We all know the market has not yet cleansed itself of short sales and foreclosures but, a near 15% average increase in home prices in 2012 and lack of inventory on available homes, may prove deceitful. This article helps to shed some light and provoke additional thought on where we may be headed...
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LAS VEGAS — In a state long defined by its stormy housing market, the sun is apparently peeking out from the clouds.
Nevada just ended its five-year reign as foreclosure king of the nation, relinquishing the title to Florida in 2012. Home prices shot up 24 percent in Las Vegas in one year, and buyers are in outright wars to get a piece of tight inventory that’s shriveled to a five-week supply.
Even the Nevada Association of Realtors is looking to retire the lengthy Face of Foreclosure report it’s published annually since 2009, saying the issue is no longer the big story in housing and the public is just plain sick of talking it.
“Nevada’s ready to turn the page,” Joel Searby, a Florida-based analyst who produced the report, said in an interview. “In terms of what the data says, there’s no doubt that there’s been a downward trend that’s been steady since 2010.”
But amid the optimistic signs, troubling questions loom.
Most prominent among them: Has legislation aimed at stemming illegal foreclosures spurred real improvement, or simply created a bubble and delayed the inevitable?
Nobody is quite sure.
“It’s having an impact,” said Brian Gordon, an economist with Las Vegas firm Applied Analysis, about the much-discussed law Assembly Bill 284, “But it’s difficult to say how big.”
State law
In September 2011, initial foreclosure filings in Nevada totaled about 4,700, continuing a yearslong trend of filings that fluctuated between 2,000 and 10,000 a month. By October, the number of notices of default plummeted to 80.
Foreclosures have since crept as high as 1,400 a month, but they’ve never returned to their previous levels.
Many point to AB 284, an “anti-robo-signing” state law that took effect that month. It required lenders to show paperwork proving they had the legal right to a property before they could foreclose.
Proponents trumpet it as consumer protection. But to some Realtors, “The world came to an end” when the law took effect, said Keith Lyman of the realtors association.
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“There aren’t enough homes going on the market. That’s absolutely creating an artificial, temporary bubble,” said Victor Joecks of the Nevada Policy Research Institute, a conservative think tank that supports repealing the law.
Former Assemblyman Marcus Conklin, D-Las Vegas, who carried the bill two years ago and who recently lost re-election in a close, expensive race, said the bringing the measure was the right thing to do. He suggested criticism was more about upsetting the businesses of people making a heyday selling the distressed homes.
“If your business is built around foreclosures,” he said, “you’re not happy when foreclosure rates go down.”
Lyman, Joecks and Conklin all said there’s more behind the market’s dramatic turn than the state law.
Lyman said repealing it would make no difference because it mirrors language in federal rules. He said a more significant factor in the shift was a national, $25 billion mortgage settlement between state and federal governments and the five largest lenders in the country. The measure, which was reached in February 2012 after months of negotiations, gives banks a financial incentive for reducing principals and allowing short sales and doesn’t give them credit for foreclosing.
“It’s such a mixed bag in how it’s affected the market,” Lyman said about AB 284. “People are somewhat myopic in their view of what’s happening.”
Effect
But if the law isn’t the only thing to shift the market, it’s still had an effect.
“It sent out a mental shift to the homeowner — ‘I’m going to sit here and kinda live rent-free,’” Lyman said.
Rocky Finseth, who lobbies for the Realtor association, recalled appearing on a radio talk show and fielding a call from a taxi driver who said he’d heard about the law and stopped paying his mortgage.
“We need to put the threat of foreclosure back into the picture,” Lyman said.
Making some changes to the law could encourage people who are still unable to pay their mortgage to short sell, move out, and move on with their lives, Lyman said.
It could also help put the state’s housing crisis in the rearview mirror more quickly.
“Our recovery cycle has been somewhat delayed … as individuals have been staying longer than they would have,” said Gordon, the economist. “It’s probably time for them to move on.”
Impending flood?
Critics have made enough noise about that bill that Democratic Attorney General Catherine Cortez Masto has convened a working group of lawmakers and other stakeholders to publically discuss the rule.
“I’ve made it very clear that the intent here is to address people’s concerns, not for repealing it or watering down the strictures,” she said.
In a report released Thursday, realtors made their own suggestions for how Nevada lawmakers can help in the housing recovery:
They want to define what constitutes “personal knowledge” of a loan’s history. Lyman says mortgages passed hands so quickly during the housing crisis that it’s nearly impossible to know who held it at all times, and says a looser definition would allow more legitimate foreclosures.
They want lawmakers to address abandoned properties in a way that could help banks and others restore them to a market already starved for inventory.
Conklin thinks such newly freed inventory would be unlikely to flood the market and sink prices. He says such a scenario would not be in the best interest of banks.
“There’s always some risk. But it’s not like it’s a storm,” Conklin said. “I think there’s a lot of strategy — as more people demand homes, there’s more of a release of homes.”
And while representatives from the realtors association say they expect prices will decrease from current, inflated highs, they don’t expect a wave of foreclosures, either. Data shows the number of seriously delinquent properties is going down, Searby said, discounting worries of a widespread “shadow inventory” of properties on the brink.
Experts agree it’s a complicated calculus that depends on how banks make their decisions, whether the economy at large continues to improve, and whether the current, rabid appetite for Nevada housing is big enough to swallow up the new foreclosures and short sales expected to make their way
Most expect at least some pain along the way.
“When the bubble bursts, there’s going to be a fall,” Joecks said.
He added: “Do we want to drag it out, or have some pain in the short term and experience recovery?”
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