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Taking a bath inside the real estate bubble

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Monday, Nov. 15, 2010 | 2 a.m.

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In 2004, two years before I bought my house, a website urged real estate investors thusly: “It is important that investors make their investments as soon as possible. This is because Las Vegas is growing and expanding at a scorching pace.”

In 2005, one year before I bought my house, Ken Jones of something called the Institute of Real Estate Technologies was — in a document on greatlasvegashomes.com — dismissing fears of a bursting real estate bubble: “However, there is no rationale or fact-based reasoning being put forth to support this fear; just that ‘prices are too high.’ ”

In 2006, I bought my house, for a price that was too high, unaware — or too deeply bunkered in denial to see — that the bubble was bursting beneath my feet, beneath my house.

In 2007, a year after I bought my house, The New York Times reported on concerns by Countrywide, the mortgage company, that “the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades.”

In December 2008, more than two years after I bought my house, the median Las Vegas home price was $189,000, down from $369,000 in 2005, according to greatlasvegashomes.com.

In November 2009, more than three years after I bought my house, that figure was $150,000.

Note to Countrywide: The housing market hasn’t begun recovering here.

Note to Ken Jones of the Institute of Real Estate Technologies: I’d like to show you my mortgage numbers versus my home value and hear again about how you “don’t believe there is a national ‘real estate bubble.’ ” Sir, I submit that, however filled with confidence you were in 2005, you were also filled with something else.

This month, more than four years after I bought my house, in the new issue of Rolling Stone, journalist Matt Taibbi writes about the “profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me as taxpayers) in the guise of AAA-rated investments.”

Most of us have our own real-estate narrative, and that’s mine — except, of course, for the ending, which has yet to be written: short sale? bankruptcy? miraculously resuscitated value? arson for the insurance money?

That’s the heavy skein of sad facts, bruised hopes, rising anxieties and throbbing spleen I bring to every consideration of real estate in Las Vegas.

Like this headline from the other paper: “Las Vegas home sales down 26.5 percent in October.” Not looking good for the rest of the year, either, the holidays being a traditionally slow sales time. Forty-two percent of the homes that were sold in October were foreclosures, which means almost half of all sales resulted from someone’s misfortune.

Or this:

According to the Las Vegas Sun last week, 46 percent of all homes sold in October were paid for with cash. That is, opportunists buying low so they can sell high(er). Said a spokesman for the Greater Las Vegas Association of Realtors, “This speaks volumes about our housing market and how well-funded buyers believe that prices here will eventually appreciate.”

Such is the screwy logic of the city’s housing market in 2010: The circling of vultures is considered a good sign.

Discussion: 27 comments so far…

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  1. By architect (Bruce Carper)
    Nov. 15, 2010
    3:50 a.m.
    Flag

    Don't kick yourself, Scott. This was an unprecedented fraud (not too dissimilar from the Wall Street Ponzi scenario of the Great Depot in '29)...merely a shift in commodities, eh?

    Everyone has the right to feel safe in their own home. Apparently that needs to added the long list of unwritten amendments.

    But hey! Give the forefathers a break...they were busy herding slaves and Ben kept getting distracted by the French girls.

    I tried to get Sebelius to warn everyone, before this went down, but he declined my "The Inconvenient Reality" column.

    Oh well...muddy water under a troubled bridge.

    But don't worry...the Republicans are back.

    Got all of your stuff packed, Scotty?

    Our spaceship leaves at noon today. LOL

  2. By Longtimevegan
    Nov. 15, 2010
    4:38 a.m.
    Flag

    Funny stuff with lots of realities. By the way, Sebelius (Kathleen) is a "she" not a he.

  3. By TopGun102
    Nov. 15, 2010
    5:38 a.m.
    Flag

    Your story reminds me of The Stand; a novel by Steven King. Looks like the walking man has turned into the Running Man........Sorry to hear about predatory lending.

  4. By UNLV-123
    Nov. 15, 2010
    6:31 a.m.
    Flag

    Seems to me that you're still employed and are probably getting at least the same salary as you were before you bought your house.. That means you can still afford the mortgage payments you agreed to when you bought your house at what you considered to be a fair price.

    It sucks that the market crashed and you now owe twice as much as your house is worth, but hey thats how free market works. It's kinda shameful how many people are walking away from their commitments just because they can rent an equally large house for half the monthly payment.. Only because banks are so overwhelmed that they are accepting short sales without proper documentation of financial difficulties.

    Some people lost their jobs in the recession and I can't understand their inability to pay, but those who are walking away from their homes because they just don't WANT to pay is sad, and unfortunately extremely prevalent.

  5. By Stephica (Stephanie Taylor)
    Nov. 15, 2010
    8:19 a.m.
    Flag

    I remember being in my early 20s a few years ago and hearing people my age tell me about their house. This was at a time when I was getting my first apartment. Now I wonder how they are doing and if they still have their houses.

  6. By petef (Peter Fritz)
    Nov. 15, 2010
    8:37 a.m.
    Flag

    Unless you are the HOLDER of a sub prime mortgage or basket of them no fraud has been committed to you by the wall street gang. If you bought a home and were given a loan it was your decision to buy and accept the terms of that loan. If houses went up another 50% I wonder how many people would be complaining or walking away from their commitments now leaving the excess profits on the table for the banks? I think we all know that answer.

  7. By mschaffer (Mark Schaffer)
    Nov. 15, 2010
    8:38 a.m.
    Flag

    UNLV-123,
    It is sad that people are walking away,especially when it turns out that the wealthy are doing so quite often:
    http://www.nytimes.com/2010/07/09/busine...
    The headline for this article is: "Biggest Defaulters on Mortgages Are the Rich"

    Also the Mortgage Bankers Association defaulted on their loan on their headquarters:
    http://www.ritholtz.com/blog/2010/02/mba...

    Bottom line here is the wealthy are sticking it to the middle class and poor while feeling no compunction about not honoring their agreements. In response the public has tilted in favor of the party, GOP, who favors the wealthy. Suckers.

  8. By KillerB
    Nov. 15, 2010
    8:47 a.m.
    Flag

    Wow, thanx for the Rolling Stone link! Finally a journalist with balls big enough to tell it like it really is!!

    "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"

  9. By ChunkyFlyRight
    Nov. 15, 2010
    8:47 a.m.
    Flag

    Chunky says:

    The Chunks family bought early bubble when it wasn't so bad and saw the "value" of their home increase 40% at one point. Prior to purchase the Realtor explained that the market would eventually have to "adjust" and it did, but more than expected. Now like many, the Chunks family is about 40% down from their purchase price and a little over 20% underwater on the mortgage.

    While it would be nice to see the Chunkerlin Estate appreciate in value, he didn't buy it as an investment per-sea; he bought it to live in. Plus the Chunks didn't get get into debt in other areas.

    Had the Chunks sold their house at it's peak they'd have gladly taken the profit and thus it's only fair to suck it up while the market is down.

    Were the Wall Street snakes and mortgage giants culpable in their loan process overall and of manipulating the market? Absolutely! But Chunky signed the deal so he'll honor his obligation; after all its a home not an investment.

    Now, for pure investors who bought as an investment and not a home, that makes it a business deal. As a straight up business transaction it makes sense to cut your losses and walk away if you do not see a quick or near future remedy. Why continue feeding the snakes or letting them feed off of you?

    Chunky is certainly no real estate or financial expert but he figures that even if we returned to an "average / typical / historical" yearly appreciation in real estate of say 4% to 6% it will take most people in Las Vegas about 8-10 years for their homes to get back to what they paid for them.

    As he's said before, this is a deep cycle. The politicians can't fix it, the CEOs can't fix it and the people can't fix it; only time will turn this mess around.

    That's what Chunky thinks!

  10. By newnvres (Ben Lambert)
    Nov. 15, 2010
    8:54 a.m.
    Flag

    Individuals must adopt the mindset of corporations. If they are unside down - what do they do? Renegotiate and/or Declare bankruptcy and walk away. It's hard and cold facts that should drive individual decisions- not emotions.
    I looked at buying in Vegas in 2006, however waited until last year. Three times the average household income equals the average price house - this formula was used for decades and has always been the major baseline and a good indicatior for buying and selling decisions.
    Full Disclosure - I was a Realtor in the Washington D.C. market and advised ALL my clients to sell in 2004/2005 - since my spreadsheets were predicting a major decrease in prices.
    Most were too greedy and thought prices would escalate at 20% per year forever. I sold my house in one week at the height of the market.

  11. By James_P_Reza (James Reza)
    Nov. 15, 2010
    9:12 a.m.
    Flag

    Las Vegas had decades of annual appreciation in residential real estate that averaged about 4%. I don't see how the above-mentioned and so-called "predatory lenders" had anything to do with anything. Are we as consumers -- as Americans -- not to be held accountable?

    I do not question the fact that there are implications of the real estate mess (there are), and I keep waiting to see how the federal government is going to reconcile the fact that they have bailed out (or are in the process of bailing out), to some degree, all of the players in this equation except one: The responsible homeowners who have not defaulted, fallen behind, or declared bankruptcy. If there is to be a bailout (a big if), it makes no sense to bailout everyone but the responsible folks. Unless, of course, your goal as a government is to reward the irresponsible.

    As for the "bubble" itself? Buy low, sell high, and accept the risks that you cannot always do that. End of story.

  12. By itsumo (mark trexler)
    Nov. 15, 2010
    9:33 a.m.
    Flag

    Well Scott learned the hard way. It wasn't hard to see during the real estate bubble that Real Estate Agents, Mortgage Brokers, Appraisers, and Bankers were doing everything they could to drive prices higher. All you had to do was watch Flip that House, House Hunters, and other shows on TV. Realtors were always telling people to offer more because the house or appartment had multiple offers, etc. Any Appraiser that wouldn't jack up the value didn't get anymore work. Mortagage Brokers and Real Estate Agents got higher commissions for higher prices. And the Banks didn't care because they were selling the loans a day after they were made to suckers. All Crooks!

  13. By James_P_Reza (James Reza)
    Nov. 15, 2010
    9:54 a.m.
    Flag

    Stephanie writes: "I remember being in my early 20s a few years ago and hearing people my age tell me about their house. This was at a time when I was getting my first apartment. Now I wonder how they are doing and if they still have their houses."

    I know someone who bought her first house in Las Vegas at 19. By the time she was 25, show owned three pieces of residential real estate. She sold two of them and opened a business.

    Not everything is as some people want to make it seem. The flip side of opportunity is risk.

  14. By Dickensheets (Scott Dickensheets)
    Nov. 15, 2010
    10:08 a.m.
    Flag

    First things first: pmmart, if you're going to use a condescending variation of my first name, I prefer Scotty with a Y rather than an IE. Just looks better.

    Second: Chunky, while I like your pragmatic approach to life, Scotty has a hard time with people who refer to themselves in the third person.

    Now: Yeah, yeah, caveat emptor and all that. I reap what I sow, I get what I deserve, I gotta live with what I agreed to. And I am -- still making those payments. Plus, my column was a growl of angst, not a whiny tantrum.

    But let's not kid ourselves. The system has been gamed by huge banks that gamble with the market, that find ways to *make money off of us losing value* and all the other fiscal voodoo they do. So you can argue that I should have been better informed before buying. But can I reasonably be expected to figure out what "bundled derivatives" are, much less how some bank I'm not borrowing from can use them to trash my home value? Most of us still don't understand these things.

    The implicit promise of home ownership has always been that it will be an investment for the future. Yes, I have to factor in the fluctuations of the market. But here's the thing: If it was JUST the market at work, and not the greed-fueled manipulations of the megabanks, would my house have shed half its value in four years? I doubt it.

    Lastly: longtimevegan, I think Architect was referring to Steve Sebelius, editor of Las Vegas CityLife and Channel 8 political pundit.

  15. By PartyLV (Carolyn Singer)
    Nov. 15, 2010
    10:18 a.m.
    Flag

    Scott, I have to agree about the annoying 3rd person Chunky. I went back and read what Chunky said because you commented but normally I skip his 3rd person annoying self.

    Sorry you got in at the wrong time. If you like your home and you intend to live there for a long time, hopefully you'll at least break even eventually.

    You feel about your home the way I feel about the WorldCom stock my broker talked me into. That zero'd out so I'll never see those dollars again.

  16. By boftx
    Nov. 15, 2010
    10:39 a.m.
    Flag

    The housing bust has been needed for a *long* time. Prices are still too high in many areas, especially California.

    When was the last time a middle class family could afford a home on just 30% of income? I'm even stingier and won't go over 25%. With the bust, I'm able to do so.

    As usual, the government (and I mean going back several administrations) took the wrong approach to try to get more people into what they called affordable housing. Rather than look at what was fueling the rising prices, they basically subsidized the builders mortgage companies. Had the government not done that then maybe the market would have leveled off and been more like a normal supply and demand.

    I saw this pattern start back in the 70s when new homes in Corona, California were being bought and flipped as many as five times before they were even completed.

  17. By ChunkyFlyRight
    Nov. 15, 2010
    12:37 p.m.
    Flag

    Chunky says:

    Thanks for the kind word Mr. Dickensheets! He's an avid follower / fan of your column even when he doesn't agree with you as well.

    Chunky doesn't understand all the financial double-speak either. It seems like the financial snakes invent it and make it up as they go along; as long as they call it something else it must not be illegal or unethical right?

    "But here's the thing: If it was JUST the market at work, and not the greed-fueled manipulations of the megabanks, would my house have shed half its value in four years? I doubt it."

    More likely than not our properties would have never been overvalued in the first place to double their value which makes the after-the-fact result of shedding half their value less likely. The "greed-fueled manipulations of the megabanks" were the cause. The bubble bursting was the result. The rest of us or many of us simply got sucked into a game few if any understand.

    That's what Chunky thinks!

  18. By KillerB
    Nov. 15, 2010
    12:56 p.m.
    Flag

    "It's kinda shameful how many people are walking away from their commitments just because they can rent an equally large house for half the monthly payment.. Only because banks are so overwhelmed that they are accepting short sales without proper documentation of financial difficulties."

    UNLV-123 -- it's shameful only if homeowners truly are walking away from their "commitments." The commitment, and who it's owed to, is defined in the Notes -- only the actual lenders and "Note Holders" are entitled to receive payments, no one else -- and the banks should be overwhelmed. See that Rolling Stone link in the article. The worst part isn't the massive fraud the banks and their parasites are committing, it's the courts and federal regulators looking the other way while good people are being literally kicked to the curbs.

    "Unless you are the HOLDER of a sub prime mortgage or basket of them no fraud has been committed to you by the wall street gang."

    petef -- you almost got it right. One has to hold the Note to avoid fraud -- that's been the law of notes for centuries. Unfortunately, foreclosures are happening along the lines of what you posted, and that gives you just a glimpse of the tip of the iceberg fraud that Rolling Stone article covers so well.

    "Why don't the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them..... in America, it's far more shameful to owe money than it is to steal it." -- an article from the November 25, 2010 issue of Rolling Stone by Matt Taibbi "Courts Helping Banks Screw Over Homeowners"

  19. By mred
    Nov. 15, 2010
    12:59 p.m.
    Flag

    The lies put out by talk radio and Fox "News" nuts is astonishing when it comes to the housing melt down.

    To this day Sean Hannity claims that the housing crisis was caused by "liberals, ACORN and the Community Reinvestment Act forcing banks to loan money to people who couldn't afford to buy a home..."

    Really, bankrupt Lake las Vegas was an area that had a lot of first time low income buyers? Or all the high rises about town?

    In fact, only one of the top 8 banks bailed out was subject to the CRA.

    Mr. Dickensheets, did you get an ACORN Loan for your home purchase? Was their a lawyer from Acorn forcing that seller/builder to sell you the home?

    Actually, you would think that the talk radio gasbags would understand that the Capitalist system that they claim to like has ups and downs. It is not the first time a real estate market has crashed.

    Remember Bush had his "ownership society" and claimed in 2005 that not enough minorities, particularly Hispanics owned homes. The mortgage interest deduction also was the government suggesting consumer behavior. People thought that owners cared more about a community than renters.

    Hopefully,homes in the future, like the cars of the future, will be smaller and more space and energy efficient, offering the same comfort and convenience but being more affordable to own, operate and maintain.

  20. By James_P_Reza (James Reza)
    Nov. 15, 2010
    1:02 p.m.
    Flag

    If anyone is going to assign blame to "the greed-fueled manipulations of the megabanks" then I kindly suggest you also assign equal blame to the greed-fueled manipulations of individual investors, i.e. "you and me and everyone we know."

    Banks made liar loans easy to get, and some people failed to do their homework.

    Q: How is it that I had to put down 10% plus closing costs to buy a home in 1993, but I could buy a home with nothing down AND get cash BACK in 2005?

    A: You can't. Something isn't right.

    The liar loans made losers out of all the liars, and the liars were the mortgage underwriters AND the buyers.

    When is the bailout happy federal government going to "bail out" the responsible homeowner who pays their payments on time, who bought with a 30-year convention loan, and who is underwater? Or is the government just going to continue to reward irresponsibility? The choices the government makes in this regard will shape the future of home ownership in the United States.

  21. By mred
    Nov. 15, 2010
    1:03 p.m.
    Flag

    Look at the way the energy companies manipulated the power/gas market in California.

    Of course, libertarians support manipulation of a market that hurts consumers...a fool and their money etc.

  22. By Bakersfield (Joe Stormont)
    Nov. 15, 2010
    5:36 p.m.
    Flag

    Scott states:
    "Most of us have our own real-estate narrative, and that's mine -- except, of course, for the ending, which has yet to be written: short sale? bankruptcy? miraculously resuscitated value? arson for the insurance money?"
    There's one option you left out: Make the payments as agreed, and eventually the balance will cross below the value. I bought in 1987 (a foreclosure built in 1984). I watched the value continue to decline some, then through the 1990's the value straight lined at a little below what I paid in 1987. By 2006, it had quadrupled in "value" based on what identical houses on my street sold for. Now it's back down to 2000 levels. (Wish I sold in 2006). Nonetheless, We make our payments, even after a layoff and only having part time work when I can get it. We live within our means and in abour 7 years, this place will be all mine.
    I'm tired of people who got in over their heads pointing blame to everyone but themselves for the mortgatgage that they signed. Not saying you are, but you are hinting some at that. Anyone who walks or files bk should be banned from taking out a mortgage until their previous obligations are paid in full. I do without some things to keep the house, so can others.
    While former neighbors laughed at me for not buying "up" 5 years ago when they did, now they are crying the blues because they can't make the payments on a house they could NEVER afford to begin with. I say "not my problem".

  23. By Bakersfield (Joe Stormont)
    Nov. 15, 2010
    5:48 p.m.
    Flag

    Rwza, you are singing my song. Responsible people who will sell assets, work an extra low paying job to pay our bills, or whatever else it takes , get NOTHING! Those who bought more than they could afford (and laugrhed in my face for staying in the old neighborhood in a smaller house) are screaming for a "bailout" to keep the overpriced "palace" they bought at the wrong time. Once again, no rewards for responsibility. If we take an early 401k withdrawl to keep the house, we are "rewarded" with a penalty from the IRS. It's simply not right.

  24. By newnvres (Ben Lambert)
    Nov. 16, 2010
    12:07 a.m.
    Flag

    Las Vegas had appreciation rates of 4%? for decades? Really? At 4% prices would double every 18 years.
    That is not the Fact of the 1998-2006 time period. Increases were in the double digits. Appraisors not making the correct appraisal would no longer get calls. Banks were selling loans to Wall Street and then creating derivatives to bet against the loans they just sold.
    And the Middle Class and Taxpayers should just suck it up and pretend nothing happened? So Bankers and Wall Street can continue to get their bonuses?
    Many Primary homeowners are now caught in this mess. Banks bear most of the responsibility since they made loans they knew were risky - or they would not have bet against them.
    If (or when) home appreciation goes back to 4% and you are more than 50% upside down - it will take 18 years just to get back to even. Would any corporation do that - or would they declare Bankruptcy and move on?

  25. By James_P_Reza (James Reza)
    Nov. 16, 2010
    4:08 a.m.
    Flag

    "Las Vegas had appreciation rates of 4%? for decades? Really? At 4% prices would double every 18 years."

    That is correct.

    "That is not the Fact of the 1998-2006 time period increases were in the double digits."

    Incorrect. The appreciation rate from 1997-2002 remained at about 4%. Double-digit increases happened from 2002-2006 only.

  26. By architect (Bruce Carper)
    Nov. 16, 2010
    4:26 a.m.
    Flag

    Nice try, Scott...but it's practically a new art form, communicating with the public's wide diversity of illusions & delusions.

    And hey! We're not talking about dummies.

    I'm talking about intelligent people, who have been so inundated with overbearing rules of conduct from every direction, that "organized confusion" & "meticulously detailed delusions" are perfectly natural and inevitable byproducts.

    Our current operating systems have created a world with some of our brightest people, imprisoned in tangential, interconnecting...looped, thought patterns.

    Add enough loops to any person's thinking and a pseudo-intellectual genius appears.

    What the political, banking and investment systems have done is criminal...they're justifying the abuse of children...by piling inhumane burdens onto the backs the parents and teachers.

    Human beings have been outmaneuvered with complex legal and financial tactics..."contained" and outgunned. It was "no contest."

    When illegal practices become legal (usury abuse, for example), "law" is just an abstract, 3 letter word.

    Scott, we are living at the apex of the Age of Delusions, where Mankind has chosen to challenge the worst of all possible opponents...Reality.

    Yes, I was referring to Steve.

    But at least Steve responded. It was merely an incorrect response. LOL

    Me? I'm just a monkey.

    But as I read your column...the phrase, "a fearless man" came front and center.

  27. By dipstick
    Nov. 16, 2010
    4:53 a.m.
    Flag

    its going to take years for this situation to turn around and if you think the politicians are going to pull you out of this mess you are delusional, to paraphrase architect bruce.

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