In Florida, work is underway to syndicate a little reality show called The Foreclosure Shoppe. It follows the wild adventures of Realtor Tom Bruzzesi as he navigates the tricky waters of the REO world of bank owned property. His competitors call him “The Maniac.” As many strange things as I have seen, I can only imagine the weird things he encounters every day.

Also in Florida, the New York Times tells us about some enterprising guys who have set up business working on foreclosed properties. They inspect, secure, maintain, repair, and sometimes even clean up these properties for the banks that own them. Unoccupied homes can deteriorate quickly, particularly when helped along by vandals, moisture, and abandoned animals. On the other hand, banks have discovered that a few hundred or thousand dollars paid to companies like this can prevent problems and municipal fines, help them sell the property quickly, and in the end, save money.

Anyone want to bet on whether these guys know “The Maniac” by now?

Thinking of the Children:  Child advocacy group First Focus has reported that roughly 40,000 Nevada children will be affected by foreclosure.  This is part of 2 Million kids nationwide. Meanwhile, there are about 2,000 homeless teenagers in Las Vegas. Efforts are underway to get them “survival kits” that include “hand wipes, anti-bacterial hand gel, a toothbrush and toothpaste, shampoo, deodorant, sunscreen, bandages, socks and snacks.”

Looking for a really unique Vegas home?  Well, one is to be auctioned off in early June.  The garage alone is 6500 square feet, 2 to 4 times the size of a typical local family home.  The home itself is 9500 square feet on 2 acres.  Open house this weekend!  Opening bid is only a half million dollars, or $53 per square foot — excluding the garage. Twice this price would be a bargain by any local standard. Here’s a gallery of pictures.

“We must all hang together, or assuredly we shall all hang separately!“  (Quote from Ben Franklin): The Christian Science Monitor asks whether taxpayers will end up paying for the subprime mess one way or the other.

At least there’s one good consequence:  Our current real estate troubles are helping conservationists, both by scuttling projects in environmentally sensitive areas, and by making it easier for areas to be converted to parks and other conservation areas.

And finally, a cartoon:   “moral hazard.”

Have a terrific weekend, everybody!

Let’s imagine a nice little community of 400 homes. It’s a perfectly average American community, and it could be anywhere: in town, in the ‘burbs, in the countryside.

Thanks to the often-cited statistic that 68% of Americans own their homes, we can deduce that perhaps as many as 32% are rental homes, or 128. However, we are going to assume there is an apartment complex down the road, and that only a third of that number are in fact rental homes. We’ll round down to 42.

Because it is a perfectly average community, roughly 5% are currently available. Most of them are for sale or lease. A few have sales/leases pending — the sign is still up, but only because the deal hasn’t actually closed yet. Another few are being prepped for sale/lease, but frankly if you made the owner an offer out of the blue he or she would likely take it.. That’s 20 homes. A lot of these homes are currently not occupied.

Right now, 2 of them are in foreclosure, like one out of every 194 homes nationwide — more than double last year’s figure. Once the bank takes them back, they will be added to the list of homes currently available.

In addition, since 6.8% of American homes are currently financed at least in part with a ARM sub-prime mortgage, there’s 27 homeowners that don’t know what their payment will be next year. Since there are 75.1 million home owning Americans and “over 7.5 million first-lien subprime mortgages outstanding”, you can see that one out of every 10 homes in this average community are involved in the subprime mess in one way or another. That’s 40 homes. There is reason to suspect that a disproportionate number of these homes are currently rented, because a lot of investors had to resort to subprime lending. Suddenly, Hope Now’s efforts seem quixotic.

So let’s take a look at how this could play out in the next few months. Those two foreclosures alone will drive our available homes figure to 22, an increase of 10%. This doesn’t seem like a big deal in one community of 400 homes, but multiplied out across a metropolitan area, it can be huge. The bank does not particularly want to own this property, and in many cases is willing to sell at a loss. This drives down prices across our community: why would buyers pay more to a private owner, when they can get a comparable bank-owned home for less?

This in turn creates another problem for our homeowners with subprime and ARM mortgages. Some of those people would like to refinance, but can’t. Some now owe more than the current market price; that combined with whatever personal financial issues resulted in them having this mortgage in the first place prevent them from getting affordable refinancing. Some of these people are going to have to sell their homes, if not simply walk away. If as few as 2 of them do so, we have raised available housing by a total of 20% across the community.

We haven’t even discussed the impact of a major lender going out of business. While the mortgages owned by such a lender would be sold off — they are assets, after all — that would reduce the pool of available lenders, and available funds with which to make mortgages for honest, bill-paying homeowners. It obviously also reduces the money available to people trying to refinance. In a nutshell, that is why the government has to “bail out” some lenders: not because we are rewarding their bad behavior, but because of the impact on the public.

Most of the currently discussed legislative solutions focus on owner-occupied homes. The reasoning is that investors should have known better and it’s only fair that they sleep in the bed they made. This reasoning fails to account for the decent, rent-paying residents of our community. If these homes are foreclosed upon, the leases are generally terminated, leaving the resident to scramble for a new home through no fault of his or her own. Does that seem fair to you? Furthermore, by leaving these homes out of the “solution”, we have the potential of adding dozens of homes to a real estate market that normally only has 20 available units. The law of supply and demand suggests that is a recipe for plunging prices, a problem which already exists.

Problem exacerbated by the solution.

But what if our community isn’t perfectly average? According to the latest foreclosure data:

In the first quarter, 1 of every 54 homes in Nevada received some type of foreclosure filing - more than any other state. Its largest city, Las Vegas, had 1 out of every 44 homes go into foreclosure.

Stockton, Calif., had the highest foreclosure rate out of any U.S. metro area, with 1 out of every 30 homes receiving a notice - nearly seven times higher than the national average. The Riverside/San Bernardino region had the second highest rate in the quarter, with one of every 38 homes in default.

Only two metro areas in the ranks of the 20 hardest hit were outside the Sunbelt - Detroit, which ranked sixth in the nation with 1 in every 68 households in default, and Cleveland which saw 1 in every 105 homes go into foreclosure.

That means that if our typical community is in Nevada, there’s 7 homes in foreclosure; if it’s in Las Vegas, there’s 9; Stockton, there’s 13; Detroit, there’s 5 or 6; Cleveland, there’s 3 or 4. Multiply all the problems above accordingly. And keep in mind that these problems are currently impacting the economy in a negative way.

Any real legislative solution to these issues must take into account all parts of the problem: lenders, homeowners, real estate investors, renters, even home builders and investors who purchased mortgage backed securities. To implement half a solution is worse than no solution at all.

Cross-posted on The Moderate Voice and ShortWoman.

It turns out I am not the only person who is taking a hard look at the various fees that mortgage companies are trying to squeeze out of people. “Slowly but surely, a handful of public-minded bankruptcy court judges are drawing back the curtain on the mortgage servicing business, exposing, among other questionable practices, the sundry and onerous fees that big banks and financial companies levy on troubled borrowers.” Over and above the miscalculated interest, the sloppy record keeping, and the fees upon fees that can keep people from ever being able to put their loans in good standing, some lenders are adding fees back on after judges have tossed them out and discharged a bankruptcy!

The Christian Science Monitor reports that some potential home sellers are deciding not to play the game at all and pulling their property off the market. Eventually these homes will come back, as the owners find themselves needing to sell rather than wanting to. Others will someday decide that the market has improved enough to chance a new listing. Some will sadly end up in foreclosure and become REO properties. Short version, this trend helps shore up supply now but bodes ill for some future date.

And now for a completely different kind of real estate, French lighthouses. Interested in a tough historical preservation project?

Speaking of foreign real estate, you probably don’t know how lucky we have it here in the states in some ways. Let Robert Brady spell it out for you: “Believe me when I tell you that, when it comes to business (that is, the purchase of real estate), the agent you’re working with is not working for you. Buyers’ agents don’t exist outside of North America. In many of the markets I recommend, real estate agents aren’t regulated or even licensed.”

A message to all those Realtors out there: I know about “Realtor Standard Time” and I know that things happen, but you still have to make an effort to be on time. Got that? Would it have killed you to call and let somebody know you were going to be late?

In a move that surprises nobody who has thought about things for a few minutes, economists have found that housing prices have declined most in places where the commute is longest. I suppose if you can work remotely, you can get some screaming housing deals in the far-flung ‘burbs right now. In the meantime, remember that the Las Vegas Valley is relatively small; I can be on the opposite side of town in a half hour…. traffic permitting of course.

And last but not least, two fun if kitschy tours of Vegas: the mob history tour (hey, they’re all legitimate businessmen!); and the haunted Vegas tour.

That’s all for tonight!

A combination of aggressive mortgages, maxed out home equity lines, and dropping home prices mean that home equity rates in the United States have fallen below 50% for the first time since World War II.  This is of course related to housing being in the “deepest decline since the Great Depression.” There has actually been a major shift in the priorities of debtors, and homeowners are more willing to walk away from their homes than ever before.

This of course means that lenders are becoming more risk-averse — they don’t want to loan money that Joe Borrower might not pay back, and they really don’t want to worry about liquidating Joe’s house down the road.  In fact,  not only are people with good credit having trouble getting refinancing, you can’t get financing at all in some areas for certain kinds of real estate.  For example, if you want to buy one of those 800 high-rise condos currently available in Las Vegas, make sure you have a large cash down-payment.  I can’t blame the banks for not wanting to get involved in what is essentially a niche market, but it does make life “interesting” in our local real estate market.

Even if the current housing problems are not over, I find it very encouraging that pending sales were unchanged — not lower! — in January on a nationwide basis. On a local basis, things are doing even better here in the Las Vegas Valley (many thanks to Tim Kuptz for making sure this data is regularly available to the people who want facts instead of vague impressions).  Bargain hunters are swooping in trying to catch REO (foreclosed and bank owned), short sale, and vacant property at prices that they haven’t seen in years, knowing there is a finite amount of buildable land in the Valley.

Also encouraging on the national level is that the FHA has come out with the new conforming mortgage limits, adjusted for regional conditions.  You can find your local limits here;  in the Las Vegas Valley, it’s $400,000 for a single family home, last revised this past Wednesday, March 5, 2008.  Trust me, I can help you find a nice place to live for $400,000;  what part of town do you like? The FHA getting involved is great news, because everyone expects them to ride in for the rescue, much like they did in 1935.

In the meantime, this might be a great time for some renovations,  but remember these bits of advice:

To ensure that your renovation will pay off, make improvements that others will appreciate as much as you do….  [Some] projects… are a matter of personal taste, and they may not add value in the eyes of a future buyer…. Also, don’t compromise long-term value for short-term convenience.

How true.

CNN has an article about how the Hope Now coalition claims to have helped a million homeowners. At least that is what Treasury Secretary Henry Paulson says. CNN isn’t so sure:

But of those borrowers, only 278,000 actually saw the terms of their mortgages modified. Their lenders either froze or reduced their interest rates, and may have reduced their balances as well to make loans more affordable.

Let’s think about this for a few minutes. According to the guys over at the Census Bureau, there are roughly 303.5 million Americans right now. That number of course rises every minute. Also according to them, roughly 69% of homes are owner-occupied — we own it, or someone we live with does.

Mr. Paulson is asking us to believe that one out of every 304 people has been helped by Hope Now. If you were to fill Robert Kennedy Memorial Stadium with random people, you should be able to find roughly 186 helped by Hope Now; if you filled it with only random homeowners, you should find about 271 people. Doesn’t that seem a bit high to you? Could it be that Mr. Paulson is counting all the way back to the inception of Hope Now’s helpline in 2004?

And where are these people? I am sitting in a metropolitan area where 9.87% of our 22,000 current listings are the Repo market — that’s over 2100 properties! Where are they? How are they helping people in Cleveland, where things are even worse?

The President told us in December that Hope Now was prepared to help 1,200,000 homeowners. If Mr. Paulson’s numbers are right, does that mean we are rapidly coming to the end of what they can do a mere 4 months later?

And what exactly is Hope Now doing to help these people if they are not actually getting loan terms modified? Mr. Paulson admitted that “Loan modifications alone increased 19% from December to January….” Fewer than 1 out of 5 people being “helped” actually got anything that would make their loans more affordable in the long term. Do you count as being “helped” if you call and tell them a sad story? How about if they “help” you by telling you it’s time to consider a short sale, or mailing the keys to the bank?

And one last thing. “Everybody” agrees that none of these mortgage assistance plans should help investors, that they made their beds and should lie in them. So what about the renters those investors leased to? They will most likely lose their homes too, often with only 3 days notice. Do you think you could coordinate finding a new home, packing everything you own, and moving in 72 hours? Probably not, and neither can they. Every day someone in my office deals with the collateral damage of this problem. Where is Hope –Now or any other time — for them?

Somehow I think this has progressed beyond being a “fixer-upper” right into the realm of “tear-down.”  But it even comes with many fixtures, some bar ware, and a phone!

Seriously, however, be aware of what you are getting into when buying distressed property.

In our current market, I get a lot of questions about short sales. And no wonder! As of Monday one out of every 5 listings in the Greater Las Vegas MLS was a short sale! For those of you that are terminally curious, that’s over 4000 short sale homes.

If you are interested in purchasing a short sale home, this is a must read article from Real Estate Journal. Here’s some of the important bits:

Even with experienced people at your side, it pays to arm yourself with facts before you make an offer. Don’t assume that the house is a bargain, since the owner may have bought the house at the peak of the housing cycle and may owe so much that he can only discount it to current market prices. Find out what comparable houses are selling for, whether a foreclosure notice has been filed for the property, who owns the loan or loans, and how much is owed — you’ll have to deal with them all.

The seller may eagerly accept your offer, but he isn’t the final arbiter of the deal — the note holders are. So make your offer contingent on the acceptance of the lender or lenders. Since the lenders want to know that you can back up your offer, include as much information as you can on your financial resources, as well as a preapproval letter from a lender.

Although the property may be advertised as-is, make sure the deal gives you the right to have and approve home and pest inspections by qualified professionals. Short sellers usually have given up maintaining and repairing their homes; you need to know what other expenses to expect.

Also, place a time limit on your offer — ask your agent what is customary in your area –since lenders will sometimes drag their feet, hoping to get a better deal. Short sales rarely take a short time to complete, but you shouldn’t have to wait around forever.

It’s a tough deal; even though roughly 20% of our listings are short sales, only about 5% of our actual sold homes last month were short sales! The frustrations involved in short sales are so universal that my office has prepared a document specifically for our clients on what to expect. If you would like to receive more information, click the “Contact Me!” button in the sidebar, or call me at the phone number at the top of this page.

I have lived in (or near) a number of large cities over the years, and have now had the occasion to see multiple metropolitan areas dealing with the problem of vacant housing. Sometimes, integral to the problem is unclear ownership. Other times, it is a large concentration of bank-owned properties — so-called REO — that for whatever reason can’t be moved. Ironically, sometimes local efforts to make sure homes are up to code and livable makes it more difficult to rectify the problem: banks and other remote owners are not in a position to arrange lots of repairs and inspections. Hopefully other regions will come up with novel solutions to the issues of vacant housing, because they are coming to a metropolitan area near you.

“Separate But Equal” used to be a perfectly valid legal principle. Now of course, you would be sued into oblivion for advertising a “Blacks Only” community — and rightly so! — but there was a time when such developments thrived. Now such neighborhoods are fighting for historical recognition.

If you are not familiar with the BondDad, you really should be. Here he talks about some of the issues involved in banks and mortgage companies unwinding their bad loan positions. Here he discusses housing prices and historical averages — please note that he is looking at the big, national picture and not the Vegas picture (which is looking up in my opinion). And here he talks about employment data. This is normally a topic I would discuss elsewhere, but people who don’t have jobs have a hard time paying the rent or mortgage.

And interesting news from the construction front. Could bamboo be the building material of the future? It’s strong, renewable, and grows like crazy. In some parts of the world, it’s already the building material of choice.

Buying a home can be exciting and scary. It’s easy to overlook little things, and easy to get nervous over the prospect of spending hundreds of thousands of dollars. And that brings me to the Tale of the Secret Mold Cellar: it seems a family purchased a bank-owned home only to discover a secret room hidden behind a bookcase; the secret room contained a note from a previous owner, and toxic mold. Apparently, the prior owner could not get the mold problem taken care of and let the bank take it back. They left the note to warn the new folks what they were getting into. I’m not sure I would go so far as to recommend everyone get a mold inspection when buying a home, but pay attention when the regular inspection is done, and make sure you look for “surprises” with a critical eye. These things go double on distressed properties that have things like “short sale,” “repo,” “REO,” “foreclosed,” or “bank owned” in the description. Disclosure laws are disclosure laws, but odds are really good that the bankers have no idea what the property even looks like, let alone what things are wrong with it. Sure, maybe you’ll pick up a bargain. On the other hand, maybe you’ll pick up a money pit.

Here’s a great commentary on the importance of doing research before deciding to buy a house — or any other investment! Your housing decision has to be based on your individual financial circumstances, not some blanket statement about the benefits of owning real estate.

I am very picky about what title companies I use for client transactions. Today, Inman News Blog spells out exactly why every real estate agent should be just as picky as I am. Several title companies in California are “consolidating,” and in one case closing the doors forever without bothering to even tell the employees. Closing on a house purchase or sale is stressful enough without worrying about whether your title company will still be there in 30 days!

For the last item of the day, we have restaurant picks from LasVegasUSA.org. It really would have been nice if they had included addresses, but alas you’ll have to Google your dining selection independently.