Friday, Dec. 10, 2010 | 3 a.m.
Just how toxic are foreclosures to those homeowners who pay their mortgages?
Nasser Daneshvary, director of the Lied Institute for Real Estate Studies at UNLV, has done a study along with Assistant Director David Jones and economics professor Mike Clauretie.
They estimate homeowners who make their mortgage payments had their values cut by an average of $78,000 from July 2008 to July 2009 because of their neighbors. They urged lenders to do more short sales — the sale of homes for less than what the owner owes on the mortgage.
In October, the Greater Las Vegas Association of Realtors reported 28 percent of sales were short, down from a peak of 34 percent in June. But short sales averaged 7 percent to 8 percent of total existing-home closings in early 2009.
Their fear is that homeowner’s values will decrease more, and people will walk away from their homes. One research firm reports 80 percent of Las Vegas homeowners are underwater.
“Foreclosed homes are toxic neighbors,” Daneshvary said. “Homeowners who are delinquent in their mortgage payments have little incentive to invest in their properties.”
In some neighborhoods, the numbers show that each foreclosed home has an incremental negative effect until it reaches about 40 foreclosed homes, Daneshvary said.
“At this point, these foreclosed homes drive down the price of nonforeclosed homes by about 20 percent,” he said.
If all the market declines in nonforeclosed homes are attributed to foreclosures, the overall price reduction from that July 2008 to Jully 2009 period would be 33 percent, he said.
The 40 foreclosed homes in a neighborhood are the tipping point at which foreclosed homes dominate the market — essentially the point that nonforeclosed homes sell at the same prices as foreclosed homes, he said.
Foreclosed homes cause blight because delinquency reduces the incentive of homeowners to invest in their properties. Homes may suffer neglect, abandonment and vandalism, and all of those things reduce the attractiveness of the neighborhood for potential buyers. In addition, home valuation techniques rely heavily on the price of recent sales and many may involve foreclosed or short-sale homes, he said.
Daneshvary said the findings have implications for public policymakers attempting to deal with the problem. Any plan that costs less than $78,000 to those homeowners who loss value eliminates the spillover effect from toxic homes, he said.
That should encourage lenders and public policies to mitigate foreclosures. If short sales aren’t done, maybe lenders can reduce principal in return for a share of future home-price appreciation, he said.
“Loan modification assures a continued flow of income to investors, reducing the stress on the financial sector and an already fragile economy; foreclosures do not.”
Short sales don’t cause deterioration of neighborhood quality, he said.
Foreclosure percentage falls
The percentage of Nevada foreclosure homes sold in the third quarter has dipped, but the state still leads the nation in those transactions, according to a report released by California-based RealtyTrac.
The firm said the 8,917 foreclosure sales accounted for 54 percent of Nevada’s sales, down from 56 percent in the second quarter and 62 percent in 2009’s third quarter.
The average foreclosure sales price was $135,221, which was a 19 percent discount from properties that weren’t sold as foreclosures, RealtyTrac reported.
Arizona ranked second with 47 percent of all of its sales being foreclosure properties. That’s a 27 percent decrease from the second quarter. Arizona properties in some stage of foreclosure had an average price discount of 39 percent.
Foreclosure sales accounted for 40 percent of all sales in California and the average discount was 39 percent, RealtyTrac reported.
In other news
• The Siegel Group has purchased the Charlestonwood Apartments, a 232-unit complex at 2900 E. Charleston Blvd. for $3.6 million in a cash transaction. This marks the Siegel Group’s 18th apartment complex purchase in Las Vegas. The complex will be renamed Las Residences with its marketing efforts toward Hispanics.
• The Nevada chapter of the Society of Industrial and Office Realtors has elected its executive committee for 2011. Dan Doherty of Colliers International Las Vegas will serve as president. Others on the committee are Soozi Jones Walker, Commercial Executives, president-elect and secretary/treasurer; Chuck Waters, Lee & Associates, admissions chairman; Mike Hillis, Commerce Real Estate Solutions, education chairman; Greg Pancirov, Colliers International, programs chairman; Mike DeLew, Colliers International, special events chairman; Donna Alderson, CB Richard Ellis, sponsorship chairwoman; Paul Sweetland, Colliers International, business development marketing chairman; and Dean Willmore, Commerce Real Estate Solutions, retention candidate program chairman.