the military:

Transfer order doesn’t wait for real estate to rebound

Steve Marcus

Air Force Maj. Brian O’Neill bought his North Las Vegas home at the height of the real estate boom, but is now being transferred and forced to sell. The home is worth less than half what he paid for it. He’s hoping to recoup some of his losses through a government stimulus program.

By Megan McCloskey (contact)

Wednesday, May 27, 2009 | 2 a.m.

Report: Home prices haven’t reached bottom (5-26-09)
Analyst predicts new-home recovery in 2012 (5-25-09)
Underwater mortgages mount (5-22-09)
Price of existing homes drops to ’98 levels (5-22-09)
Report: Vegas home prices at 1998 levels as sales surge (5-19-09)

Nellis Air Force Base

Brian O’Neill bought his house in Aliante in April 2006 for $360,000. It’s now worth less than half that.

His is a familiar story in the Las Vegas Valley, but he’s in a worse predicament: Uncle Sam has ordered him to move.

O’Neill is a major in the Air Force and is being transferred from Nellis Air Force Base to his next assignment at Fort Leavenworth, Kan. He has little other choice than to try to unload his house in this stark market.

With the start of the busiest time for military moves, many airmen are in the same position: facing staggering financial loss as a result of their relocation orders.

For some, the government is stepping in to help.

Because airmen are typically stationed at a base for a few years, many of those who have orders to move this summer bought at the peak of the housing bubble. In the summer of 2006, the median price for a new house was about $337,000. Today it’s $150,000.

Amy Brooks, a military wife and real estate agent, said many of her Air Force clients are staring down losses of at least $100,000, if not $200,000 or more.

She can rattle off examples: “I have one client who bought for $315,000, and we’re hoping to put it on the market at 179. Another bought for $345,000 and is selling for $150,000.”

Brooks said her clients are overwhelmed by the impending hit to their pocketbooks.

Last summer most of her clients ended up renting instead of selling their houses, but still took a hit because the rental income fell hundreds of dollars short of matching their mortgage payments, Brooks said.

If O’Neill had to rent his three-bedroom, two-and-half bath house, he estimates he would get only $1,200 a month from a tenant, well short of the $2,000 he owes the bank each month.

O’Neill is hoping he’ll be a beneficiary of the federal stimulus package passed by Congress in February. It appropriated $555 million to help offset losses service members incur because they “are compelled to move in an unprecedented real estate market as a result of their service to the United States,” according to the guidance for the Housing Assistance Program.

If the service member bought before July 1, 2006, and has orders issued before Dec. 31, 2009, the government will either refund to qualifying military families some of the money lost in a sale or, if the house doesn’t sell within 120 days, buy it at the current market value and refund 75 percent of the original purchase price to the owner.

To ensure resources are spent on the hardest hit real estate markets, the military requires that the value of the individual house and the overall housing market in the area dropped at least 10 percent. Most installations are in housing markets that don’t qualify. Nellis and Creech Air Force Base, at Indian Springs, easily do.

The most popular area to live for those stationed at Nellis or Creech is North Las Vegas, which has been hit hard by the foreclosure crisis.

Buying a house is always a risk for a service member, given that constant moves are a part of the lifestyle and conventional wisdom dictates buying only if you’re able to stay in the house for three to five years at minimum. But many do, and few anticipated the real estate crash.

“I figured the worst-case scenario, the house might not go up in value,” O’Neill said, adding he and his wife thought it was best to sink the profit he made off his home in Florida into another house instead of paying taxes on it.

About three-quarters of those stationed at Nellis or Creech live off base, but the Air Force doesn’t track how many own homes.

Questions about the assistance program are second only to divorce matters at Nellis’ legal office.

O’Neill sent his application in for the assistance program the day after the bill passed.

“At first I thought a government handout isn’t for me, but then as I assessed the reality of my situation I thought there might be something to this,” he said.

Without the housing assistance program, not only is he out his down payment equity of $100,000 but he also must come up with $90,000 to close on the sale of the house.

He said that would mean either liquidating retirement savings or asking family for money, neither of which is an appealing option.

O’Neill is fairly even-keeled about the situation — he even jokes “you’re supposed to buy high and sell low, right?” — but “my wife is very, very stressed out.”

Even with the housing assistance program, he’d still lose money. In that case, the government would subtract the sale price of the house from the original purchase price and refund him 90 percent of the difference. So O’Neill would get 90 percent of $200,000, which is $180,000.

After paying off the bank, the remaining $90,000 would cover most of his down payment.

Despite what a huge difference the assistance program could make for airmen, O’Neill said there hasn’t been any discussions in formal channels on base about it. So he started an e-mail support group of sorts for people to commiserate about their situations and swap information about the program.

Only recently did the Defense Department release the guidelines for how the program would be applied, and there are still lingering questions, the biggest of which revolve around the timeline. When will applications be approved? And how long until the money comes through?

“For most people there’s no way to close escrow without that money. Who has that kind of cash to float?” real estate agent Leslie North said, adding that those with orders in the next couple of months are in a holding pattern with their houses until they know.

Best-case scenario for O’Neill, who moves next month, is to find a buyer who would rent the house until the government comes through with the money and they can close a sale, he said.

Despite the uncertainty, O’Neill is one of the more fortunate ones in his situation.

The Defense Department capped the housing assistance program at the Fannie Mae/Freddie Mac limits, which means only houses up to $417,000 are eligible for reimbursement.

This “prevents taxpayers from ‘bailing out’ million-dollar homes, but is adjusted by region to account for cost variations,” according to the guidelines.

However, those limits are devised using an average of housing prices over 10 years, and Las Vegas’ market exploded so fast that the Fannie Mae/Freddie Mac cap doesn’t accurately reflect the cost of living in Clark County during the boom.

“It’s like Christmas morning didn’t come for them,” O’Neill said about friends who had been expecting some relief from the government.

In the summer of 2006 a house that sold for $400,000 to $430,000 was about 2,300 square feet with four bedrooms and two-and-half baths.

One of North’s clients, an Air Force major, faces a stark situation as a result of the assistance program’s cap. He bought a home for $500,000 that is now worth $240,000.

“He needs $110,000 just to close — not to mention the $150,000 he put down that’s now out the window,” she said.

Many in that situation are frustrated that they won’t get assistance from the government when their mortgage is the same as many others who didn’t put any money down but bought cheaper homes, O’Neill said.

And with the steep fall in prices in Southern Nevada, even those who will get assistance will be scrambling to come up with cash to pay off the bank if they didn’t put any money down. North said one of her military clients, a young couple, will be short $30,000.

“They’re just starting out, a young family,” she said. “And now they’ll be begging Mom and Dad for help.”

Sun reporter Alex Richards contributed to this story.

Discussion: 25 comments so far…

By WaitingToBuy

5/27/09 at 3:58 a.m.

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Why don't they just walk away from the house? Plus his wife is a real estate agent ... so they made money from the bubble and now they want taxpayers to pay up? They should have thought about losing money before they bought the house! I am tired of bailing out people ... and I bet they voted for Bush twice!
By smudge

5/27/09 at 4:55 a.m.

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I have NO sympathy whatsoever for these "poor" victims of the housing bubble. Those airmen KNOW that they are stationed for a few years and then transferred. TRADITIONALLY, you would never buy a home with that time frame, you would rent because houses have never appreciated at a rate that would cause you to gain a profit in just a few years.

These people took a chance and gambled that their homes would continue to skyrocket and they would make a profit. OH WELL.... If all these people had made a profit, would they be sharing it with the rest of the taxpayers?

These people contributed to the unaffordable housing bubble. No one had a gun to their head forcing them to buy. TOO BAD.... Its just nice that housing is returning to a level where people can afford to purchase them again.

smudge
By Mandy

5/27/09 at 5:47 a.m.

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As mentioned, these military families KNOW the chances of getting transferred is very high....so then why buy a house in the first place? My step daughter and her husband bought a home here while still in the Air Force. THey knew the chance they were taking but it was in the last couple of years of their tours and Nellis was the final stop in their careers and it was almost guaranteed that both would not be transferred so one would always be here. So they lucked out. But you don't make that kind of expensive committment when the chances of having to relocate is so high. Sure, I feel sorry for these people, but it's not like they didn't have any other options, one of which is rent for the few years (and there were plenty of nice places to rent at any given time) and THEN when you know you are here to stay --- then buy a house. (Aliante was always overpriced anyway!!)
By rejco100

5/27/09 at 5:47 a.m.

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This guy has not lost any money, he gets BAQ tax-free housing allowance; the single military memebers are forced to live in the dungeon-like jammed-packed barracks without any free-flowing cash. This guy is scamming the system.
By LittleCaesars

5/27/09 at 5:53 a.m.

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Wow, I can't believe what has become of us. I hope the two before me aren't representative of how most of us feel. This is a story about servicemen and woman who help protect our freedoms. I didn't hear these airmem asking for pity. Unlike a "conventional" job, these folks have to go where and when "we" tell them to go, it's not like they have a choice to stick it out. Now, the entire economy has been based on the premise (and history) of real estate appreciating in value over time. I guess we can be angry at them for wanting to live with their families in a home. And sure, had prices gone down they would have lost money like the rest of us. But they bought houses around the "median" priced value in the market where they lived, these aren't mansions. "No one had a gun to their head forcing them to buy".. No, and they could have "walked", which is what many others did, contributing in good part to the excess inventory on the market, which in turn brough your value down, and brought theirs down with it. These weren't folks who got in with $0 down and said "let the bank keep it" - One of these guys put down $90,000. And if you've got "no sympathy" for a family in this situation, then perhaps this is a story more about you than about them? What is it you expect them to do? We (including these guys, and their children) give tens of billions to the lenders who lost money from those who risked nothing and simply walked away, and you are "tired of bailing people out"? I dont know the answer, but I do know that not all of the millions who have lost their homes all "bad or irresponsible" people. I am really surprised, and ashamed, of fellow Americans who would be so quick to kick these folks when they're down. If it weren't for the military, YOU'D be worried about the "gun to YOUR head". Unbelievable.
By paplikaplik

5/27/09 at 6:52 a.m.

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"This guy has not lost any money, he gets BAQ tax-free housing allowance; the single military memebers are forced to live in the dungeon-like jammed-packed barracks without any free-flowing cash."

Where are you from, 1985?
By 2zero

5/27/09 at 7:01 a.m.

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Sold his Florida home at the height of the market and invested the profits....

Lost profits! Too bad.
By nevadaappleslices

5/27/09 at 7:39 a.m.

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He shouldn't have purchased a house if he was not going to live in it for many years. Buying a house a few years ago was a "get rich quick scheme", but it was too good to be true. I don't feel sympathy for them. In my opinion they are too greedy, taking such a big risk and then hoping to get a bail out from tax payers.
By Babyboomer

5/27/09 at 7:57 a.m.

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Renting a house or apartment for ANY military personnel is the only way,especially knowing you're a heart beat away from marching orders. It's foolish to think you can sell your house in any market within weeks. The military gives you your orders and you have 30 days...end of subject!! He should have known better.
By ths

5/27/09 at 8:02 a.m.

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So how much profit did he make on his previous house sale? I ask as did he leverage any of the existing house that now put him so far behind?

What happened to the days that people rent unless they feel they were going to stay in the house for 5 plus years. My parents lived in their original house for 40 years before building their retirement home. They built their retirement home on the 40 year profit of their original home that was fully paid off.

What a concept.
By vandermeyj

5/27/09 at 8:29 a.m.

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so you can purchase for $150k and rent it for $1200. Sounds like a good time buy a rental.
By stevem

5/27/09 at 9:02 a.m.

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oh, ok...

he bought a house...knowing that any minute he might have to go someplace else?

i feel for him...but that was a bad idea.

also,

good luck trying to get $1200 for 3 bedroom in aliante. if you REALLY want it rented, you need to get it down to $1000.

everybody and their brother is buying foreclosures and turning them into rental properties and that's putting a lot of supply with not enough demand to fill them.

where do all you wanna be donald trumps think your going to get tenants from? the hundreds of new jobs being created in vegas?

no hotel or resort contstruction = no new renters.
By jaesun

5/27/09 at 9:44 a.m.

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i doubt he was trying to make a buck. hindsight is 20/20. most airman end up buying because they can. they get extra benefits buying through the gov't. even without the real estate boom, the average house price would go up, 3% a year, or at least stay stable, so when they had to move again, they would not lose money at minimum. the average airmen probably moved once every 5 years, which, is about the minimum that you would say to buy a house (any less than that, and you rent).

yeah, he made a mistake in buying during the boom. but to say that no airmen should ever buy in general, is just blowing up air
By LasVegas2009

5/27/09 at 10:42 a.m.

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A house is a "long term investment" and always truly will be. He still owns a house. All that has changed is where he is working. His chosen profession moves him around so he just needs to rent at the new location. No reason to sell now. Why not hold onto the house until the market bounces back in a few years? Chances are that he wont be able to sell now anyway. Just rent it out if you can. Im sure whom ever the military send next will want a house to live in. The military just needs to help him manage the property while he is gone on duty. No shortage of military people in Las Vegas just reach out to your fellow members. In 10 years when the market has improved and you can make a profit then sell. And it looks like the government is gonna replace his losses anyway. Where do they get that money TAXPAYERS.
By travislv86

5/27/09 at 11:47 a.m.

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This guy is in a less than exclusive club right now. To me it seems like a real good time for city planners to look at the long range growth prospects for the valley. Do we really want the population to grow that much more here? And it wouldn't hurt right now because nobody is building and there are tons of vacant places to open businesses and live in, let's start managing our growth!
By Nick

5/27/09 at 2:56 p.m.

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Typical. These Anti goverment republicans always want handouts from the goverment.

He gets a pay check from tax payers

Healthcare paid for by tax payers

Now wants us to fund his real estate.

If he made money, he would be demanding it all.

What a jerk
By jaesun

5/27/09 at 3:52 p.m.

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i hope you dont work for boeing, or any other form of a defense contractor, or work funded by the stimulus plan, or a federal job. i mean, much of their paycheck and healthcare comes from us taxpayers too
By nevadaappleslices

5/27/09 at 4:05 p.m.

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He made an irresponsible decision and needs to be held accountable for his actions. Don't they teach that to guys in the military anymore?
By azsk8fan

5/28/09 at 9:01 a.m.

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I don't understand why someone who owns a home and then rents it out should expect the renter to make their mortgage payment for them (in full). If this guys mortgage is $2000 and he rents it ot at $1200 he still owns the home and any future equity and all for only $800 a month -sounds like a good enough plan to me. I think homeowners get just plain greedy when they expect a renter to make their entire payment. If I could get a home and get even half of my mortgage paid by a renter I would be extremely satisfied, knowing that half of my home is being paid off by someone else - I'd gladly pay 'my half' knowing I own the home itself which is a lot more than my potential renter would be able to lay claim to.
By azsk8fan

5/28/09 at 9:12 a.m.

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Maybe the military could set up some kind of house-swapping program - the article says this is the "busiest times for military moves"....so perhaps something could be set up to assist military homeowners - maybe someone from Kansas coming to Vegas could take this guys home and he could take theirs - I've heard of people doing such swap things with more than just homes (and I don't mean spouses LOL).
By vegasj

5/28/09 at 12:48 p.m.

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R-E-N-T it!!!
By besuli

5/29/09 at 12:05 a.m.

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I'm frustrated that most people commenting on this thread are so critical and apparently naive about how things work in the military. I'm saddened that there is no sympathy for the people who are defending your freedoms to even post a comment on a board like this. Words like "irresponsible" and "no one put a gun to your head", etc. are callous and rude.

No, no one put a gun to our head, but 5 years ago when we were assigned to Nellis AFB the waiting list for base housing was over a year long and there were almost ZERO houses for rent in the city. What do you do in that case? If you tell the Air Force "Sorry, we can't move right now because we can't find a place to live . . ." then you get booted out of the military. We tried to avoid our reassignment here, but were repeatedly told no. We were told that officers MUST move every three years, and our three years at our current base was up.

So we bought a home here, because there was no other choice. However, the military decided NOT to move us after three years this time, and so here we are in the middle of a housing crisis, stuck with a house worth 1/2 of what we paid for it, and orders to move somewhere else next month.

If we rent our home we will get only about 1/2 of what our mortgage payment is because of the current housing market, plus we would not have enough money to even pay rent at another house because of BAH goes way down at the base we have been reassigned to. The waiting list for base housing where we are going is also over a year long.

If we do a short sale, we'll have to pay taxes that will amount to about $60,000.

We can't foreclose, or the military boots us out.

I can see that most of the people here have no sympathy, but what would you suggest we do?

We would prefer to stay put until the market rebounds at least a little bit, but we do not have that choice. We go where the military sends us . . . even if it IS to somewhere where people "put guns at our head."
By smudge

5/29/09 at 2 p.m.

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My earlier comments were not meant to offend. I have a great appreciation for our military. But THAT is a completely separate topic. My comments were simply addressing the people involved as consumers who made mistakes.

Being in the military and buying a house are two separate things. If military personnel buy, they are consumers just like the rest of us, plain and simple.

If there IS no rental housing available, that is something that must be addressed by the base you are sent to. Where do the personnel live that cannot afford to buy? there MUST be those in that situation?

And if there IS NO rental inventory available, doesn't that mean that you should be able to rent your home out to cover a lot of your expenses anyway?
By smudge

5/29/09 at 2:11 p.m.

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did a 2 second search and found 12 rentals in aliente on the first realtors site i hit.

http://www.realtor.com/realestateandhome...
By besuli

5/29/09 at 5:15 p.m.

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There were no rentals available when we moved here 5 years ago. I have no idea how many are available right now . . . I only know that we could only rent our home for a lot less than what our house payment is . . . and our housing allowance will go way down when we move to our new location.

I don't know what military personnel do if they cannot afford to buy. (I think it's easier to get into base housing if you are enlisted, and we are commissioned.) Wife and kids live with Mom and Dad, while husband stays in the dorms or rents a room, I suppose. We've had friends that have had to do that. We have also done that while waiting for base housing to open up--never for over a year though.

The military does not help you find anything, nor do they care if you can't.