Real Estate Debacle in Las Vegas
A real debacle in Las Vegas real estate now appears to be building. It comes down to this: foreclosures were virtually frozen at a complete standstill on homeowners that aren't paying their mortgages. As those people sit in those homes, not making their payments, there are also buyers. If the real estate market were allowed to function normally, some of the people who couldn't pay their mortgages would have sold to those new buyer. Banks would have foreclosed on those who didn't sell and buyers would have more inventory of homes. But that's not happening.
Do to accommodate new buyers, developers are building new homes. And since demand is apparently high, prices are shooting up - the developers only able to build so many homes in a limited amount of time. But what happens when the foreclosures eventually are worked out? Of course, you get more inventory dumped into the market. Will the new buyers paying high prices today then experience a drop in the value of their homes? Will they then be underwater, just like the current home owners in foreclosure are under water. Will they continue to pay their mortgage payments on homes that are worth significantly less than the value of the mortgage?
While I hope it doesn't happen, it certainly looks as if this debacle will lead to an even greater one.
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The number of available homes has plunged here after a sweeping state law subjected lenders to stiff new foreclosure rules and penalties. With banks exercising caution, many homeowners—including those seriously delinquent on their loans—have been allowed to remain in place. As a result, there is little on the market at a time when first-time buyers and real-estate speculators are anxious to tap both cheap prices and low-interest mortgages.I suppose the Nevada state government felt it was doing the right thing in "protecting" existing home owners from abusive foreclosure processes, like the robo-signing scandal that was unmasked after the real estate market collapsed in 2006-2007. But as is so typical with these good intentions, unintended consequences follow. And now you've got a completely dysfunctional real estate market.
Do to accommodate new buyers, developers are building new homes. And since demand is apparently high, prices are shooting up - the developers only able to build so many homes in a limited amount of time. But what happens when the foreclosures eventually are worked out? Of course, you get more inventory dumped into the market. Will the new buyers paying high prices today then experience a drop in the value of their homes? Will they then be underwater, just like the current home owners in foreclosure are under water. Will they continue to pay their mortgage payments on homes that are worth significantly less than the value of the mortgage?
While I hope it doesn't happen, it certainly looks as if this debacle will lead to an even greater one.
More...
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