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October 31, 2014

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Report: Nearly 70 percent of LV homeowners underwater on mortgage

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Steve Marcus / File photo

A new report shows 69.5 percent of homeowners in Las Vegas are underwater on their mortgages. That compares with about 23 percent of homeowners nationwide. A Henderson neighborhood is shown here.

Homeowners in the Las Vegas area continue to be punished by dropping prices, with the number underwater in their mortgages surpassing 319,000 or 69.5 percent.

That's according to First American CoreLogic, which last week issued negative equity numbers for home mortgages and home equity lines of credit.

The company, based in Santa Ana, Calif., found that in September, nearly 10.7 million, or 23 percent, of residential properties nationwide with mortgages were in negative equity.

First American said that negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgage than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

In the Las Vegas-Paradise statistical area, 319,873 residential properties with a mortgage were in negative equity as of September, First American said.

First American said negative equity was concentrated in four states where housing markets boomed during the mid 2000s -- Nevada (a 65 percent rate), Arizona (48 percent), Florida (45 percent) and California (35 percent) -- and in Michigan, 37 percent, hard-hit by the recession.

Among these top five states, the average negative equity share was 40 percent; compared to 14 percent for the remaining states.

First American made these points in its report:

--The rise in negative equity is closely tied to increases in pre-foreclosure activity. Borrowers with equity tend to have very low default rates.

--The default rate for investors with negative equity is typically 2 to 3 percent higher than owner-occupied homes with similar degrees of negative equity.

--Upside down borrowers typically financed their properties between 2005 and 2008.

--Many purchased new homes. For homes built between 2006 and 2008, the negative equity share nationwide was 40 percent.

--Many borrowers relied on adjustable rate mortgages (ARMs)

--Many bought less-expensive properties. The average value for all properties with a mortgage is $270,200, but properties in negative equity have an average value of $210,300. The average mortgage debt for properties in negative in equity was $280,000 and borrowers that were in a negative equity position were upside down by an average of nearly $70,000.

"Negative equity continues to be pervasive and to impact almost every segment of the housing market. The recent improvement in home prices this past spring and summer has slowed the increase in negative equity, but it will take a significant rebound in home prices, which we are not expecting, to offset the dampening effects of negative equity in the most depressed states," Mark Fleming, chief economist with First American CoreLogic, said in a statement.

Part of title insurance giant First American Corp., First American CoreLogic also issued statistics on September home prices from its proprietary LoanPerformance Home Price Index (HPI).

National home prices, including distressed sales, declined by 9.8 percent in September compared to September 2008, according to the First American HPI. This was an improvement over August's year-over-year price decline of 11.1 percent.

In the Las Vegas-Paradise statistical area, home prices, including distressed sales, declined 26.52 percent in September compared to September 2008. This compares to August's year-over-year HPI decline of 25.40 percent.

Excluding distressed transactions, year-over-year prices in Las Vegas in September were down 21.84 percent, compared to August, down 21.21 percent.

Through September 2010, First American predicts Las Vegas-Paradise home prices, including the affects of distressed sales, will fall 1 percent.

"The new First American CoreLogic HPI Forecast anticipates continued declines in most markets, albeit at a slowing rate, for the next six months, followed by a rebound in the spring. Above-average levels of foreclosures, inventories and unemployment will continue to take their toll in many major metropolitan markets in the short term. As the economy continues to improve and these factors improve, the forecast calls for housing prices to bottom for most markets by March 2010 and then turn positive,'' the company said in a statement.

The First American numbers for September in Las Vegas are in line with those in the S&P/Case-Shiller Home Price Indices, which found prices locally fell for the 37th consecutive month through September.

Las Vegas prices fell 0.9 percent from August and were down 28.6 percent from September 2008, the Case-Shiller report said.

The Greater Las Vegas Association of Realtors, however, reported the median price of single-family homes sold in Southern Nevada in October was $139,100, up 0.8 percent from $138,000 in September. The Realtors said the median price for Las Vegas-area condominiums and townhomes jumped 6.5 percent, from $65,720 in September to $70,000 in October.

Also, TransUnion.com of Chicago on Nov. 17 issued its third quarter mortgage delinquency report finding the ratio of borrowers 60 or more days past due increased for the 11th straight quarter, hitting an all-time national average high of 6.25 percent.

This statistic is traditionally seen as a precursor to foreclosure activity and increased from 5.81 percent in the second quarter.

Mortgage borrower delinquency rates in the third quarter continued to be highest in Nevada (14.5 percent, up from 13.8 percent in the second quarter) and Florida (13.3 percent), TransUnion.com said.

"Delinquency rates are rising and expected to peak at record levels. Until the housing market can consistently demonstrate several months of home value appreciation and the unemployment rate improves, mortgage delinquency will likely continue to rise," FJ Guarrera, vice president of TransUnion's financial services division, said in a statement. "Many of these delinquencies in places like Nevada, California and Florida will result in foreclosures, potentially keeping home values depressed in these areas."

TransUnion forecast that the delinquency rate nationwide would fall just short of 7 percent by year end, with Nevada topping the nation with a rate as high as 16 percent.

Residential real estate prices in Nevada have suffered through the recession, initially as many subprime loan borrowers quickly defaulted and later as the general recession pushed unemployment statewide to 13 percent.

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