Las Vegas is hosting one heck of a New Years Eve party, so if you can’t be in New York City with the Clintons, this is the place to be!  Just keep in mind that the Strip will be closed to car traffic. 

On an unrelated but strange note, maybe you heard that executive at Fry’s who was caught up in a kickback scandal. Well, a lot of the money in question apparently ended up in Vegas casinos. The Review-Journal has more information, and more questions too. 

Happy New Year!

Right now, there are 818 condos available in the Las Vegas Valley listed at $100,000 or less, and a few more in age-restricted communities. Of those, 537 were built 1990 or later. And of those, 244 are less than 10 years old. 

For the moment, let’s drop from consideration the 108 condos that are listing for under $50,000.  Those units are going to need some serious TLC, and probably won’t qualify for FHA financing.  Leave those to some investor:  a savvy investor can pay cash, put $10,000 or even $20,000 into the place, and flip it for roughly double thier money in 3-4 months. 

That still leaves over 700 condos that can be purchased for $50,000-100,000. While some of these will need work, many are very close to move-in ready. These units are in any part of town you could possibly want to live in.

Thursday, new FHA requirements go into place. That means the smallest down-payment allowed will be 3.5%. Let’s flesh out this example with a place that costs $80,000.  Like maybe this one, or that one, or maybe this other one. A 3.5% downpayment would only be $2400 cash, and you might still find a downpayment assistance program with the help of your mortgage broker (or the “First National Bank of Dad”). But let’s also say for the sake of argument that after closing costs, you still end up with roughly $80,000 of mortgage. I have mortgage brokers telling me that with a conventional loan, you can get interest rates below 5%, but an FHA loan is more like 5.5% today.  Don’t blink, because those numbers will change tomorrow. Our hypothetical mortgage payment, principle and interest, is something between $429 and $454. 

You can’t rent a place for that money.  Anywhere. 

Granted, that doesn’t include taxes and insurance and HOA dues, but you can’t find a “real” apartment in Vegas for less than $600.  

And let’s not forget that there are lots of programs out there to help you buy a home, particularly for first time homebuyers.  A good mortgage broker will be able to tell you about the local programs available to you: some require you to live in a particular city or county, some are only open to people in certain jobs (teachers, firefighters, etc.). There’s also the federal tax credit for first time home buyers. The feds will credit you $7500 on your taxes — yes, three times the hypothetical downpayment — but you will have to pay it back over 15 years. 

It’s hard to see a downside to this:  the buyer gets a home for less than it would cost to rent in most cases; the buyer gets the benefit of the home mortgage deduction on his/her taxes every year; prices will at some point start going up instead of down (these are already “can’t build it for that” prices); even if the buyer decides to upgrade to a better place in a few years, these will make great rental properties; and finally, there are all sorts of incentives to buy now rather than wait.

If you want more information, or help finding and buying one of those condos, give me a call or hit the “Contact Me!” link.

The absolute best part of my job is handing keys to a new homeowner after the sale closes.

I got to do that twice today, for two different families. I am so happy for them!

Sadly, in each case there was what I consider to be a safety and security problem waiting to happen. I won’t go into great detail except to say that when you close on a new home — particularly one that was bank-owned or one that had a mechanical lockbox — you should plan on getting a locksmith out to change the locks immediately. Preferably, the same day! Nothing bad happened, but the keys were not as secure as I would have liked.

Even when buying from a private owner, you have no way of knowing how many copies of that key are out there: Did they change the locks when they moved in? Was a family member prone to losing keys? Are they forgetting about the copy they gave to a relative? Or maybe that key they lent to the neighbor to feed the cat when they went on vacation?  What about that key they hid in their glovebox “just in case”? Do they even know about the copy their teenager gave to a friend?

Institutional sellers such as banks only amplify this problem.  For the sake of their convenience, many banks key all their REO (“Real Estate Owned”) properties to a small number of master keys.  It saves them a lot of effort trying to keep track of what keys go to what home, and it ensures that the previous owners aren’t coming back.  How many of those keys are out there? Who knows! These sellers need to give access to various contractors to fix up and clean the property. All these contractors of course should be licensed, bonded, and insured! However, even the most conscientious contractor can sometimes accidentally drop a key or have his shop broken into. What if one of his employees turns out to not be as honest as we all would like?

Finally, I am not a fan of mechanical lockboxes, and haven’t been since the day I arrived at a listing to find the lockbox broken into, the door unlocked, and all the toilets missing. Some of these locks are 3 digits, with only 1000 possible choices; even the more complicated ones often have easily guessed combinations. Electronic lockboxes, while not perfect, are much more secure. Only a Realtor with the electronic unlocking device can get into them, and she needs to enter her personal code to do it. Unfortunately, the contractors I mentioned earlier cannot access these lockboxes. That means it is sometimes a necessity to have the mechanical box, but the right way is to use two boxes and make it hard for unauthorized parties to get to the mechanical one. 

The bottom line is simple: leave room in your home purchase budget for a locksmith to come and professionally change your locks immediately after you take possession of the property.

First, from the “I sure hope so” files, we have the prospect of a high-speed train between Vegas and Los Angeles.  The Governor of Nevada is asking President-Elect Obama to consider it for part of his stimulus plan. The Governors of both Nevada and California endorse the plan. I think it’s a great idea that will help tourism in both cities.  It will save time and gas.  Furthermore, a stop in Jean is just what the not-yet-constructed Ivanpah airport will need!

Now, a little warning about winter weather. In an unheated home, if temperatures get below freezing, pipes can and will freeze and break!  This can cause thosands of dollars of damage. Since roughly half of the 17,000 available homes in the Greater Las Vegas MLS system are vacant, it’s a risk near you. Realtors, check your personal listings and your pending sale listings. Neighbors, keep an eye out for signs of problems if there are vacant homes near you. I know a lot of sellers don’t want to “waste money” heating a home nobody is living in, but it’s well worth while if it keeps the house’s value from being destroyed by water damage.

As bad as the foreclosure mess has been in residential real estate, we may be just beginning to see a wave of problems in commercial real estate.  Several chains have announced permanent closures. There are of course also small retailers that are being driven out of business by the current state of the economy.  That means there will be lots and lots of vacant retail space in the coming year.  How prepared are the owners to weather extended high vacancy rates?

And finally, this Las Vegas Review Journal article about mortgage “walkaways,” where people just stop paying and let the bank take it back. Things have gotten bad enough that some mortgage brokers are doing it too!

I hope everybody is enjoying the Holidays!  Merry Christmas and Happy Hannukah!

It turns out I was right about the mortgage modification plan passed back in July and implemented in October. Here’s what I said then: 

Now, here’s the deal-breaker. The old mortgage company has to agree to write down the loan to 90% of the current appraised value and forgive the remainder. CNN correctly points out “that will mean a substantial loss for the lender.” A new mortgage company issues a new loan for that 90% (some sources are saying only up to 85% — where is our cash-strapped homeowner going to get that 5% difference?) and the old mortgage company has to accept it as full and final payment. One of the mortgage companies has to pay FHA a 3% insurance premium up front.

As for the homeowner, they will have to pay an insurance premium to the FHA every year of 1.5% of the principal. In addition, they will have to share any profit on the house with the FHA (100% the first year, declining to 50% after the 5th year, plus a 3% exit fee). The homeowner also must accept strict limits on equity loans.

Or, to put it briefly, no mortgage company is going to go for it, and even if they did there are reasons homeowners might not want to participate.

Here’s what the Secretary of HUD told the Washington Post: 

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.

He went on to blame Congress.

There are a lot of reasons it’s hard to put mortgage modifications in place. Loans that are sliced and diced before being bought and sold are one of them, and you can’t solve that problem without utterly destroying the market for mortgage backed securities (who is going to buy something that Congress can change or declare worthless at a whim?).  Borrowers who can’t afford much and property values that have declined below the amount owed are part of the problem. Congress tried to address those problems, but they’re hard to overcome.  

Mr. Preston is right that this program is a failure.  On the other hand, I haven’t heard him come up with a better idea.

I’ve had Kitec come up twice in the last week, which is unusual considering that I don’t really work Sun City.   If you need information on the ongoing Kitec lawsuit, you will want to visit PlumbingDefect.com. Although a tentative settlement has been reached, it’s not over yet. This story has a little more background on the nature of the problem, but what happens is that the Zinc is leached out of the defective brass fittings, eventually causing catastrophic failure. While I hate to link to a site whose purpose is to sell you a solution, you can figure out how to determine if you have a problem at this site.

Update: John Griffith of Plumbing Express contacted me recently to tell me that this matter will be back in court again on January 30, 2009 for a settlement fairness hearing.  He was kind enough to point out this document about the hearing. Many thanks to John for keeping us all up-to-date!

Then you can’t blame the Community Reinvestment Act, passed in 1977.  

You can, however, blame the Bankruptcy Reform that was passed back in 2005. 

Here’s the short version:

Before [Bankruptcy Abuse Reform], any household could file Ch. 7 bankruptcy and have credit cards and other unsecured debts discharged. Sidestepping unsecured debts left more income to pay the mortgage. BAR blocked that maneuver by way of a means test that forces better-off households who demand bankruptcy to file Ch. 13, where they must continue paying unsecured lenders. When the means test binds, cash constrained mortgagors who might have saved their home by filing Ch. 7 are more likely to face foreclosure.

Forcing people to pay bills they couldn’t pay only changed which bills they chose not to pay.  In the Christmas spirit, “Are there no prisons?  Are there no workhouses?”  Bah, Humbug, foreclosure is never fun for anybody.

At least one expert thinks that housing prices here in the Valley are starting to stablize.

While prices did not rise in October, they were remarkably close to September levels, Larry Murphy of Las Vegas-based SalesTraq said.

New home median prices slid less than $4,000 to $249,000 and existing home prices dipped just $2,000 to $184,000.

New construction has almost halted, with only 329 new permits issued.  Builders just can’t afford to compete with the short sale and REO sales that often go for under $100 per square foot. However, I do have one beef with his figures:  

Murphy estimates there are about 15,000 REO properties in Las Vegas, including a majority of the vacant homes on the market for sale. With roughly 2,000 foreclosure sales a month, it would take seven months to go through the current supply, assuming no more REOs come on to the market.

We’ve talked about these sorts of numbers before.  Only about a third ot the homes on the market are bank owned right now, roughly 7500  of the 21,000 houses, condos, and townhomes in the MLS system.  Those are of course all vacant.  For there to really be 15,000 REO properties means that banks are prepared to put an additional 7500 homes on the market at the drop of a hat, quashing his recovery theory in the process. I personally just don’t find that credible.

There’s been much said today about the Treasury’s “plan” to force mortgage rates down. Since no government agency actually has the authority to “control” mortgage rates directly — not even the Federal Reserve! — it would have to be done indirectly through the purchase of mortgage backed securities.  A whole lot of mortgage backed securities.  That “demand” would drive the price of such securities up, which in turn makes the interest rate go down like any other bond.

This reduced interest rate would theoretically stimulate demand during our current “housing recession.”  Mr. Bernanke seems to be all for anything that would stimulate housing demand and/or reduce foreclosures.  There is much reason to be skeptical that this will work. Even Mr. Obama has gone on record as saying ”The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes.”  They both agree that it would be great if people could pay the mortgage, but I think they may disagree on whether the answer is lower mortgages or higher wages! 

By far, the best criticism I have seen of the Treasury plan is by Tom Vanderwell over at BloodhoundBlog.  He articulated my question, “How exactly is that supposed to work?”  Here’s the meat:

Okay, not to rain on everyone’s parade, but let’s take a logical look at the numbers and the statistics behind it.

1. What’s the only way possible that I’m aware of to lower mortgage rates?  By raising the price of mortgage backed securities which lowers the rates on them.   Lower rates on mortgage backed securities equals lower mortgage rates.
2. How do you increase the price of mortgage backed securities?  The only way that happens is by increasing the demand for them.
3. How do you increase the demand for them?  Have the government step in and buy a HUGE (I’m talking many many many zeroes!) amount of mortgage backed securities off of Fannie and Freddie.
4. How is the US government going to come up with that money?   All joking about printing presses aside, in reality, they are going to have to borrow the money.
5. How do they borrow the money?   By issuing a LOT of US Treasury bonds to finance their purchase of mortgage backed securities.

So, what happens with the price of US Treasuries if suddenly there’s another $1 Trillion on the market?

• Demand stays the same
• Supply goes way way up because the government is flooding the market with more debt.
• Price goes up down because there is more supply than demand.
• Rates go up.

So this looks very suspiciously like yet another plan where the Government throws money at the financial institutions that helped make this mess worse than it had to be, and hopes everything magically gets better. 

Here’s a trio of bonus items for you today:  the Feds have a new set of financial literacy websites that can help you learn about such important topics as financial security, home ownership, consumer credit, and other topics (go to it directly by clicking this link!);  copper theives are hitting lots of soft targets and causing lots of problems, but this article fails to mention empty houses! (Realtors, please check on your vacant listings regularly… and if you see something amiss in somebody else’s listing please let the other agent know!);  and a micro-loan fund to help entrepreneurs in third world nations is being run by students at Vegas’s Meadows School.