I’m going against the grain, it seems: I’m buying a house here, just as hundreds of thousands of other folks seem to be leaving. Nearly 20,000 homes are listed for sale in Las Vegas, according to http://www.realtor.com. I think that figure is low – and misleading; not all houses being vacated are being listed for sale. Many are just being left.
A better figure might be the one given on http://www.foreclosure.com, which says 23,000 homes are in active foreclosure here. (Read here about how Nevada has led the nation in the rate of foreclosures for 52 straight months, as of April 2011.)
That’s far fewer, actually, than were in foreclosure last year, my realtor friends in the area tell me. Late last summer, as I recall, more than 61,000 homes were in foreclosure. I think a large number of those went out of foreclosure and back to the banks (or government, in the case of Fannie Mae and Freddie Mac properties) holding the principal note – hence the lower number now. Either way, large swaths of Las Vegas (2010 population: 1.95 million) look like a ghost town (I wrote a 2009 column about Vegas’ “ghost hotel”, the unfinished Fontainebleau). Am I exaggerating? Check out this 39-photo essay of an entire subdivision’s demise.
Anyway, aside from perhaps Detroit, no other large metropolitan area in the country has been hit as hard by the recession (Phoenix residents might take issue with that statement). Las Vegas, which was in the middle of a frothy building boom when the economy got hammered, was more vulnerable than most. Foreclosures here have become epidemic (and a new industry, in and of itself, of people handling them & their fallout).
Huge areas, such as tony Summerlin neighborhoods, have seen values drop by more than two-thirds since 2007. My home, which I just bought for a very low price, sold for more than three times as much in 2006.
The purchaser realized a year ago that he was so far under water, he would never come up for air. He just decided to cut his losses, and he walked away, taking only what belonged to him; I was lucky in that regard – many owners aren’t as copacetic about leaving.
Lately, we’ve been reading up on the listings in http://www.craigslist.org to see what people are leaving Las Vegas with, and what they are leaving behind.
“Leaving Las Vegas. The furniture stays,” says one poster’s ad. “Thanks, Wells Fargo.”
We looked at one house during our home search; it was charitably called a “fixer-upper”. (“Handyman special” is another term to watch out for.) Someone had cut open a water bed, in a bedroom above the garage, and let it drain; it took much of the bedroom floor and deposited it in the garage. Feces was smeared on the walls, and in the carpets, and small fires had been set in several of the rooms. The place had been stripped.
“Why would anyone take the toilets with them?” I remember asking at the time.
Anything of value that had been left behind had been vandalized. What was beneath the black waters of the half-filled pool was something we did not wish to discover.
I thought people were just stealing what wasn’t nailed down. No, actually, few people want to go to the expense, trouble and time to remove things they probably don’t want to remember, from a house they want to forget. So they are looting the properties, just to make sure little or nothing of value is left for the banks.
“What these people want to leave the bank,” one realtor told me, “is basically a patch of dirt, with an empty box on it.”
Here’s a sample of craigslist ads:
“Moving to Thailand Sale! Set of custom window shutters. Fits KB Homes. (“The bank may get my house, but not my shutters!”)”
“Large palm trees. Free to the first person to dig them up and haul them off.”
“Kitchen, bedroom and garage cabinets. $15 each. You remove.”
“Towel racks, toilet paper holders, closet rails. $5 each.”
“Crown molding and baseboards. You remove.”
“3,000 square feet of used carpet. You roll it up & haul it off.”
“Leaving town this weekend. Everything must be gone. Backyard palapa, plants, 4,000 paving bricks.”
“Security door. $100.”
“Door knob. $10.”
“Door hinges. $2″
It seems no one is served by this loot & scoot mentality. The homeowner is no longer a homeowner. He is no longer a taxpayer; a nearby community, short on tax revenue, just pink-slipped 35 percent of its workers. Those people subsequently packed up and left town; I know, because we bought some furniture (love seat: $20) from a young couple returning to California (moving back in with their parents).
Empty houses don’t sell fast here; there are too many of them. So, many sit vacant. The utilities are turned off. The landscaping dies. Unemployed vandals throw rocks through the windows, break in and take anything of value that might still be left. The more vacant houses in a neighborhood, the more the values fall for the home owners who are trying to ride it out, and stay.
“Our house is now worth what it was 11 years ago, when we first moved to town,” said the lady at the grocery store. “We’re lucky, though. Our mortgage is paid off. We’re not under water, like most everyone else in town. But most of our neighbors are gone. It’s pretty lonely in our neighborhood now.”
In a once-popular Red Rocks neighborhood, built five years ago, and which quickly sold for the builder at prices of between $500,000 and $600,000, nearly every homeowner there now is under water on their mortgage.
“My house is now worth less than $280,000,” said one Red Rocks homeowner, who was conducting a craigslist fire sale. He was planning to sell everything he could, and relocate to a rental across town in Henderson (where prices are lower). The house next to him had foreclosure signs taped in the windows: “No trespassing” Two doors away, a house on a prime corner lot, said it was “bank-owned” (code for “you can get this for a steal”). “For sale” signs were visible up and down his street.
He, like most every other distressed homeowner in Las Vegas, was unable to re-negotiate his first mortgage. He said it was pointless to even try. “The banks don’t care,” he said. We know that first-hand; we waited seven months for a response from a bank on a short sale. But the time the answer came (it was “yes”), the yard was dead, vandals had broken in, and someone had thrown large rocks through the roof. Water had been pouring in the holes for months; water damage was everywhere inside. We walked away from the deal; the bank didn’t care – they lowered the price (they wouldn’t re-negotiate with us for that same lower price) and sold the place to some other sucker. The bank, meanwhile, took a $500,000 “haircut” (loss) on the original 2006 mortgage ($859,000!).
Why won’t banks re-negotiate? Especially deals they were stupid to have made in the first place – such as sub-prime loans to people they knew probably couldn’t pay them back? The theory is called “moral hazard” – and it means basically that banks have decided if they re-write the terms of a loan for one person, everyone will demand the same deal. Pretty soon, the mortgages won’t be worth the paper they are printed on. Banks wouldn’t necessarily go broke, re-negotiating loans. They would merely make less profit; less profit means their stock prices will probably drop. If banks just “write off” the loans instead, they get a “tax break.”
Holding the line against “moral hazard” loan re-negotiations is what started, and has kept the so-called “sub-prime mortgage crisis” going, according to at least one economist.
So bankers have decided it is better to protect the sanctity of the mortgage contract – regardless of how flawed, deceptive or outright dishonest it was in the first place – and end up with box on a patch of dirt.
It’s thinking like this that brought us the Great Depression of the 1930s – and made it last for 10 years.
August 2, 2011