Las Vegas Underwater Property Update: Episode #359

Todd and Oana talk about underwater properties in Las Vegas

Todd: Hello. Welcome to Todd Miller TV. Joined here today with Oana and some very interesting news was just reported and it is that for the first time in about seven years, in Las Vegas, less than half of the houses are underwater. At the peak it was about 75 percent of all houses were underwater which is pretty much every house of the loan because typically in any market, about a quarter of all houses are owned free and clear.

But we just broke the 50 percent. It’s actually 48 percent at the end of the second quarter. It’s what they reported. Now here’s the interesting thing that I want to talk about with you specifically and educate everybody on.

The reason is it’s not because all these people with mortgages got them resolved. It’s because prices have been climbing and every time that price goes up, more people become not underwater because now their house appreciated. It’s not because they paid down the debt or they got a loan mod. It’s just because prices went up.

OK. What do you see the trend being given the amount of inventory we have, the amount of inventory we may or may not have in the ongoing like – like how do you see this playing out over the next six months, year, five years?

Oana: For the most part, I see a return to a reasonably healthy market. Here’s what’s going on in the market. We’re looking at six percent of the market now or something in that order. It’s now REO, which is nothing. That’s what a healthy market is. You always have some bank-owned property but not very much.

You’re looking at about maybe a third of the market now is short sales, which considering what we’ve been through, that’s pretty reasonable and the rest of the market is basically traditional sellers, people who either owe nothing or owe less on the house than what it’s worth. So they’re going to walk away with some money. So we’re looking at a return to some sort of normal market.

Todd: OK.

Oana: I know a lot of people think, well, but there’s that shadow inventory and there’s this tsunami of properties coming. I’ve heard the word “tsunami of properties” for so long. Sorry, I don’t believe that. It’s not in anyone’s interest for that to happen. OK?

Todd: 2010 was the first time I heard that word used.

Oana: Yes.

Todd: That was three years ago and it was sort of – we were already at a ton of properties. There’s already a ton of them and it was like they felt that was going to be the next big wave and it never happened.

Oana: No, and it’s not going to happen. It’s not in anyone’s interest.

Todd: OK.

Oana: So my point is that we’re returning to some sort of a normal market. Even though I think a lot of people feel it’s a manipulated market because of the shadow inventory out there, whether you believe it’s manipulated or not, it’s not the issue. What’s at stake is that we’re going to be in this market where you have about half the market or better than half the market having equity in their homes.

You’re looking at very small bank-owned inventory and the rest being on the border or maybe short sale and you’re looking at this continued appreciation. So as long as inventory level stays low which makes sense for everybody for that to happen because that continues the appreciation, that continues people not just walking away from the homes, because they’re upside down and they’re thinking it’s no longer worth it to me.

So long as prices keep trending up, even if they’re trending up very slowly, it makes sense for people to stay in their homes and get to a point where they’re at breakeven and not be upside down their homes.

Todd: OK.

Oana: So I see the market recovering. I see the market appreciating, maybe slowly, but appreciating nevertheless. I see a lot of equity sellers coming to market more and more going forward. I don’t see a tsunami of bank-owned properties. I don’t see numbers increasing for short sales. I see the numbers of people with equity rising; everybody else, all those numbers dropping.

Todd: What about the people who have said we’re in a bubble because prices went up 24 percent?

Oana: Prices were artificially low. So when prices drop artificially low, then you’re going to have a big bounce back and that’s what my point was that we’re not going to have a sustainable 24 percent year over year.

Todd: OK.

Oana: But we are going to have slow and steady appreciation, some great, some not so great; but we’re going to have the slow and steady appreciation. We’re not going to see a bubble that’s going to burst.

Todd: Do you think in five years if we look back over the last five or ten years, that the last year was the big appreciation? Do you just foresee us planning out into some whatever equilibrium and being able to say that that was the five years or that was the one year or the 24-month or 12-month period where prices appreciated the most?

Oana: I think that’s very likely unless some traumatic or dramatic thing happens nationwide that somehow forces prices up. All of a sudden, we have inflation rising or something crazy like that happening something happening on the national scene, locally we’re just going to have slow and steady appreciation.

Todd: OK. I agree with that. So I just want to share that information with you. I get this question all the time. I figured it would be easier to answer it in a video. That’s sort of historically how things have gone and when you look forward, you kind of see that’s where they’re going. I agree, no tsunami and the shadow inventory for the most part, it’s not in anybody’s interest to foreclose like crazy and trash all the markets again. Banks have incentives now, a lot of incentives to make reasonable decisions and only foreclosing on people that they know they’re never going to resolve and everybody else working out a deal.

Oana: Right.

Todd: A really smoking deal, like two percent interest rate, 40-year loans to make them stay in and make those loans current again or make them performing, so they can sell them or do whatever because that’s how they make their money.

Oana: Absolutely.

Todd: They don’t make money foreclosing. They make money by selling performing notes to investors.

Oana: Right.

Todd: OK. Sweet. So that is my update for today. Thank you very much Oana.

Oana: You’re welcome.

Todd: And hope to see you on another video Thanks.