USA Today put the news very succinctly: “Home prices rise in 17 cities in June; gains not expected to last.” In fact, nationwide prices were up 3.6% over last year. It is important to point out that the rise was at least partly due to the home buyers tax credit.

There is no point in glossing over the fact that Vegas was not one of those 17 cities that showed gains. Our prices dropped 0.6% from May and 5.2% from last year. None of this is a surprise to Friday Figures readers.

One thing that might help communities long term is that banks are giving government and non-profit groups an opportunity to buy properties before they hit the open market, giving them the means to renovate and replenish the supply of decent, affordable housing. The complaint is that these properties get bid up by speculators. I’d just like to remind people that banks are in the business of making money — or in this case, minimizing their losses. I suspect that these groups will end up paying inflated prices or get stuck with the least desirable properties, perhaps both. It is in any event a clever way to hide what some consider “shadow inventory.”

I do have one more thing I would like to talk about: what the RJ considers “inefficiencies” in the short sale process. The example they cite is someone who has been trying to get a short sale approved for almost a year. Two appraisals were done shortly after they first got the purchase offer last October; now the bank wants a third. They promise to have an answer soon. Here’s what will probably happen: the bank will approve the sale, the buyer will tell their mortgage company, and a 4th appraisal will be ordered so they can finalize the new mortgage; this last appraisal will come in roughly 5% under the purchase price (remember, prices have dropped 5.2% over the last year?); the deal will die and the house will end up being foreclosed upon. The bank will end up losing even more money on the deal because they dragged their feet.

Let me start with the good news. Foreclosure filings across the nation are down 10% from last year. Default notices have been declining for 6 months on a year-over-year basis.

Filings were down in Nevada by 30% from last year, but we’re still the top state for foreclosure filings for the 43rd straight month. One in 81 homes statewide and 1 in 78 Clark County homes were somewhere in the foreclosure process. Remember, that’s everything from Notice of Default through in the MLS as a bank-owned property, not just foreclosures on the courthouse steps.

One last thing: the FHA has a new program for underwater homeowners who are up to date on their payments, but do not currently have an FHA loan. If that describes you, it’s worth talking to a mortgage expert. However, I suspect that few people will qualify and few banks will want to participate.

According to Freddie Mac, mortgage interest rates are flirting with all time lows. For people with decent credit, a decent job, and some cash in the bank, that makes it a great time to consider your options. Your cost to borrow money is low, and that is certainly a factor to consider in the “rent vs own” debate. Low interest rates mean it’s also a good time to consult your financial adviser and a local Realtor about whether this might be a good time for investment property, or just upgrading your primary residence. Owning real estate is not for everybody, so please consider your situation and goals carefully, and ask for expert advice if you need it!

The reason that rates are low is that mortgage applications are down. In fact, applications have dropped 35% not over the last year, but just over the last 4 weeks! The mortgage industry depends on writing new loans as a source of income, so they are trying to entice you in with super-low rates. Be sure to read the fine print on mortgages as with all contracts. With the home buyer tax credit gone, demand for mortgages is down. I expect a bit of recovery to a “new normal” between current levels and levels from a year ago. The tax credit in some ways borrowed buyers from the future. As new buyers who weren’t able to move earlier enter the market, things should normalize.

The third shoe to drop is in fact undeniable good news. Foreclosure rates are steady. And while the Nevada rate is still a very high 1 in 79 households, that’s still a 16% decline from last year! Remember, that includes everything from Notice of Default to Auctioned On the Courthouse Steps to Bank Owned Listings. It even includes homes that have gotten Notices of Default from their Homeowner’s Associations. One last thing about this news. It ends with this statement:

“The housing market remains plagued by enormous excess supply,” wrote Goldman economist Sven Jari Stehn.

While that may be true nationwide, it is clearly not relevant to the Las Vegas Valley. Over the two years, available inventory has been cut in half locally. We actually have more Realtors than listings in the MLS right now! While I do suspect we have an overbuilding problem (or one in the making), the last thing we have locally is “enormous excess supply.”

Take a look through books, blogs, and magazines oriented towards Realtors and before long you will find something on pictures for listings. Usually it runs towards tips and tricks for taking really great pictures of listings to show a home in its best possible light. Sometimes it’s merely advice (or ads) to let a professional take those pictures, saving the busy Realtor much time and energy and producing a better end product too.

But today I want to defend some really bad pictures in a listing by a local Realtor. These were so bad, they were featured on a website that does nothing but bad and amusing real estate listing pictures. Commenters asked why on earth the listing agent actually put these pictures in the listing. One even emailed the agent to ask why she would do such a thing! Here’s the post, feel free to go see for yourself.

How and why can I defend those pictures? Because the listing agent did the right thing by posting them.

When you look at the pictures in the listing, you know this is not a turnkey condo. You know it’s going to take a lot of work before you can move in or rent it out. Before you and the buyer’s agent even drive over there you know that there’s either a broken window or a hole in the wall, you know it needs new carpet and pad, you know it needs to be scrubbed top to bottom, you know the kitchen is in need of updates, you know that to put it politely the bathroom is “in rough shape.” You will arrive with no delusions that FHA financing is possible, and in my experience it will be difficult to get any financing. You know it will take thousands of dollars and several weeks of diligent work after closing before it is habitable. What you see is truly what you get.

In short, she has saved everyone a lot of time by ensuring that only dedicated investors or truly handy individuals will even bother to look. If there were an “Honesty in Listings” award in our local MLS, I would nominate this one.

Not very long ago, it was common to have a second mortgage just to avoid private mortgage insurance. The first mortgage would be the traditional 80% of the purchase price. The second could be a conventional, ARM, or even HELOC for 10% or even 15% of the purchase price (MSN seems to think these are still available, but I don’t know any local mortgage brokers who do them). Many people used this sensibly to pad out the finances during a big move, and paid off the second mortgage after their previous house closed. Of course this isn’t the only way people used second mortgages: many others used their homes as an “ATM” to pay for home improvements, open businesses, and whatnot.

The point is that there are a lot of second mortgages out there and that is making refinancing, modifications, short sales, and all other foreclosure avoidance measures difficult now.

There is good news, sort of. The latest adjustments to the Federal foreclosure avoidance programs include a provision to make sure the holders of the second mortgage get something, even if it isn’t very much. It does put principal reduction for both first and second mortgages on the table, too. The hope is that 3,000,000 to 4,000,000 foreclosures can be prevented over the next 3 years. That sounds like a lot until you realize that experts like Lawrence Yun expect that many foreclosures this year alone. Given Mr. Yun’s track record, I consider that an optimistic number. Some experts think that as many as 12,000,000 homes are “at risk.” Only preventing a quarter to a third of those foreclosures is merely a smaller catastrophe for families and communities as well as anybody who works in banking, real estate, or the construction trades.

While it is certainly true that we aren’t going to work through this mess without addressing second mortgages and the fact that market value of most American homes are far below what they are mortgaged for, this is only a first step. Some think it doesn’t go far enough, that bankruptcy law needs to be amended to account for this sad reality. Others wonder how far Washington can or should go, when it is clear that nobody can prevent all the coming foreclosures; they wonder what will happen to those of us who followed the rules, and exactly how long we should let this failed government initiative continue to operate.

As for myself, I think the banks are part of the problem, and have been for some years due to the unique banking combination of bureaucracy and pursuit of profit. It is important to put in place good procedures for short sales and modifications and insist that everyone abide by them. Failure to do so will insure more foreclosures, collapsing property values, no incentive to build anything, and great incentive for those of us who “played by the rules” to walk away. But the hard part will be convincing the bank to stop pretending that the loans on their books are worth face value. If you own stocks, you know what you paid doesn’t change what it is worth now. Banks are still pretending they can get full value out of homes that are worth half that — thanks in part to the predatory pricing tactics of banks on other foreclosed properties! This will of course be big trouble for banking profits.

Once again it turns out that the problems in foreclosures and in banking are related and must be tackled together.

Yesterday, Bank of America finally took a painful step regarding their mortgage portfolio. They realized that they are going to have to write down principal balances on some of them. B of A is the first “too big to fail” bank to take this step although some smaller institutions have already started doing this.

Now, don’t pick up the phone to pester Customer Service about it just yet. This program is only open to a limited number of qualifying homeowners who have option ARM, 2-year hybrid, or certain types subprime mortgages. Most of these were in fact written by Countrywide. This is estimated to be only about 45,000 loans total.

One interesting detail is that this plan was developed in cooperation with the Commonwealth of Massachusetts (did you know that Massachusetts wasn’t just a “state”?). Was there perhaps some legal arm-twisting? Will homeowners outside Massachusetts be able to take advantage of this program?

Right now, B of A has some huge image problems when it comes to distressed properties: it’s difficult to make a short sale work, and sometimes there are difficulties after closing; they have a reputation for foreclosing on the wrong address; I still see many listings that require pre-approval with B of A before you are allowed to place a purchase offer on one of their properties (right, because they will be so much better a judge of this buyer’s ability to pay than they were of the previous owner); they are also one of the culprit banks I see destroying neighborhood housing values by pricing foreclosures at absurdly low levels. In short, they are one of the reasons Alan Greenspan calls our housing prices “fragile”.

The bottom line: I hope my fears are unfounded and that Bank of America does this right. More, I hope they realize that they can take care of a lot of future balance sheet pain by writing down principal widely in areas that have been hard hit by housing value declines.

You may recall that some time ago I wrote about how important it is to re-key the locks on your new home after closing. This is even more important on bank owned homes because most of them are keyed to a “master” key. The Department of Housing and Urban Development is much like a bank in this respect, except that instead of sticking a key into a lockbox, there is a “HUD key.” This means that HUD officials can access any of the roughly 600 homes they own in our local market and the thousands of homes they own nationwide. Realtors can apply to have a HUD key so they can show any units that are currently for sale.

But what happens if one of those keys falls into the wrong hands?

Here in Vegas, at least one person is posing as a real estate licensee with a HUD key. This person is showing the home, taking rental applications, and taking a deposit for a home that is owned by HUD. The scammer pockets the money, and the would-be tenant is left with a lighter wallet. At least we do not have reports of people moving in and paying rent until the Feds show up to evict the trespassing “tenant” — yet.  Similar scams are occurring elsewhere in the nation.

So how do you avoid being a victim of such a scam? First, meet your Realtor at her office, at least the first time. Ideally, she should want to meet you there too! Not only are there safety concerns, you will see that she really works there. A good Realtor will also want you to take a few minutes to sign a paper called “Duties Owed by a Nevada Real Estate Licensee,” or “duties owed” for short. This form doesn’t obligate clients, but talks about the ways the real estate agent is obligated to the clients. It’s a required document for any purchase, listing, or rental, so consider it a sign of her professionalism that she wants to let you know what duties she owes you up front.

Second, take a few minutes to find out who owns the property you want to rent. The records are held by your county recorder’s office. Here in Clark County, you can search online. If it is a bank, FNMA, HUD, or a government office, do not put down any deposit! These properties are almost never available as rentals, so you should consider it a scam until proven otherwise.

While I am fully licensed to assist renters, I do not handle rentals at this time. If you have rental property needs, I will gladly refer you to a colleague who specializes in them and does them right.

When you see someone write something like this, you start to worry about our real estate market:

Las Vegas foreclosures are expected to rise further this year with the planned release into the Nevada market of about 6,000 foreclosure homes by Bank of America over the next several months. According to a BofA executive, the foreclosures could be released at about 500 units a month.

The properties make up part of the so-called shadow inventory held by banks while they negotiate short sales or loan modifications with borrowers or while they wait for more favorable pricing trends.

But let’s look at that more closely. An additional 500 available units per month isn’t a big deal when average time on market is low, as we currently have. Whether Bank of America actually has 6000 foreclosed homes to put on the market is another issue. I suspect that at least half of those are currently already available as short sales; changing the status from short sale to REO does not change the amount of available inventory. More interestingly, this means they are admitting that a lot of short sale applications will be declined.

But here’s where they go astray, and why I know they are wrong:

Concord [Group of California] said that currently, Las Vegas has a supply of 16,215 residential units for sale, 8,845 units of which are bank-owned homes, HUD homes and other types of foreclosures.

It’s been a long time since we had 16,000 available units, let alone 8800 bank owned homes available. Regular readers know that last Friday we had just over 11,000 available units, only 2100 of which were bank owned. You can’t even explain the 16,000 figure they used by adding in contingent sales or short sales. We haven’t had that many available units since February of last year, and even then we didn’t have 8800 bank owned units!

Once more, you can’t believe everything you read about “shadow inventory” and how terrible the real estate market is in Vegas.

Welcome (or welcome back) to Friday Figures! All information from the GLVAR MLS system. This is the state of the local real estate market right now, and what you and your Realtor need to know before touring, making an offer, or listing a home in the Las Vegas Valley this weekend.

Summary: Available units are barely over 11,000 again. Notably, the supply of available condominiums and townhomes has dropped by a third in the last 6 months. The number of contingent and pending listings has stopped falling, insuring more closings in the future. The number of contingent short sales is still a concern, as many of these will not receive bank approval to move forward. Closings are solid, but a little lighter than levels we got used to before the end of the year.

Other Information: Here’s a great item on condo overbuilding. Of course it’s easy for everyone to see in hindsight, but local developers knew certain projects were doomed from the beginning. Of course 2009 Vegas property sales are up 36.9% from 2008, but we aren’t out of the woods yet. Nevada still has the top foreclosure rate at 10.17% (that includes everything from Notice of Default through bank owned and for sale) and bankruptcies are up by over 50%. While some temporary modifications are becoming permanent, some experts expect another wave of foreclosures after temporary modifications fail. Just in this morning’s news, we have found that HUD has denied a request for $367 million in stimulus funds for Southern Nevada’s Neighborhood Stabilization Program. While things are steady for now, there is the potential for storms to come.

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Here’s a round-up of some interesting mortgage and financing stories that have crossed my desk:

This one by a local loan officer gives you a rather technical view of the impact on Las Vegas real estate from a particular kind of mortgage, the Option ARM. He’s an expert in this, so even if you find it tough reading, it’s worth your time.

This insightful commentary talks about predatory lending and mortgage modifications. In short, there are a number of reasons banks have not exactly been enthusiastic about getting Joe and Jane Average a lower payment!

FHA loans are now one of the most popular ways to get financed. But did you know that nationwide there are only 172 people who can give the final approval? What I take away from this is ask for a 45 day closing on FHA transactions, and think twice before buying a foreclosure with one! By the way, FHA is asking Congress for tougher standards, bigger downpayments, and bigger mortgage insurance fees. No word on whether they are asking for more staff.

One more thing, the Treasury Department did issue new guidelines on short sales this week. To learn more, check out my article on The Moderate Voice. There is a link to the actual rules near the end.

Be sure to join me on Friday for the latest Vegas real estate market data!