Professionals pessimistic about speedy economic recovery

By Buck Wargo

Friday, March 20, 2009 | 2 a.m.

Las Vegas business leaders aren’t optimistic for a quick turnaround in the economy and suggest it’s likely the housing market won’t recover until 2010.

Those are the latest findings in a survey conducted by UNLV’s Center for Business and Economic Research. Fifty percent of survey’s respondents work in the real estate and finance industries.

Sixty-seven percent of those surveyed say they think economic conditions will worsen. More than half say overall business sales will be down in the first quarter compared with the fourth quarter of 2008. Since the fourth-quarter numbers were weak, that doesn’t speak well of the first part of 2009, according to Keith Schwer, the center’s director.

Despite their pessimism about the local economy, business leaders think things will be worse nationally, Schwer says. That’s surprising because Las Vegas’ jobless rate at 10 percent is higher than the nation’s as a whole.

The rising unemployment rates suggest further difficulties in the already-troubled housing market and consumer credit markets, Schwer says.

“The trouble is not over and uncertainty continues to push households and businesses to more conservative spending,” Schwer says.

The housing woes and foreclosures will keep Nevada as one of the poorer performing economies and that won’t change until the housing market improves, Schwer says.

Thirty-one percent of business leaders say the housing market will affect their business by 5 percent or more.

Only 21 percent don’t expect a further slowdown in housing, but business leaders were evenly divided on the timeline of the housing recovery, Schwer says.

No one suggests it will be in the first half of 2009 — 24 percent say it will be in the second half of 2009, 38 percent say it will be the first half of 2010 and 38 percent say it will be the second half of 2010, Schwer says.

FHA has made a difference

The credit crunch has created problems for businesses and consumers getting loans and for prospective home buyers getting mortgages but renewed interest in Federal Housing Administration-insured loans has helped Las Vegas home sales pick up over the past year.

Three years ago the FHA insured 2 percent of all home loans, but that market share has risen today to 33 percent, says FHA spokesman Brian Sullivan. In fiscal year 2005 the FHA insured $62.3 billion loans, but that grew to $181.1 billion in 2008.

In Nevada in 2006 FHA insured 1,417 loans. That grew to 2,217 in 2007 with a value of $490.6 million. In fiscal year 2008 that ended Sept. 30, that number grew to 15,701 with a value of $3.3 billion.

“It has just been explosive growth,” Sullivan says. “Mortgage finance has dried up and the FHA is one of the safest and most time-honored loan products out there. People are returning to FHA. It is a back-to-basics movement that is taking place across this country. It is the only game in town for a while.”

The FHA was created in 1934 during the Great Depression. It doesn’t issue loans but insures them, which makes more loans available at a time lenders have tightened mortgage credit because of a significant number of foreclosures. They are important today for many first-time home buyers and those with less-than-perfect credit.

“There has been a general freeze in mortgage lending nationwide, and people reconnecting with FHA again for a number of reasons,” Sullivan said.

The primary reason is that FHA requires a down payment of 3.5 percent for those buying a home or refinancing, Sullivan says. In the lending market, many people have had trouble getting a loan without putting down 20 percent.

In the early 1990s the FHA had about 15 percent of the home purchase market, but during this decade more borrowers gravitated to the subprime market that “was the path of least resistance” because lenders asked for little if any down payment and didn’t document income, Sullivan says.

“It is a booming business for FHA right now, and we are trying to balance our risk,” Sullivan says. “We understand we have to accept more risk because we want to be part of the housing solution, but we have to be very careful we don’t get people into homes in which they can’t sustain homeownership. We also have to be diligent to keep the scammers out of the program of loan originators, lenders and brokers who have no concern of putting people into homes they can’t afford.”

In insuring loans against default, the FHA requires 1.75 percent of the purchase price, which is included in the loan amount and typically 0.5 percent a year on the remaining balance. The insurance premiums can be dropped when the amount owed falls below 80 percent of the value of the home.

FHA will accept lower credit scores than are acceptable on conventional loans. FHA will forgive a bankruptcy after only two years, and a foreclosure after three years.

In other news:

• Yale Rowe, the senior vice president and general manager of the Hard Rock Hotel, has purchased a 6,687-square-foot home on the 1700 block of Tangiers Drive for $1.5 million. The seller was Deutsche Alt-A Securities Mortgage.

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].