Eighty percent of North Las Vegas loan owners are underwater and unable to relocate to find a better job.
Home Address … 6388 BRIANNA PEAK Ct Las Vegas, NV 89142
Resale Home Price …… $95,900
Life springs eternal
On a gaudy neon street
Not that I care at all
I spent the best part of my losing streak
In an Army Jeep
For what I can't recall
Oh I'm banging on my TV set
And I check the odds
And I place my bet
I pour a drink
And I pull the blinds
And I wonder what I'll find
Sheryl Crow — Leaving Las Vegas
Many people leave Las Vegas broke. Most of them lost their money in games of chance, but the latest casualties of Las Vegas were ordinary home owners who bought homes.
Unlike many markets where only the most indebted late buyers and HELOC abusers have been washed out by falling prices, in Las Vegas, prices have fallen so low that ordinary buyers from before the bubble who paid down their mortgage find themselves deeply underwater, unable to move, and hopeless. Those owners are the true victims of the housing bubble because they didn't do anything foolish. They happened to buy in the wrong place at the wrong time purely by chance.
Now these ordinary citizens are trapped in their underwater homes unable to move to seek employment elsewhere. Las Vegas is the only desert where people routinely drown.
Leaving North Las Vegas no option for many 'underwater' homeowners
In parts of North Las Vegas, more than 80% of homeowners owe more on their mortgages than their homes are worth. Staying is expensive, but many can't afford to move.
By Ashley Powers and Alejandro Lazo, Los Angeles Times — May 31, 2011
Reporting from North Las Vegas, Nev.— Charles Mills can barely afford to stay here. But he also can't afford to move.
That's why the 44-year-old heavy-equipment operator was preparing to leave his wife and young daughter here and go where he could find work — the Oklahoma oil fields. Mills has a mortgage to pay, even if its size pains him.
He purchased his house in 2006 for $308,500. Current value: $105,797.
“We talked about it: What can we do with the house?” Mills said. “Nobody's going to buy it. Nobody's going to rent it. If we walk away, my credit's shot. We're stuck.”
You can see why these people feel helpless. What's unfortunate is that this family isn't considering strategic default. Is his credit score really worth $200,000?
Think about this rationally. How long will it take for the value of a North Las Vegas house that currently sells for $105,000 to appreciate to $308,500? Realistically, it won't happen in the next 25 years. 
It will take at least three years and probably closer to five before the housing stock turns over at the new lower values. Most people will default or short sale and move on with their lives. The constant pressure of all this distressed inventory is going to keep prices near $100,000 for quite a while.
Then after the inventory pressure abates, there will likely be a period of rebound appreciation, but at best that only will restore the market to its long-term trendline. Let's say that brings the price back up to $150,000 seven to ten years from now. At that point, prices still have to double which will take another 15 to 20 years with a 3% rate of appreciation.
For owners in that circumstance, they would be far better served by strategically defaulting, waiting the ever-shortening required waiting period to get a new loan, and repurchase. That is by far the shortest path to having home equity again.
In some parts of North Las Vegas, more than 80% of homeowners have plunged “underwater,” meaning they owe more on their mortgages than their properties are worth — a stunning concentration of aborted plans and upended lives.
Mobility in search of new opportunity has long been a cornerstone of the American economy, much the way homeownership has long offered a path to firmer financial footing. But the housing bust has left tens of thousands of homeowners across Nevada essentially trapped.
They're considered the new normal here. They turn down higher-paying jobs elsewhere because they can't move. They tidy the yards of houses left vacant by foreclosure. They realize it's unlikely their children will receive tidy inheritances from the sale of their suburban homes.
Look at what the crash has done to homeowner expectations in Las Vegas. They don't believe they will have any equity in their lifetimes to pass on to their children. Compare that to the droves of kool aid intoxicated fools who believe they will be cashing HELOC checks soon from the double-digit appreciation sure to follow this brief correction.
Orange County will not become as desperate as Las Vegas, but we have a long way to go before the market psychology has changed enough to signal we are near the bottom.
When they look about their neighborhood, they question things they never questioned before. Are dead plants a sign that someone forgot to water? Or did the water get turned off? Does a garage sale mean more neighbors are about to bail?
“We don't even walk around our own neighborhood anymore,” Mills said. “Why? To say hi to strangers?”
Elsewhere on Midnight Breeze Street are Steve and Gay Shoaff, who once talked of selling their house and retiring somewhere pretty. Gay, 57, even toured a place in Wyoming.
But the Shoaffs have been living mostly off savings since the construction industry sputtered. Steve, 60, worked as a drywall taper and foreman.
“I'd say, 'Gay, we're going to become millionaires on this house,' ” Steve recalled one day as he and his wife unwound in the backyard they'd spent thousands of dollars sprucing up. Gay mustered a smile.
I give this man credit for the courage to admit his kool aid intoxication.
Their $187,980 home is now assessed at $99,220.
“This house won't be worth what we paid on it until after we die,” she said.
Some economists would agree, predicting that a full recovery in parts of the West's “foreclosure belt” — California, Nevada and Arizona — won't occur until at least 2030.
They are right. It will take longer than they have to live for prices to come back.
Nationwide, 23.1% of homeowners with mortgages are underwater. No state is more underwater than arid Nevada, with about two-thirds of borrowers holding such mortgages, according to CoreLogic, a Santa Ana research firm.
Some economists argue that, in a way, these homeowners are worse off financially than those who lost their houses through foreclosure and were forced to move on. Those borrowers often were able to live rent-free for years because of the snail's pace of foreclosure proceedings.
The people who bail and take their medicine are far better off than the people trapped in their homes. That's why strategic default is so common in Las Vegas. It's the wise thing to do.
Meanwhile, their underwater neighbors poured money into mortgages, not savings or investments. They couldn't chase higher-paying work. Homeowners with negative equity are at least a third less mobile than other homeowners, according to a recent study in the Journal of Urban Economics.
I feel sad for those who emptied their savings accounts and retirement accounts to pay mortgages. The poured their money down a rat hole, and now they are trapped in it.
But abandoning their homes was an option that appeared too dicey. “Walking away, it does wreck your credit history for a while and you can't get another mortgage for seven years,” said Richard Green, director of the USC Lusk Center for Real Estate. Defaulting also makes it harder to rent an apartment. “The other thing is, there is also some sense of obligation to repay your bills,” he said.
I'm sure the mortgage industry likes to see those comments from “experts” on these matters. Too bad it is totally inaccurate. The GSEs are letting people get new loans two years after a foreclosure. Further, the ramifications for people's credit scores, ability to get a lease or a job is hugely exaggerated. Plus, the whole notion of moral obligation to repay debts has been washed away. Mr. Green is wrong on every point.
Indeed, some North Las Vegas residents would rather forge a community here. Some feel blessed to have held on to their homes when so many people lost theirs.
… Mills, who was lured here from Los Banos, Calif., in 2006 by good-paying work and cheap housing, started seeing more neighbors padding around during the day, suggesting they had lost their jobs. Suddenly, they would vanish — sometimes after ripping out their toilets and sinks.
A family who lived near Mills, whose little boy played with his daughter, recently moved after his secretary mom and construction worker dad were laid off.
“I told my wife we don't have friends anymore. They all move away,” he said.
Actually, most of them moved into a rental in the same neighborhood. Unless they can't afford a rental, most who strategically default will rent a place in the same school district so their children can maintain friendships and they can keep their same social circle. In Las Vegas where unemployment is very high, particularly in construction, the neighborhoods are becoming much more fragmented.
Mills' wife, Maria, was let go by the entertainment department of a casino. He bounced from job to job, sometimes trucking cooking oil around Utah and Nevada, sometimes juggling security and janitorial work.
Determined to hang on to their four-bedroom house, he and his wife returned two new Nissans. “The cars, those are toys. Those are material things,” Mills said. “This is home.”
They waded through a mound of paperwork — and instructions to temporarily stop paying their mortgage — to cut their $1,600 monthly payment to about $900. The total amount they owe, however, remains the same.
The got a loan modification that essentially turns their mortgage into an Option ARM. They are staying in their underwater house, but have they really benefited from the arrangement?
James R. Follain, a senior fellow at the State University of New York's Rockefeller Institute of Government, argued in a recent study that former home-building hot spots, such as Las Vegas and California's Inland Empire, may crumble in the manner of Rust Belt manufacturing towns.
“There is a different mechanism leading to a similar outcome,” Follain said. “It was built on this upbeat set of assumptions about the future of house price growth, of population growth.”
That scenario is more likely to play out in Riverside County than in Las Vegas. Las Vegas has the gaming industry as a core economic driver. Riverside County has cheap houses and an economy based on providing cheap houses. What will bring back the economy there?
So last month, while Mills was gearing up for Oklahoma, the Shoaffs tried to keep their neighborhood from looking like so many in the Las Vegas Valley, the ones marred by one decaying home after another.
Drive down Midnight Breeze, and you'll spot few obvious signs of the real estate bust: no bank-owned signs, no broken windows, no doors jammed with unclaimed pizza fliers. That's partly because Gay busies herself yanking weeds from yards and ripping foreclosure notices from garage doors so the vacant homes won't tempt vandals.
This woman is tearing legal notices off neighboring properties. Sounds like a new foreclosure defense: the owners didn't receive notice because a neighbor tore it down.
On a recent evening, however, the Shoaffs took a walk through the neighborhood. In a backyard a few blocks away, someone had shoved over a foosball table, smashed a computer, tossed around stuffed animals and ruined the hot tub with what appeared to be white paint.
Gay's face fell. This house was likely another foreclosure casualty, its owner long gone.
The Shoaffs aren't going anywhere.
Picking up the pieces
The housing market in Las Vegas is a disaster. The enormous imbalance of supply and demand has pushed prices back to the mid 1990s.
I now make a living recycling the debris left over from the housing crash. Most of the homes I buy now are empty, and like this one I purchased in April, they are modest single-family homes selling near the median. These are the quickest and easiest to prepare and sell.
Between March 2 and April 23, I bought ten houses. Of those ten, this is the only one not in escrow or closed.
I will have about $80,000 into this property, and if it sells for its current asking price, my fund will make about $10,000. In all likelihood, I will have to negotiate a lower price or offer to pay the closing costs of an FHA buyer, but it will likely be a good flip like the other nine.
House Address … 6388 BRIANNA PEAK Ct Las Vegas, NV 89142 
Resale House Price …… $95,900
House Purchase Price … $69,000
House Purchase Date …. 4/12/2011
Cost of House Ownership
————————————————-
$95,900 ………. Asking Price
$3,357 ………. 3.5% Down FHA Financing
4.54% …………… Mortgage Interest Rate
$92,544 ………. 30-Year Mortgage
$20,190 ………. Income Requirement
$471 ………. Monthly Mortgage Payment
$83 ………. Property Tax (@1.04%)
$20 ………. Homeowners Insurance (@ 0.25%)
$106 ………. Private Mortgage Insurance
$94 ………. Homeowners Association Fees
============================================
$775 ………. Monthly Cash Outlays
$0 ………. Tax Savings (% of Interest and Property Tax)
-$121 ………. Equity Hidden in Payment (Amortization)
$6 ………. Lost Income to Down Payment (net of taxes)
$32 ………. Maintenance and Replacement Reserves
============================================
$691 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$959 ………. Furnishing and Move In @1%
$959 ………. Closing Costs @1%
$925 ………… Interest Points @1% of Loan
$3,357 ………. Down Payment
============================================
$6,200 ………. Total Cash Costs
$10,500 ………… Emergency Cash Reserves
============================================
$16,700 ………. Total Savings Needed
Property Details for 6388 BRIANNA PEAK Ct Las Vegas, NV 89142
——————————————————————————
Beds: 4
Baths: 2
Sq. Ft.: 1673
$057/SF
Property Type: Single Family Residential, Detached
View: Strip
Year Built: 2000
County: 0
MLS#: 1146598
Source: GLVAR
Status: Exclusive Right
On Redfin: 21 days
——————————————————————————
Not SS or REO. Great 4 bedroom house. Freshly painted. Carpets will be professionally cleaned. Very nice covered stucco patio with ceiling fans and electrically wired. Home boast a nice array of ceramic tile, hardwood floors and carpet. Appliances, including refrigerator to be installed by 05/20/11. Great strip view from front yard. Home is located on a great cul-de-sac street.
Have a great weekend,
Irvine Renter
OK Dave, we need your photoshop of “Great strip view from front yard.”
Does the “great strip view” include a giant billboard of “The Thunder From Down Under” across the street?
My wife and I were in Vegas a couple of weeks ago and marveled at how many tract homes had kids’ bedroom windows overlooking billboards of scanitily clad men and women. Not that either or us minded at all, but certainly not a place we would want our kids to live.
I’ve never been able to view Las Vegas as a normal city or plausible place to raise a family… or conduct any kind of life that doesn’t revolve around the fetid gambling industry. I don’t care how many people shill gambling as “gaming” and try to present Las Vegas as a place for “family fun”, this is still a place whose reason for being is to serve as a repository for stuff we don’t want polluting our home towns.
All of that, and the fact that it is located in one of the most water-challenged areas in the world and depends upon massive, man-made water infrastructure to be barely livable, make Las Vegas a bad bet for future viability, IMO. The heroic water diversion projects that made it possible to build a city of 2 million people or more in such an inhospitable climate are totally dependent on cheap fossil fuel, and I have real doubts about our ability to maintain it in a fuel-short future.
In summary, it’s hard to believe that LV will ever again be a hot place to buy, or good place to make a living. These cheap properties might be good for cash-flow investors for the next few years, but I feel the place is a bad bed for long-term investment.
Really smart analysis, Laura. Couldn’t agree more. I think your last couple of lines explain everything — it’s not like most people (especially politicians) in the States can think beyond the horizon…
If solar energy won’t work for LV, it won’t work anywhere. But I think it could work for LV. That doesn’t solve the water problem which is real and large, just the movement of water problem.
I guess the damage to kids of seeing scantily clad people (swimsuits? bikinis?) is over-rated. Are there really billboards in normal, residential neighborhoods in LV, away from the gambling strip?
The damage from the myth of get rich quick by luck and seeing lavish, glitzy, party hard and constantly, throw money away to impress lifestyle will do much, much worse.
I never let them manipulate me into saying or thinking “gaming”.
When we go to Vegas we come in on the 15 from California and there are quite a few subdivisions just off the freeway with huge billboards within (estimating here) 50-100 feet from bedroom windows. I am no prude, not by a long shot, but the people on the billboards leave very little to the imagination (not really swimsuit pics).
And with more states loosening their gambling laws, Las Vegas becomes less and less necessary. Illinois is close to tripling the amount of gambling in our state, including slot machines at O’hare, and a downtown Chicago casino. Illinois’ future looks pretty bleak too, but at least we have plenty of water.
Vegas is tough to read.
I still think that rising fuel prices are a threat, because the average Vegas visitor travels 750 miles one way.
But the other casino destinations are in locations which do not feature the shows and the abundant prostitution. Plus, they are either run by idiots – Atlantic City is tanking – or they’re at locations which are not really accessible: how many Indian reservations are a quick detour on the way home from a long work day, or even a reasonable weekend day trip?
Vegas has a brand, and will remain in business, but this doesn’t rule out a long-term contraction. Maybe the city will never support the number of housing units already constructed there.
None of this means that there are not bargain properties in Vegas.
I don’t know what to think.
I’ve never viewed Vegas as a place to raise a family either. I was, however, very surprised to see so many children on the strip at night and even walking through casinos. You can’t take a step on the strip at night without stepping on a topless pic/ad/business card which is why I can’t believe so many kids were there….although if I was a teenage boy again I probably would have loved it.
I totally disagree with you Laura, partly because I grew up in Vegas and partly because from a viable industry standpoint, Vegas has not yet seen much – if any – diminishing of their brand to suggest it would not be viable for the foreseeable future.
I grew up as a normal kid in a normal family with normal friends, and probably never thought any differently than kids in other cities. We went to Circus Circus for games, Tropicana for swimming, and 7-11 with slot machines in it to get Big Gulps. Any never thought anything of it. You guys constantly ask, “what was it like growing up in Vegas”? And I say, just like growing up in Seattle. Or Phoenix or Atlanta. And probably a lot safer than L.A.
I grew up in Vegas when it was much more of a “gambling” town than it is now. By that I mean the town now has a lot more to offer outside of gambling whereas 30 years ago it was basically purely gaming. Vegas took a long time – and not always in a straight line – of building the brand, and it is still unique in what it offers as compared to any other gaming destinations. It’s like saying Coke has a dim future because Pepsi and RC came along. Of course we all know that wasn’t true, and those are a lot closer to each other than Vegas is to Atlantic City, Macau, or even Monaco.
The problem Vegas has faced in the past few years has more to do with what demographics they chose to focus on, and with the recent recession and the current state of economy it has worked out against them to serve that demographic. Vegas is not a “family-friendly” place, they chose to get away from that 15-20 years ago. They chose to serve the high-rollers and big spenders, because that 10% of visitors bring in 80% of the revenue. And as economy went, so did the spenders. And that meant proportionately large drops in revenue.
Vegas has always swung up and down based on the economy, and we just happen to be in a really bad one right now. It makes sense that Vegas suffers more than others because of that. But it by no means signals the beginning of the end, at least there is no indication of such to this point. What will be more telling is in the next few years, when the economy recovers. Will Vegas recover with it, as it has always done in past recessions, or will it truly die out as many here have suggested? The jury is still out, but I see no indication yet that it will be any different than previous swings (just much steeper of a swing this time around).
I doubt that all of a sudden American morality takes a turn and we are all of a sudden not willing to look at babes in bikinis, shun gambling as a sin, and deem Vegas as too hot and too dry to live in. I can acknowledge that the city may be overbuilt and should really be more like 1-1.5M, but a dying city? I think we’re all overreacting a bit. No, greatly.
LOL, a “strip view” from your house. Why would anyone care to see the Las Vegas strip from their frontyard? Are you supposed to break out the lawn chairs and crack a beer while enjoying distant marquee of Mandalay Bay?
Surprisingly enough, that’s exactly what people do. In fact, this house had three couches in the back yard, and they created their own fire pit. It was the party house on the block.
If you make the graphic, I will post it.
That’s some kind of redneck. 🙂
Coincidentally, I noticed a few youngish hillbillies here in San Jose last week.
They must have read about the relative economic recovery here and decided to try their luck. Couldn’t understand a word they said though.
After living in Vegas for a year, I got out as soon as the job would let me. I am certainly no bible thumper, but the city has a dark underbelly to it.
During the boom and even pre boom 95-2001, it was a place where someone with a HS diploma (& self control) could earn close to 100k a year (many of my employees did). 5 shifts a week in a decent restaurant + 2 or 3 P/T shifts somewhere else would about do it. The union jobs pay very well considering a lot of service employees also earn tips.
That said, when you actually got out of your service job and just wanted to stop and get gas or groceries nowhere near the strip you would still see some degenerate gamblers (with silver dirty fingers) throwing whatever they had into the bandits. I saw it first hand and experienced the stories from employees (broken families, dramas, etc.) due to many individuals’ lack of control. In the casinos unwed teenage mothers of all backgrounds would try to get a job (before they started showing) to get on the union benefits gravy train.
I have returned many times since living there and made plenty of “contributions” to keep their taxes low but I would never live there again without a specific exit plan. Besides the beautiful casinos and a few nice areas – the place is a pit. Once you venture out of the decent subdivision, along the boulevards its titty bars, oriental “massage”, pawn shops, fast food, etc. Again, not bad fun for a 3 day hedonistic trip but NEVER to raise a family.
after spending 3 days in vegas, leaving it always makes me feel better….win or lose.
so according to the underwater map, there is no part of LV that isn’t underwater?
I would say that’s a correct statement.
Baby boomer retirement should be Vegas’ future, I am telling you! Cheap housing (for now), adult entertainment, golf courses, part time jobs, hot weather, NO STATE INCOME TAX (401k can stretch further), UNLV to go take adult ed classes at. Sounds like a perfect retirement community to me.
Vegas needs to market itself as a baby boomer retirement mecca.
I think California tracks your 401k down wherever you move to.
Totally not true. I left CA and moved my mailing address to Vegas. I am still filing Fed but no longer filing CA.
It’s the 1040 that you cannot get away with.
CA track pension and tries to state income tax them in other states.
The Federal govt. is not complying with CA’s request for the information on ex-CA Federal workers who moved out of CA and says tough luck to CA.
As far a NV underwater home/house owners, are the loans non-recourse or does NV have a single action rule like CA?
LV is a gamble with one main industry (gaming). Indian casino are bleeding LV with the lower taxes and closer locations. They don’t compare with LV on the shows, food, entertainment. But people lose locally and then can’t afford the get away. LV has the conventions business that also feeds into the gaming biz.
As for midwest, my heating bill for a well built house was less than my norCA (Walnut Creek) poorly built rental with half the sf. AC cost was also higher in that unit. Moved to a well built house on the bay and both heating and cooling cost went way down. Electrical cost was way high in the bay area for computers, 2 refrigerator, 2 weeks of AC and cooking.
THIS baby boomer will prefer to retire somewhere where it stays under 100 F in the summer and where I don’t have to run CA 24/7 not to drop from heat prostration.
The cost of air conditioning in that desert spooks me. The highest electricity bill I have had in recent years is $34.00 (thirty-four dollars), from last July, which was one of the hottest on record from Chicago. And if we have a power outage, all I have to do to cool off very quickly is walk to the beach a block from my apt and wade in Lake Michigan, which NEVER gets warm except in the hottest, longest summers.
how come no one ever mentions the fact that it’s 117 degrees in LV in August and September ; i mean , u CAN’T live there , can u ?
Bingo. You can’t walk around LV during the day, and you monthly AC bill would be hundreds of dollars, which negates the initially cheap house price.
So you’d need your own solar array just for AC.
Las Vegas also has an acute water supply problem: during a drought cycle the city could literally dry up and blow away.
Lake Mead Water Levels — Historical and Current
Well, there’s Palm Springs, Palm Desert, Rancho Mirage, they all have lots of retirees. How about all those retirement communities in AZ? People live there, right? It’s hot and humid in Florida in the summer, isn’t it? All those places are full of retirees. Plus, there is the whole snowbird way of living.
If you live in the midwest or northeast year-round you pay a big fat heating bill in the winter. I know because I’m a transplant from back east.
I’m really not kidding. Vegas needs bodies to move in and fill those houses. If the houses aren’t too big (who wants to take care of an empty house when they are in their 60’s and 70’s)I think they ought to seriously figure out whether appealing to retirees is an option.
If that sells for anywhere close to $95,000 I’ll eat my hat.
IR – when do you think Vegas will work through its underwater properties and foreclosures? You aren’t banking on the long-term future of Vegas, just taking part in a massive real estate upheaval. Or you’re involved in the post-upheaval crash cleanup.
Over the next 40 years, the US is projected to add roughly 100M people. Even with the absurdly hot weather, high costs to cool homes (does Vegas get electricity from cheap coal plants?) and scarce water, its hard to imagine some of the population growth not being there. As water becomes a scarce resource, long term development might look at places with plentiful water as future hot spots.
Falling from housing peak: John McMonigle’s ride
http://www.ocregister.com/articles/mcmonigle-302968-million-home.html
Thanks for the link.
I’d love to hear the conversation between him and his Nestle heiress wife about selling their Shady Canyon house and moving into a rental. 🙂
IrvineRenter,
Long time fan and lurker. Rarely comment but always read.
I think LV is a great place to invest as well.
My concern is that with so many investors buying and renting out properties, rents might fall considerably killing off the cashflow.
What do you think?
(posted this in another post about LV but not sure how far back you reply so I’ve posted it here)
I have been pulling rental comps on properties since September of 2010, and I haven’t seen any deterioration of rents below $1,200 per month.
There are a lot of empty properties, and as lenders continue their liquidation, these empty properties will be occupied which could put pressure on rents.
Personally, I am not worried about future rental income declines because we are coming out of the recession. Rents went down in 2008 as gaming and construction unemployment caused household formation to slow, but rents have stabilized over the last three years. Rents haven’t gone up, but they aren’t going down either.
Are we coming out of a recession or going into a recession?
Are you looking backward or forward?