prospect of people walking away from their homes.
More than 234,000 or 58.2 percent of Las Vegas homes with a mortgage are underwater, according to a report by First American CoreLogic. An additional 14,088 mortgages, or 3.5 percent, are near that point, bringing the total to 61.7 percent of all outstanding mortgages.
Nevada was ranked No. 1 in the nation with 55 percent of homes underwater or upside down, meaning borrowers owe more on their mortgage than the home is worth. That contrasts with 20 percent nationwide.
After Nevada, Michigan was ranked second in the nation with a negative equity share of 40 percent. Following these two states are Arizona at 32 percent, and Florida and California at 30 percent.
“It is amazing, stunning and a catastrophe,” says Richard Plaster, founder of Signature Homes who has been warning about the foreclosure problem in Las Vegas growing worse. “At every breakfast or dinner table, there is a discussion going on about ‘what are we going to do.’ It is going to be hard-pressed on why people should stay in their house. People have no choice if they are rational.”
Plaster says the government’s plan to help reduce foreclosures doesn’t go far enough because it won’t aid those who are so far underwater and will walk away even though they can afford their mortgage payment.
“It is simply not going to help those way underwater, which is what most of Las Vegas is,” Plaster says.
People who can afford to pay but start going the foreclosure route further depress prices, which are down nearly 50 percent from the market’s high, Plaster says.
“Banks are getting more and more back and what they are doing in effect is auctioning them off,” Plaster says.
The housing market has been helped by investors purchasing homes, but there are only so many of them out there and the supply will far outpace demand, Plaster says. And given the slowdown in the economy and many buyers who are frightened about their job prospects, that doesn’t bode well for prices stabilizing, he says.
The average loan-to-value ratio for properties with a mortgage in Nevada was 97 percent, or less than $8,000 in equity, leaving the typical mortgaged homeowner with virtually no cushion for the rapidly declining home values, the firm reports.
Steve Bottfeld, executive vice president of Marketing Solutions, a Las Vegas housing consultant, says anyone who bought a home from 2004 to 2007 is underwater and many aren’t going to get government assistance.
Bottfeld says Las Vegas will be one of the first markets out of the housing slump, but until prices hit bottom, there is not going to be a recovery. He says he remains concerned about a backlog of foreclosure inventory at prices so low that it forces other prices downward.
Bottfeld takes the opposite approach to Plaster that people shouldn’t walk away from their homes if they are underwater. People should be educated that homeownership is important to wealth and that the housing market goes in cycles, Bottfeld says.
“It is important that people stay in their homes and not walk away,” Bottfeld says. “They would be walking away from their investment. If they hang onto it, it will come back.”
Dennis Smith, president of Home Builders Research, says it’s the homeowners who used their homes as a bank account and took out equity are the most likely to walk away.
“It shouldn’t be a revelation that there are going to be more foreclosures,” Smith says. “The government is trying to put a Band-Aid on the situation, but I don’t see how foreclosures are going to go away in the near term.”
Smith says he doesn’t expect people to walk away en masse today for being underwater, but instead suggests it may happen over several months or years. Many people may not know now that they are underwater, but once they come to that realization, they will take time to make that decision to leave, he says.
Hanley Wood report
New-home sales may be down these days, but D.R. Horton is leading the way among homebuilders, according to Hanley Wood.
The 306 sales of single-family homes in January was 68 percent more than December, but 56 percent down from January 2008.
Sales of D.R Horton’s communities contributed nearly 50 percent of the 310 sales, says Shane Whitmore, regional manager with Hanley Wood Market Intelligence.
Of the top 10 selling communities, D.R. Horton held nine of the 10 spots.
Sales of single-family homes accounted for a majority of new-homes sales at 69 percent, Whitmore says. About 25 percent were town homes and duplexes and 5 percent were condos.
The median minimum sales price for single-family homes sold in January was $219,990, a drop of 12 percent from December and 19 percent from January 2008, Whitmore says. In January 33 percent of the new homes sold were priced under $150,000 and 42 percent were priced under $200,000.
The median square footage across all product types in January was 1,750 square feet with a median price per square foot of $108, Whitmore says.
The cancellation rate — the number of sales contracts previously written by builders that were canceled — fell to 29.7 percent in January for single-family homes. It was 39 percent in December.
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: 24 comments so far…
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"It is important that people stay in their homes and not walk away," Bottfeld says. "They would be walking away from their investment. If they hang onto it, it will come back."
Boy, this Steve Bottfeld is a real funny guy. He never fails to make me laugh my head off.
What investment is he talking about? The "investment" people made by putting zero down on a liar loan that's now upside-down by six figures? The "investment" of taking out an 80/20 piggyback loan and falling behind within two months? The "investment" of taking out a HELOC and spending it on vacations, gambling and, uh, breast augmentation?
Bottfeld is a real estate shill who doesn't want people to make the RATIONAL DECISION to walk away from a contract that will enslave them for decades. A mortgage contract is a two-way street. If a lender forecloses on you, all he gets back is the property, not your first-born child. That's the deal. If you default on the loan, the bank is obligated to take back the property and the deal is then null and void. It's called Efficient Breach, folks, if you're thinking of walking away, and the banks won't come after you because it costs too much to get blood from a stone.
But Bottfeld won't tell you that. He doesn't want his housing pals who fund his "housing consultant business" -- whatever that is -- to have to suffer. Too bad.
By the way, Steve, how'd your investment in the MGM Grand condo-tel work out? Is it cash-flowing yet?
I read that Congress passed a bill that says the IRS can't chase a former homeowner for the amount of the difference between the sale or auction price and the mortgage balance. So walking away is relatively simple. Sure, your credit will be hit, but we all know the same snakes that sold you the liar loan originally will be back to "help" you. Those incessant ads on the radio for "mortgage help" companies are disgusting. If you gotta' go, go....
Letting your home go when you can afford it for purely selfish/investment reasons is dishonorable. If humans were soulless heartless corporations it makes sense, but we are here for growth experiences, and the damage done by this is likely irreparable. We all die and take nothing with us but our experiences and knowledge and disciplines. Can anyone honestly look themselves in the mirror after planning a foreclosure/credit repair/purchase at a lower price and feel good about themselves? The foreclosure credit repair process is designed for those over their heads, this is supposed to be a rare circumstance, not common place.
The nation is resetting itself after irresponsibility, let's learn from that and become better people. Don't you yearn to shake someone's hand in agreement and hold each other's bond inviolate?
Plaster built crap houses with third world workers and is responsible, as much as anyone, for this mess.
Davemedkser;
By your argument, even someone who has a neighbor on each side who walked "should do the right thing". Why would you expect someone to stay in a house they are upside down $300K+ when their neighbors didn't? Because you and Bottlefed (yes I know how to spell) say it will all be ok? Get real!
People are watching their wealth decimated in 401k's and their homes. If I honestly thought it would take me 10+ years to recoup the losses (no gain), I would be crazy to continue to pump money at bad.
When first married, I bought a house and when it was time to sell, the market had tanked and I had many friends tell me to walk away, everyone does and the FHA won't hold it against you. I didn't believe them, so I called FHA and they confirmed. You walk on an FHA loan and 12 months later, they will loan to you!
The Obama re-write plan only lowers the payment for homeowners until the end of the current loan term and then asks them to repay the difference. In effect, their 30 year mortgage becomes a teaser rate for 27 years and then starts fresh again for the difference.
It's another house of cards of selling people on a proposition they can't afford.
I'm telling people in this situation to get some professional advice and not mine or any who claims the market will go back up 10% per year as soon as City Center/Cosmopolitan/bridge over Hoover Dam opens.
The 11 trillion equity wealth has vanished. It is wiser to walk awy and jump back in when things improve.
judgesmall, I'm not a lawyer, but I know Nevada is not California. this is a recourse state, and you could end up legally liable (via a deficiency judgment) for the difference between your mortgage and the fire-sale price the bank sells your house for at foreclosure--which would make walking away very, very expensive.......
....and bdover's proposed bill may or may not be correct, but the problem ain't the IRS. it's the owner of your loan.
drollo: You are 100% right! It has nothing to do with the IRS, the Bank can and will come after you for the difference later. If you walk away beware that the Bank has a right to collect the difference in the amount you owe and what they collect in the re-sale. If you owe $200,000 and they foreclose and sell for $100,000 they have 7 years to file for a judgement based on the $100,000 difference and any fees associated with collecting the difference. That means they will be able to garnish your future wages in order to collect the difference. Unless you have $100,000 to give the bank then dont walk away from the house.
Does it make sense?
A person buys a house for $400,000 and put $80,000 down for a $320,000 mortgage at 7%.
His monthly payment $2,172.
Right now his own is worth around $220,00 to $240,000. Gone is $80,000 in equity.
It will take 20 or more years before he gets equity in the house again.
He is really a renter unless he is willing to stay in that house for 20 years.
But he does get to itemized the interest on his taxes.
If he walks away then his credit rating will be unworthy for 7 to 10 years.
He can rent a similiar house for around $1,700 to $1,800 a month in today's market. But he will not be able to do what he pleases with the house.
It makes some sense for him to walk away. Rent a house for 7 to 10 years. Buy a new house in 10 years.
He will save around $400 to $600 a month and that is more than the tax interest deduction benefit.
His loan cost for the 7 to 10 years will be higher if he gets a car loan, student loan, etc....
It is a close call.
If you are going to walk away....now is the time to do it. Perhaps you can used that as leverage to get the principal reduced in a loan modification.
Just a FYI, that dings your credit rating too.
It is just a hassele to move. That cost money too.
I say stay in your house. It is the right thing.
Obama will not help the above person because he is not poor.
We have more homes than residents. As people lose their jobs they are leaving. As construction jobs end those families will have to leave as well. There will be thousands more leaving this year. Housing cannot climb when vacancies are in double digits. Thanks to fuel costs and now no profits for anyone and higher taxes on everyone (federal, state, and local taxes) visitors to this city are at an all time low. Conventions and business trips are cancelling faster and faster. Every reduction is more vacant homes. Thanks for your leadership harry Reid and thank you Mr. President for your labeling us a waste of money.
"Conventions and business trips are cancelling faster and faster. Every reduction is more vacant homes."
Thanks for your leadership john Ensign and thank you former President Bush for your legacy of uregulated markets and lack of oversight which has lead to this economic meltdown.
Drollo and LasVegas2009-
You dopes have no clue about foreclosure. I gave my house back to the bank in the disaster of the Houston 80's, and nothing happened. Do you really think banks are going to chase down 20,000 former owners like dogs on the run?. It's estimated that it would cost a bank 30-50 thousand to even try and get a judgment on one house. That's if they can find you. Man, do you think they're going to haul you back to Nevada from out of state?
jfnance32, who I don't agree with on much, wrote exactly what happens if you leave the house. Let's put it this way-my house in Houston had a 60K mortgage in 1982. After a while, there was no work-like here now, so I got a job in Austin, 160 miles away. The house was worth 35K. What should I have done-mail a check for 25K to the mortgage company? Nah, life goes on, all is fine, I learned a lesson, and you 2 will, too.
bdover: just because they didnt chase you down for breaking your word doesnt mean they cant. They have every right to go after the difference and when this all shakes out they will. The banks are going to go after every nickel they can get now because they where bailed out by the tax payer. Congress is gonna want an accounting for every penny the banks got and will put pressure on the banks to collect it. When was the last time the government (IRS) dismissed what you owe. Once they started taking a shareholder position in the banks the whole game changed and people need to be aware of just who is going to come after the difference in the loans. How do they find you? Are you that stupid that you think they cant find you when your working with the same SS#. The same institution that gave you your number now owns the bank you are trying to short. The government is a shareholder and in some cases the biggest one.
LasVegas2009, you are delusional. Rather than argue every point, I will tell you that I know a guy who has checked credit for a local auto dealer for the last 15 years, and he has "never seen a wage garnishment or judgment" on a credit report, unless it was for child support. With 20-25,000 homes just in Vegas in default, and millions more in Cali and Florida, etc, only a fool would insist that banks will go after the owners. Boy, you aren't misinformed-you are borderline psycho.
I guess bankruptcy is an option if they came after you for the difference.
The court could require you pay part of the difference and set you up on a plan.
That cost money on the bank's part. They have to pay lawyers fees.
I have no experience with that.
In the example, I listed the difference is around $80,000 to $100k and the guy does have income.
I could see that would be worthwhile for someone to pay lawyers fees to go after.
If the guy has no or low income then the bankruptcy judge probably will not award the bank much.
I guess the key is home owner income and assets.
The more you have and more you make then I guess you are stuck in the house.
What Nance said does makes sense - can't believe it but I do agree with him.
If people are so stupid to take these piggy back loans, or whatever they are called, so its not only the banks etc that are at fault
I bought in 2005. I put 20% down. I got an option ARM. I did all this with "professional" encouragement. Later I saw an economist in 2006 say this buble has to burst 'cause housing prices were way over the CPI which includes rentals but not home prices(? not sure about that). Does anybody out there think that loans for everything should be tied to the CPI? Think of the benefits; less speculation, more affordability and stability, no? Somebody please comment.............
Price controls for housing? Yeah, baby the rich will love that! Affordability? Who cares I have the money, but I'm glad they fixed housing prices for me. By the way, how will those lowly "have-nots" get ahead now that their home values are frozen to the CPI. Fire your commie advisor today.
Also, lenders WILL come after mortgage deficiencies if you walk away, don't take the deal unless they SIGN A PIECE OF PAPER SAYING THEY WON'T COME AFTER YOU! Otherwise you lose your home, your credit and you still have to pay the debt you owe. Believe it.
"Conventions and business trips are canceling faster and faster. Every reduction is more vacant homes."
Thanks for your leadership john Ensign and thank you former President Bush for your legacy of unregulated markets and lack of oversight which has lead to this economic meltdown.
YEEEEEEEEEAAAAAHHH Neiman1, I 100% agree with you on this comment!!
I guess I'm one of the lucky ones. I restructured my loan and happy with the fact that I will have to stay another 5-10 years. I just use the money to redo the flooring and yard just the way I want it and still have lots of time to enjoy.
Hey deniese, not price controls for houses, controls on bank loans, so it's not a lose, lose....IF YOU GOTTA USE INSULTS, WELL, RIGHT BACK AT YA deniese!
The amount of fraud going on in the housing industry is outrageous. We are only now beginning to see it true volume. Sure there may have been many people who bought a home with legit means but Vegas is the epicenter of housing fraud. This is clearly seen in the outrageous gains over the boom years. The fraudsters are destroying Vegas and no amount of bailout or "honorable" people "doing the right thing" and staying in their homes will solve this problem. It's time to pay the piper.
Every week I read this paper there are new fraudsters being found out.
Don't complain about the home owners walking away, complain about the fraudsters who perverted Vegas housing.