Today, I am going to show in great detail how gaming interests in Las Vegas can save their local housing market and why they should do it.
Irvine Home Address … 5 LA SERENA #21 Irvine, CA 92612
Resale Home Price …… $439,900
{book1}
I'm standing in the middle of the desert
Waiting for my ship to come in
But now no joker, no jack, no king
Can take this loser hand
And make it win
I'm Leaving Las Vegas
Lights so bright
Palm sweat, blackjack
On a Saturday night
Leaving Las Vegas
Leaving for good, for good
I'm leaving for good
I'm leaving for good
Sheryl Crow — Leaving Las Vegas
I love Las Vegas. I have family there. It makes me sad to see what lenders did to the people there. I want to do something about it.
I want to save Las Vegas.
Attention Las Vegas Homeowners,
I will save your home. I have assembled a team of real estate super heroes. We are Superfund.
The market statistics are pretty grim. Your house is probably worth less than half of its peak value, and it will not be going up any time soon. What's worse, you can probably rent the house across the street for half of your mortgage payment. You are going to be underwater forever, and you are paying out hundreds or even thousands of dollars each month and getting little in return.
I suspect like most homeowners, you keep paying the mortgage, even when it is very painful, because you don't want to lose your home. My friends and I with Superfund are coming to town, and we want to save your home and clean up the mess that lenders made of your life.
Take a careful look at the chart above. Notice how stable house prices were in your market prior to the false financial innovations of the housing bubble. House prices did not go up for any fundamental reason, and the crash that has taken prices back down below the long-term support line is a direct result of lender's financial folly.
That $150,000 house you live in was never really worth $400,000. Lenders developed toxic loans like the Option ARM that gave borrowers like you the ability to borrow $400,000 with a payment that services a $150,000 loan. Borrowers took out these loans and temporarily inflated house prices. You and all your neighbors refinanced this equity from the inflated home values, and many of you spent it. Now, nearly everyone in town owes more money on their homes than they are worth, and very few of you can afford the payment on the huge debt.
Lenders created this mess, and now they want you to believe you have some moral obligation to pay back the loan they never should have given you — even if it harms your family in the process. This is wrong! You have a greater moral obligation to your family. The interest you pay each month over and above the cost of a comparable rental is money wasted — money that could have been spent to support your family. Lenders are asking you to pay for their mistakes, and if you say no, they have the audacity to try to make you feel guilty about it. Forget them. We have a better answer.
Cancel your mortgage contract
Did you know that you could cancel your mortgage contract? You can. It is a process called strategic default. You stop paying, and the lender gets to sell your house at auction for the repayment of the debt. There are consequences. Your credit will be harmed, and you may need to declare bankruptcy to fully extinguish the debt. Lenders will be hesitant to loan you money for a while, but if your work with Superfund, we may be able to keep you in your home.
Have any of you cancelled a cell phone contract? When you signed the contract for the service, your carrier sold you a phone for less than its actual cost, and they knew that you might cancel your contract before the two years was up. In the contract, the cell phone service provider spells out the costs and fees associated with paying off the phone and provisions for lost profits if you cancel early. In short, when you break your cell phone contract, you pay a fee, and then its over. You are not immoral if you cancel a cell phone contract, you are merely exercising a contractual right.
Similarly, when your lender gave you a loan, they knew you might not be able to pay them back. They made you sign a mortgage agreement that allows them to force the sale of your home at auction to get their money back. They estimated the costs of recovering the home and reselling it on the open market when they extended you the loan, and they only loaned you the amount they believed they could recover if you chose to cancel your contract. You are not immoral if you strategically default on a mortgage contract, you are merely exercising a contractual right.
Guilt and paying the mortgage
Have you ever wondered why people feel guilty about strategic default? Why do you feel guilty? Is it because you would be breaking your promise? What about the promises you made to your family? What necessities and small indulgences are you denying your family in order to pay that bloated mortgage? What is your duty to yourself and your family? Proverbs 22:7 "The rich rules over the poor, and the borrower is the slave of the lender." Have you sold your family into slavery?
Should you feel guilty about breaking a cell phone contract? If you examine the terms in the promissory note and mortgage arrangement, the lender is making a loan, and as a contingency in the event an borrower does not repay the loan, the lender has the right to force a public auction to resell the property to obtain their money. It's a contract, nothing more. The arrangement differs in no material way from breaking a cell phone contract.
Prior to the housing bubble, borrowers lost their homes if they didn't repay the debt. A borrower who was capable of making the payment but didn't was causing their family to lose their home. Losing the family home is arguably an immoral act, particularly if the borrower could keep the home and afford the payments. However, when the home is worth far less than the mortgage, and when comparable properties are for rent for far less than the mortgage payment, the painful alternative of losing the family home is better than a lifetime of crushing debt.
The morality of paying the mortgage to keep the family home is superceded by the greater moral imperative to provide a financial future for the family — a future free of debt.
The morality of the borrowers is not what should be questioned, it is the morality of the lenders. The Option ARM and other loan products put people into homes under terms they could not sustain. Lenders caused this pain. When lenders made these loans, they were being immoral. Strategic default balances the scales of justice and metes punishment to the lenders who deserve it.
Strategic default also serves an important purpose in the housing market. It is part of the checks and balances that ensure prices remain stable and affordable. if lenders did not fear strategic default, they would loan people very large sums of money, far in excess of their ability to repay. Whenever lenders loan more money than rent from the property could sustain, they greatly reduce affordability for potential homebuyers everywhere and inflate massive housing bubbles.
Without strategic default, lenders will inflate one massive housing bubble after another. They will continue to ruin lives everywhere. Strategic default is both moral and a market imperative.
Walk away from your mortgage now!
Discarding mortgage debt is actually quite easy: stop paying. Once you stop paying, your lender will contact you and try to get you to repay. If you play along, you can extend the process for a long time and stay in your home with no rent and no mortgage payment.
There are services devoted to helping people through the strategic default process. The service I recommend is YouWalkAway.com. They are not a scam like loan modification companies. At YouWalkAway.com when you sign up for their service, they will send you a package that takes you through the strategic default process with all the details of mortgage laws in your state. What you are really signing up for is the personal service of YouWalkAway.com's staff who will be there to explain your options, answer your questions, and find you the specialized help you need.
Wouldn't you like to have your own expert to guide you through the process? YouWalkAway.com is there to help.
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Why not get a loan modification?
In the short term, if you go get a loan modification, you may be able to lower the payment enough to be competitive with a rental. However, loan modifications are a temporary fix, and the debt on the property is still double what it should be. The only way you are going to see a principal reduction is through a foreclosure. There is less opportunity for most owners in a loan modification to have equity because their loan balance is simply too high.
Why modify a $400,000 loan when you can wipe it out and buy the house back in a few years with a much smaller mortgage?
Superfund is the answer
If you strategically default it will adversely effect your FICO score which will make borrowing more expensive for a while, and after the foreclosure, you will need to wait two years before getting a new government insured loan to purchase a house. During that two years, you will need to start saving for a down payment as those are now required. These consequences will follow your decision to strategically default, and they cannot be avoided.
However, there is one particular consequence that Superfund may be able to remove: you may be able to stay in your house.
There are no guarantees. Superfund is not going to pay more than fair market value, and no more than what earns Superfund a solid return on investment. If you work with Superfund, we still may not be the high bidder. You may still have to move out. However with the lower cost structure and greater projected rent, Superfund will bid higher than the rational professionals, and most often that will be a successful acquisition. The real worry should not be other foreclosure auction bidders, the real concern is the behavior of your lender..jpg)
Lenders may opt for what is known as a vindictive foreclosure bid — lenders often bid above market value simply to punish borrowers. If your lender wants to, they can bid above market up to the face value of the loan in order to throw you out of your house. They don't benefit from this behavior financially as they will need to process your house and sell it in the resale market, but by punishing a random selection of underwater home owners, they hope to thwart Superfund and discourage strategic default.
Isn't taking chances what Las Vegas is about? Guaranteed, you can eliminate your mortgage debt through strategic default, and if you work with a Superfund, you have a good chance at staying in your home. How good are your odds? Next time your in a casino, place a chip on red or black at the roulette wheel. Imagine that if it comes up red, you must move out of your home, but if it comes up black, you get to stay. Superfund may not succeed, but if it does, you are back in the black. If it doesn't, you are still better off in a nearby rental than you are with a huge debt over your roof.
How does the deal work?
A representative of Superfund will collect information on the rental and resale market and prepare a report showing what you will need to pay in rent, and how much you will need to pay to repurchase your home from Superfund on a pre-determined schedule. Once you have agreed to these preliminary terms (they will be updated just prior to auction), the only remaining thing for you to do is stop paying your mortgage and wait for the foreclosure sale. Superfund recommends that you begin saving money for your down payment by putting aside the money you were spending on your mortgage.
You will be paying an above-market rent to stay in your home. Plus, you will agree to a 2% automatic yearly rental increase. The higher rent allows the Superfund to bid higher at auction. Your rent will still be much less expensive than the massive mortgage you are currently paying.
That house you have that is worth $150,000 and has a $400,000 mortgage. How would you like to buy it back in 5 years when your credit is better for $182,500?
Superfund will establish a baseline value from comparable resales on the date of the sale. The price increases 4% per year. There is one very important condition, the price actually paid for the property is the greater of the number in the chart above and appraised value at the time of sale. If there is another housing bubble, this right-to-repurchase can't be exercised like an option to a third party to profit from the difference. If you are unable to qualify for a loan and resale values are higher than the numbers above, the benefit of the irrational market exuberance falls to Superfund. If values never come back, you are certainly no worse off by renting.
The deal being offered to you by Superfund is much better than staying in your house and repaying the loan, and it is much better than a loan modification where you can temporarily afford the loan but can't later. Neither the bank nor the government is offering you the chance to drastically reduce your debt and stay in your home.
Superfund is.
Think about it. You have little to lose except your debt.
Interested in Superfund?
Are you interested in Superfund? So am I. I wish I had the backing of a couple hundred million dollars to make Superfund happen. Unfortunately, I don't.
If you like the idea, forward this post to anyone you know in the finance or gaming industries or anyone in Las Vegas. If the right people see this idea, we can make it happen. We can save your home!
Contact me: IrvineRenter [at] IrvineHousingBlog.com
The Big Las Vegas House Party
Attention casino owners,
This impacts you.
Home prices in Las Vegas doubled between 2003 and 2005. The entire city of Las Vegas, at least every homeowner there, saw hundreds of thousands of dollars flow on to their household balance sheets. Las Vegas is already home to every vice known to man — many of which you casino owners provide — so there was no way the citizens were going to resist a pile of free money even if they saw a reason to resist, which they didn't. You don't need to imagine what a party that must have been. Your casino income during that time is a testament to the power of unlimited borrowing on a home equity line of credit.
I shudder to think the money your casinos must have taken in from the local population. How many houses were spent there? Most of them, I imagine.
Gaming interests can save Las Vegas home debtors
I recently wrote about how hedge funds could keep original buyers in foreclosures. Check it out. You casino owners have access to enough capital to form a hedge fund to buy up properties at foreclosure auction and rent them to the former owners. You need to form your own Superfunds. Saving the Las Vegas housing market requires the concerted efforts of several large operators with access to cheap debt now readily available from Wall Street. Right now, you can earn a 6% to 8% return on money invested in your local housing market through collection of rents. If you can borrow for less — which most of you can — you can save the housing market and make a fortune on the recovery.
The financial returns to the Superfunds will be great. The current cashflow will be tremendous from these properties, and you casino owners will be housing your workers (and thereby capturing more of their income), and you will be freeing up more of their income to spend in the local economy — in your casinos.
Casino Superfunds are not about real estate
The Casino Superfund would certainly get good publicity; after all, your actions would be keeping your staff in their homes. Las Vegas workers would be very grateful and perhaps even more loyal. If my employer saved my home, I would be grateful and loyal. Wouldn't you? The good publicity aside, there is a more practical reason to run a debt-cleansing Superfund: the lenders are killing your business.
Where do you think all the money in Las Vegas is going right now? It is going to the banks through payments on the toxic mortgages that infest your town. These lenders came to your town with their slick suits and sales spiel and sucked the life blood out of everyone living there.
Think about how much money you casinos spend trying to capture customer dollars once they walk in the door. Everything you do is about capturing the customer and getting them to stay in your establishment until their wallet is empty. The lender lampreys have moved in on you. They are sucking the money out of the local economy that previously was spent in your casino.
Take a typical example. Lets say the typical borrower has a $3,000 house payment, and they can rent the same house for $1,500 a month — a common situation in the Las Vegas housing market. Each month that borrower makes that oversized payment, the local economy (read your casino) failed to make any of that $3,000. Now lets say you form a Superfund, buy the borrower's house and rent it back to them for $1,500 a month. Not just will you get the $1,500 they spend on rent, they will spend the other $1,500 in your casino.
So, casino owners, what would you rather have that $3,000 a month go to the lenders, or would you rather have it flow back to you? Multiply that by the number of underwater borrowers in your town, and the answer becomes apparent.
Now is the time for Casino Superfunds
This is not a high-risk venture or some flashy mega-resort, but this will have a much greater impact on life in Las Vegas. Buying properties for cash and holding them for cashflow is relatively safe. In fact, it is funds like Superfund that will come in an buy the distressed assets and form a durable market bottom. Las Vegas's housing market is a mess. But contained within this catastrophe is the conditions for a brighter tomorrow.
More can qualify for homeownership in Las Vegas
Housing affordability for Las Vegas is the best it has been in 30 years, California-based real estate consultant John Burns said Wednesday.
And Las Vegas home prices have never been more affordable in relation to income, correcting back to 2000 levels, said Burns, who has been studying the market since 1981.
Housing cost-to-income is 19 percent in Las Vegas, based on a median home price of $133,800 in April, John Burns Real Estate Consulting reported.
"A lot of cabdrivers and hotel workers below the median income have a chance to become homeowners for the first time in a long time," Burns said from Irvine, Calif. "I think they realize that for $700 a month, they can own a home in Las Vegas."
Housing is truly affordable in Las Vegas, arguably too affordable. Prices have overshot fundamentals.
Housing affordability has returned across the nation with most states in the 20 percent to 30 percent range of housing cost-to-income, according to Burns' report. The cheapest area is Saginaw, Mich., at 12 percent, followed by Pine Bluff, Ark., and Danville, Ill., at 13 percent.
The most expensive is San Francisco at 66 percent. Other California areas above 50 percent include Orange County, San Luis Obispo and Santa Cruz.
The only reason we pay so much for housing here in California is kool aid intoxication. People in Danville, Illinios, go to work, earn money, and take on mortgages to buy houses. It only costs them 13% of their income on average whereas it costs us here in Orange County well over 50%. Why are we putting so much more into housing? Because everyone in Orange County thinks the house has an endless ATM machine built in.
… Few homes under $300,000 could be found in Summerlin two years ago, including condos and townhouses, he said. Now that product is available at prices starting around $185,000, or $100 to $120 a square foot.
The better product was witheld to keep up pricing on the garbage. If Las Vegas is finally going through the desirable properties, they are approaching the bottom.
Last week, I discussed The Cash Value of Real Estate. Since prices are so low, as John Burns noted, cash investors like Superfund are coming in to buy properties. These investors are not speculating on the comeback of prices, they are buying because the great positive cashflow these properties offer. Many of these buyers know that prices will still go lower when the rest of Las Vegas's housing stock goes through foreclosure, but there is no need to time the bottom tick. Acquiring cashflow properties makes sense as long as the returns warrant the investment.
Superfund is hope
Las Vegas will experience a nearly complete turnover of its housing stock over the next several years. Housing prices may rebound from the lows, but they will not reach the peak for decades. Without Superfund, there is no way for borrowers to eliminate their toxic debts and stay in their family homes.
With Superfund, there is new hope. Viva Las Vegas!
Bought at the peak
The owners of today's featured property managed to buy at the peak. However, they did refinance. The first mortgage holder was Wells Fargo, and the second mortgage holder was Chase bank. Since the same bank did not hold both mortgages, the first lien holder — in this case Wells Fargo — had no problem blowing out the second lien holder in a foreclosure. The properties going to foreclosure now are the ones where the bank does not hold both the first and the second mortgage. Anyone who refinanced into two mortgages with the same bank has much more negotiating leverage than borrowers who used different banks. Borrowers with the same lender are also much more likely to be allowed to squat.
Wells Fargo bought this property for $489,000 on 4/26/2010. Despite the dropped bid, they grossly overpaid at auction, and now they have another REO to deal with.
Foreclosure Record
Recording Date: 01/07/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 12/23/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 09/08/2009
Document Type: Notice of Default
Irvine Home Address … 5 LA SERENA #21 Irvine, CA 92612 
Resale Home Price … $439,900
Home Purchase Price … $669,000
Home Purchase Date …. 4/21/2006
Net Gain (Loss) ………. $(255,494)
Percent Change ………. -34.2%
Annual Appreciation … -9.7%
Cost of Ownership
————————————————-
$439,900 ………. Asking Price
$15,397 ………. 3.5% Down FHA Financing
5.01% …………… Mortgage Interest Rate
$424,504 ………. 30-Year Mortgage
$91,189 ………. Income Requirement
$2,281 ………. Monthly Mortgage Payment
$381 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$37 ………. Homeowners Insurance
$377 ………. Homeowners Association Fees
============================================
$3,076 ………. Monthly Cash Outlays
-$377 ………. Tax Savings (% of Interest and Property Tax)
-$509 ………. Equity Hidden in Payment
$30 ………. Lost Income to Down Payment (net of taxes)
$55 ………. Maintenance and Replacement Reserves
============================================
$2,275 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,399 ………. Furnishing and Move In @1%
$4,399 ………. Closing Costs @1%
$4,245 ………… Interest Points @1% of Loan
$15,397 ………. Down Payment
============================================
$28,440 ………. Total Cash Costs
$34,800 ………… Emergency Cash Reserves
============================================
$63,240 ………. Total Savings Needed
Property Details for 5 LA SERENA #21 Irvine, CA 92612
——————————————————————————
Beds: 3
Baths: 2 baths
Home size: 1,507 sq ft
($292 / sq ft)
Lot Size: n/a
Year Built: 1976
Days on Market: 8
Listing Updated: 40309
MLS Number: S616141
Property Type: Condominium, Residential
Tract: Jh
——————————————————————————
According to the listing agent, this listing is a bank owned (foreclosed) property.
Beautiful lower end unit on Rancho San Joaquin Golf Course, steps to the golf clubhouse and Assoc pool! Great golf course/city lights view! Unit has granite counters, wood shutters, fireplace, 3 Patio's, mirrored wardrobes,inside laundry, limestone flooring, 3rd bedroom converted to a den with wet bar and fridge, very close to UCI and the 405 freeway.
Las Vegas: Building Is Booming in a City of Empty Houses
http://www.nytimes.com/2010/05/16/business/16builder.html?src=busln
This is a classic example of the mis-allocation of resources being caused by the restricted inventory policies of lenders:
“Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.
Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more.
Las Vegas is trying to recover by building what it does not need. It is an unlikely pattern being repeated in many of the areas where the housing crash was most severe.”
This is shadow inventory and one of the problems it creates.
there are two flaws in your argument, IR, although I generally agree with your ends.
1) Las Vegas locals, as far as I know, do not frequent the casinos. They will not spend the other $1500 in a casino. However, I believe that money will recirculate through the local economy and give the casinos some sort of boost indirectly. Casinos are supported almost entirely by the tourism business.
2) People may be weary of their employer also owning their home. That just “doesn’t smell right,” for lack of a better term. Although, your assertion that employees will be thrilled to be out from under the mountain of of debt is almost certainly accurate. Who is to say “Superfund” won’t also start taking advantage of its renters?
The Las Vegas locals gamble and spend heavily in the casinos. The entire Station casino chain caters almost exclusively to locals as does the Coast casinos. It is big business.
Company towns are as old as industry itself, and there is a danger of them controlling rents and keeping them artificially high. That hasn’t bothered the Irvine Company, so I doubt it would bother the casinos very much.
My grandmother used to live in Vegas, and she gambled in the casinos. Of course, by her accounts she almost always won. 😉
Such a 180. I lived in Las Vegas for a year and a half, 2004-5. My coworkers were deep in the housing bubble fiasco. Real estate was a huge topic in the office. Had coworkers moving to new bigger houses and selling or renting their old ones. They all had the latest toys and cars. I think I was the only renter in the office of 25. I felt so poor hehe. I was renting a 1000 ft^2 studio loft with all appliances for $650 a month. If I stayed another year I prolly would have been sucked into it.
Now that I think back it was kind of funny. Noone ever mentioned hanging out at the casinos after work. I only went into casinos with coworkers to just go to the theaters in there. They were all anti-gambling as a pastime.
This is a brilliant idea if your goal is to end up on the cover of the Wall Street Journal in handcuffs all for the promise of a 6% roi. Advice for Casino owners: the last thing you need is to bite the hand that feeds you.
I would avoid investing in Las Vegas just as I would avoid Riverside. They are both in full fledged death spirals. When house prices are down 50% and unemployment is at 20% there is no where to go but down. Put your money in safe havens. If you want to live in Riverside or Las Vegas that’s a different story. Investing in residential RE in either place is a fools game.
I appreciate that you come here and provide an opposing point of view. I completely disagree with every statement you made above, and for a variety of reasons, I believe you are completely and totally wrong.
The fact that nobody would do this shows that I am right. Who in their right mind seeks out a 6% roi with immense risk? The liabilities in this plan are outrageous they include but are not limited to: declining rents, increasing vacancies, fraud lawsuits, debilitated lending relationships, etc.
Thankfully there is one thing keeping you from losing millions of dollars. You don’t have access to hundreds of millions of dollars.
I would like to leave you with the last word, but you keep spouting complete nonsense, so I feel I must respond.
First, the capitalization rate investors find in Las Vegas are nearly double what they get in coastal California. Basically, only kool aid intoxication and the inability to compute a rate of return would make someone favor investing here over investing in Las Vegas.
Second, the list of liabilities you made up is utterly ridiculous. The only one that has any merit is the possibility of declining rents, but I don’t see that as likely in Las Vegas — Detroit maybe, but not Las Vegas.
Third, as far as whether or not someone will back this idea with millions of dollars is not your business. I am certainly not asking for your money, nor would I want money from someone who does not believe in the opportunity. Money put into Las Vegas real estate right now has far less downside potential the money put into coastal California.
The people like you who fail to see the obvious investment potential of the great positive cashflow these properties provide is exactly why people like you miss the best deals when they are presented.
I assume you have the ability to buy a cash flow investment in Riverside or Las Vegas. Perhaps I assume too much, the hurdle rate is so low. Why not put your money where your mouth is and make a small investment. Report on the investment and tell us how it goes in 3, 5, 10 years.
You fail to recognize the extreme momentum 50% price declines and 20% unemployment have on any cash flow opportunity. The best way to learn is to front some money, pay some tuition to learn your lesson.
You don’t see the fraud liability on both the lending and tenant side? You don’t see the relationship liability for a casino owner on the lending side?
IrvineRenter,
Earlier this year you gave the best investment observation to me. The Joe Six pack is usually investing after the upward movement has been exhausted. LV still has lots to fall with the high vacancy rate, high unemployment and economy that based on discretionary spending (gambling and entertainment that requires a special trip and time). Location, Location, Location applies to to impulsively acting out on this temptation.
LV and coastal RE might both be bad investments at this time.
PR,
Could you please specify whether you mean Riverside or Riverside County when you make your predictions. I doubt that Riverside will drop 40% but maybe some area in Riverside County does. It is a big place.
For the record, a lot of western Riverside County commutes into Orange and LA county to work. When one of those guys loses his Irvine job, the statistic show up in Riverside county as higher unemployment. Also, it will not necessary to add jobs in Riverside county to reduce our unemployment rate. Our prospects are not as hopeless as you predict.
Used to golf at RSJ every Sunday for years..it’s a so-so course, built on a landfill so sometimes there was an odor, but you could at least get on without a tee time. Mile square was impossible on a Sunday without an advance time.
Always thought those condos on the course looked like dumps, the kind made for the “lower” working classes. I certainly did not want to live there.
No offense to the bulls but I would never pay north of $300K for anything there. But if you want to pay $500k to own a dumpy apartment built on a municipal golf course that was built on a landfill… more power to you.
“If values never come back, you are certainly no worse off by renting”
Are they obligated to stay on as renters? What if rents go down but Superfund is increasing the rent 2% a year?
Then they should walk from Superfund because prices most likely were flat to down.
Renters who move out can always be replaced. Landlords do this every day. Most former owners who are renters will not move out because they will still feel like it is their home. As it stands, these people are willing to pay double market rents in a mortgage payment to stay in their homes. If they pay only 5% to 10% above market rents, they are getting a relative bargain.
Superfund is a great idea. Sadly as stated it requires a ton of money for minimum return financially (but maximum in karma!)
Exactly. LV may only have achieved a temporary rental parity, not a permanent one. There is no guarantee rent will stay constant or go up in today’s environment. Unless you think that gaming industry is anti-cyclical, i.e., economic depression will drive more people to gambling.
Las Vegas is much, much less expensive than rental parity. That is why it is such a good investment. If you were a resident, you can now own property for about 30% less than the cost of a rental. Even the really nice stuff trades at or below rental parity.
The gaming industry does not need to be anti-cyclical. This recession will finally end, and people will go back to Las Vegas and gamble. When they do, employment will pick up, rents will increase, and property values will recover to their historic trendlines.
Agreed. if LV market already overshot 30% then the buffer zone should be large enough for the next 5 years.
Even if a massive decrease in american standards of living ensues (the question is not if but when) the asians will come here and gamble with their newly increased purchasing power. I hate vegas and wont invest there but I see that happening.
If I’m wrong, all the overbuilding of homes and casinos of the past decade will be firesold and investors will scramble for business as supply of homes and casinos will drench demand.
Nobody is going to walk away from this global mess with increased purchasing power. If anything deflation is starting to kick in making our dollar more valuable, despite the printing presses running in hyperdrive. Cash is king. Debt and holding bubbly assets are bad.
IrvineRenter: “you will need to wait two years before getting a new government insured loan to purchase a house”
Two years is a long time. Nobody can guarantee that lending standards will stay the same. Credit scoring models are changing dynamically to mitigate losses. It is purely mathematical. The more foreclosures, the more effect they have.
By the way, it may sound absurd, but some non-FICO scoring models already punish people for living in hardest hit zip codes. It would be nice to see more redlining.
IrvineRenter: “You will be paying an above-market rent to stay in your home. Plus, you will agree to a 2% automatic yearly rental increase.”
Why to pay much more then other renters?
Moving is not expensive for do-it-yourself guy. Just $250 can buy the best monthly rent (U-Haul truck, 2 helpers, free boxes, pack and unpack yourself).
Moving is a non-trivial task, especially when you’ve lived in a house for a long time. I’ve been in my house for 18 years and shudder to think of what would be required to move out of here. Over 18 years one can accumulate a great deal of stuff…
You relate: “The gaming interests in Las Vegas can save their local housing market” … “My friends and I with Superfund are coming to town, and we want to save your home and clean up the mess that lenders made of your life.”
How altruistic!
I read recently where MGM may go bust soon; Ritz Carlton Lake Las Vegas Hotel Casino And Resort in Henderson, owned by DB, went bust, so the liquidity even in the gaming interests themselves is not there … like Las Vegas these organizations are all illusion and sleight of hand.
I once worked for a mining company that owned a property in Platoro Colorado that had yen carry trade loans from a big bank in Japan. And it bought and fixed up cabins for its workers in the town of Platoro, near Antonito: it was a type of wild-cat investment you propose in your blog today. The properties were dilapidated, but with investment, improved quite nicely; the company’s investment restored the community. Unfortunately, the mining company never found the mother load of silver and gold, and left Colorado. I do not know what became of the nicely restored mountain cabins; but I do know the company lost tens of millions of dollars on its project: it was a gamble, that unfortunately, did not pay off.
Sheryl Crow sings she’s Leaving Las Vegas — smart woman. A global financial collapse is coming and it is going to be “mean”. I suggest that one leave the city for the country. Yes, the safest and best place to live, is out in the country; like out in Whatcom County in Washington state on a farm.
The mutual fund Vicex, traded as VICEX, which trades in “sin stocks”, has done well over the years. It has outperformed the Russell 2000, IWM and the Dow, DIA, since its inception. From 2003 to 2005, it rose 80% and then went on to a peak gain in 2007 of 160%. You relate that home prices in Las Vegas doubled between 2003 and 2005. So if one took out a second or a HELOC on his property and invested it in VICEX, then one could have had 80% gain on the loan proceeds.
The Las Vegas Case Shiller Price Chart is a valuable investment chart; I had the opportunity to invest in a rental condo in Las Vegas in 1992 and 1993, but thought the market overpriced and declined to invest. Then came financial deregulation with the repeal of Glass Steagall. It was a vote of 92 to 8 in the US Senate for repeal. Being a naive-simpleton, I had no idea of what the true meaning of the term “financial deregulation” meant: it legalized new products such as CDOs and Option ARMs to capitalize the insightful and impoverish the foolish. Financial deregulation is Orwellian Doublespeak at its best. Look how real estate values took off right after Glass Steagall was repealed and as Alan Greenspan, the Czar of Credit Liquidity, lowered interest rates! The Senators and The Fed Chief remind me so much of The Cat In The Hat, come alive, that is the Dr. Seuss Character who wearing a tall, red and white-striped hat and red bow tie, lead the children in a riotous party. So today, the riotous party continues with HAMP, GSE 96.5% LTV home loans, and the FASB 157 entitlement allowing banks to value mortgages to manager’s best estimate rather than to market. But wait, there is more, just this month the European Finance Ministers met in Summit and announced a sovereign debt bailout superfund that has created an EU Treasury and made Jean-Claude Trichet effectively the European Economic Government Seignior responsible for selling state and corprated debt and issuing seigniorage aid for Greece. Thus more Cat-In-The-Hat-Ism.
The Case Shiller chart shows a bell curve — prices must return to normal — they will return to 1993 level when there is a black swan event, such as a failed Treasury Auction, or war between Israel and Syria, that suddenly evaporates credit liquidity from the Ten Year US Treasury market place.
The article references Summerlin; it is interesting that it is a master planned community of The Howard Hughes Corporation, an affiliate of General Growth Properties, (hat tip to Wikipedia); prices have a long, long ways to fall.
And they even have a much, much, much further way to fall in Paradise Valley. What a name! I never knew there was such a place until I read the Melinda Fulmer MSN Real Estate article Hard Times In Paradise. I then went Redfin and found the average priced home at 1.7 Million, like the one at 7131 E Berneil Ln, Paradise Valley, AZ 85253.
Why, just why in the world, with a depression coming soon, would someone buy the condo you feature? I sure do not want to be living near UCI and the 405 freeway, now or ever, and be committed to a mortgage.
Well thanks for another good article; please keep warning of the California koolaid. I feel sorry for the people trapped in mortgages.
Vacations and gambling are discretionary expenses. If the boomers find their govt handouts disappear when the debt gets too big, if average working Joe finds the price of oil inflates gas, food, etc way faster than his pay – will they still feel like going to Vegas?
Riverside and Las Vegas are frequent topics of discussion here. I don’t fully comprehend the economy of Riverside, but I know that if peak oil is for real, and if it happens anytime soon, that the price of a plane ticket or a gallon of gas will be the one variable which determines whether Vegas lives or dies.
At $8/gallon gasoline, Vegas will be the new Detroit.
Don’t forget air conditioning cost.
There is nothing that special about these desert communities with low paying jobs, education deficient, and high unemployment.
It’s not a question of whether Las Vegas will go the way of Detroit. It will, it is only a question of when.
“At $8/gallon gasoline, Vegas will be the new Detroit.”
At $8/gallon over 80% of USA will be the new Detroit.
It’s all relative, I’m happy in the OC with $8/gal gasoline. Less traffic, and being close to job centers becomes more valuable.
Good luck in the desert with gas, electricity, and water commodity prices and few industries for employment.
“…close to job centers…”
Will there be job centers with that condition?
Hmmmmm…….
The Cat In The Hat had a magic cleaning machine to clean up the mess before mom came home. Do the Senators and Bernanke have such a device to clean up the mess?
The Cat in the Hat could magically conjure up 26 cat helpers (little cats a, b, c, etc) to clean up the mess.
Bernake is not limited to just 26 … The printing press can make a near infinite number of dollars …
“I suggest that one leave the city for the country. Yes, the safest and best place to live, is out in the country; like out in Whatcom County in Washington state on a farm.”
I enjoyed your post, but I think the concept of the pastoral refuge should not be uncritically accepted.
Rural areas are traditionally the bastion of narrow-minded, suspicious, proudly judgmental people who live there because they can’t handle living anywhere else. There are exceptions, but there is also a reason why even some pretty conservative people fled the countryside during the 1930s and never looked back.
These days, even in good times, one of the great economic engines of rural America is meth.
If you hope to defend yourself against angry mobs on your homestead, you should not delude yourself: the historical record shows a score of Angry Mobs over homesteaders, 884,372 to 0.
And a return to subsistence farming is not for amateurs or the faint of heart – there is some question as to whether it’s for professionals. It will be subsistence farming – as in “not-for-profit” – because the gigantic agribusiness interests now own the market in profitable farming.
Does anyone have an opinion on the new Irvine development Central Park West? It’s located at Jamboree and Michelson. The grand opening is Saturday. There are about 6 different residences.
Buy all 6. Real estate prices in Irvine never, ever go down. They’re not making any more land!
I also heard in the news within the past week that the housing market is set for a rebound. I’m really confused, especially since there’s an article today about how delinquencies and foreclosures have set a new record.
What’s the deal with all the misleading headlines?
Too close to the 405, not sure who wants to live there unless prices are really appealing (which I doubt). Also, isn’t this part of the Santa Ana School District?
You’re a genius, robert. I love how you spell things out.
I really feel that the only way to get past all this mess in the world is default.
Let homeowners default.
Let sovereign nations default.
Stop rolling over the debt with endless bailouts. Why is it so inconceivable that people/governments are unable to pay their debts? Let it happen- that’s the risk part investing. If there is no risk there is only moral hazard.
Prices begin at $400,000 for the Maxfield, $500,000 for the Granville, and $600,00 for the Chelsea.
Redfin provides a search listing for condominiums in Irvine; and relates they sell for $341/sq which is a 10.9% decrease over the last year. After reading this blog, and knowning that prices are falling, and likely to continue to fall, why, just why, are you interested in a buying a condo?
You can use the link to go to photos of the condos; frankly I don’t think they look that great.
yenguy. I’m not interested in buying at Central Park West. We bought our condo in Woodbridge in 1993. I was just asking because I wonder if they will sell like Woodbury 2 and the new Portola condos are selling.
Oh, and yenguy..according to The Register’s graph today of April’s home prices and sales…my zip in Irvine 92614 has the median sale price up 45.9% from ’09 and sales up 25% from ’09.
We were within months of moving out of LV now we might have to stay.
Housing here is a complete cluster fu&*.
We sold our two houses here in 2005 and have been renting ever since. I cannot tell you how many friends here are set to walk away from their homes. People owing $400k on a home that is now worth $120k is the norm.
Problem is these homes were complete crap to start with. Now that we may be staying we see great prices on homes that we do not want.
Homes that were built in the past 10 years have virtually no yard and these subdivisions popped up in the least desirable places.
I can see some areas going the way of Detroit and being bulldozed.
It is a real mess.
Oversupply is inevitable. This will put downward pressure on rents.
No yard? That’s the norm in Irvine.
I read this twice and still can’t decide if you are serious.
1) Every Las Vegas taking a toxic mortgage/heloc did so willingly.
2) They – lenders and borrowers – should all burn, figuratively speaking of course.
3) We Las Vegans live in a recourse state, meaning creditors will wait (after a strategic default) until you’re back on your feet and then pounce.
The nationwide pity party for “poor, disadvantaged” borrowers has really gotten out of hand.
good point. I do not believe that this will work in any recourse state. If creditors can attach your wages, etc., you’ve got no prayer of ever coming out from under the mess unless you leave the country.
“I read this twice and still can’t decide if you are serious.”
That is one of the features that makes this post a good one…
Las Vegas already has a very high bankruptcy rate, and many will need to go through bankruptcy to be fully cleansed.
The borrowers are going to get hosed one way or another, and nothing the Superfund would do would make their consequences any less other than they would get to keep their homes. It does put them on a path to a better future by reducing their debts and payments which is what bankruptcy is supposed to do.
The lenders get hosed by the write downs, which is a fate they are trying to avoid. Widespread strategic default would cause lenders huge losses and make them feel the pain they deserve.
I have been going to Vegas almost quarterly for a decade or more. Gaming is off 30%. Hotel room cost down about 20%. Locals dont gamble nearly as much as you would think. Most DONT at all. They can`t afford it. And most long term residents burn out after just a couple years of living there. Last place a Casino worker wants to be after work. When the next round of foreclosures blasts through the system. Vegas will be in even worse shape housing wise. Commercial is sucking wind even worse. Just too much supply now that the growth has contracted so quickly and broadly. All those Europeans I saw a couple years ago when the Euro was at $1.60+. They were vapor on my last trip. Chinese still strong. Midweek the place is damn near empty.
IrvineRenter,
I think the evil banker beaten by the Invincible is mislabeled. With the govt near unlimited bailouts, the banksters are likely to beat the day lights out of the taxpayers. I see govt attempts to reinflate bubbles and just actively transferring liability on the defective loans and defective ratings from the banks to the taxpayers.
The comeback of Las Vegas is not a given — Detroit and Gary were booming cities. Every body wants a car and the US needs steel. LV’s has new competition on the lower end from the Indian casino and on the high end from new Asian gambling centers and older European establishments. LV still has advantages such as boxing and big draw entertainers and cheap airfare, no passport requirements. Foods also better than the Indian casino that I’ve visited.
BK will likely be the best path to wipe out the debt in a recourse state.
LV might need to do some late 1980’s TX style bulldozing of empty houses and commercial buildings. Detroit is starting the “right sizing.”
I was just in LV less than 3 weeks ago.
The only heavy gamblers are asian. Many flown in at the hotels’ expense. (A little known secret is how many gambling addicts there are in the Asian community – but i digress.)
I talked to all the casino workers – consierge, etc. and – to a man they wined at how vegas is dead. They say all the current patrons are “discount/coupon” tourists, there in heavily discounted rooms who sight-see, go to discounted shows, but do not gamble, do not buy in the Casino stores/spas and DO NOT TIP.
Even the LV Club scene with its reality TV celebs they pay to come party are in trouble.
LV housing market is dead. IR, LV was not growing on its own, that was SOCAL home sell money flowing in that caused the run-up. LV is not a self-contained market. Until CAL is up running and creating profit, LV RE is not going anywhere.