Nevada still No. 1 in foreclosures as more price declines expected

A surge in foreclosure filings suggests that the housing market is headed for the feared "double dip," with some analysts predicting a further decline in Las Vegas home prices of up to 20 percent.

Nevada continues to lead the nation with one in every 17 households receiving a foreclosure notice in the first half of the year, Irvine, Calif.-based RealtyTrac listing service reported.

The state was hit with 5,140 notices of default in June, 4,736 notices of trustee sale and 2,963 real estate-owned properties that have gone back to the bank for a total of 12,839 foreclosure filings. That brings the six-month total to 64,429 filings, down 6.2 percent from the year-ago period and down 13.2 percent from the second half of 2009.

Nationwide, more than 1.65 million properties received foreclosure notices from January through June, an 8 percent increase from the year-ago period, RealtyTrac reported.

The "shadow inventory" of foreclosed homes being held by banks could grow as more borrowers enter into strategic default, walking away from homes with negative equity. Some 75 percent of Las Vegas homeowners are underwater, owing more than their home is worth, according to First American CoreLogic.

These numbers paint a bleak picture for Las Vegas and other cities engulfed by the subprime mortgage crisis that sparked a wave of foreclosures. Analysts foresee home prices declining throughout the rest of this year and possibly for years to come.

"I would not deny the possibility of a double dip," said Larry Murphy, president of Las Vegas-based SalesTraq research firm. "I would not deny the possibility of prices going down some more. We still have a lot of inventory out there, a lot of vacant inventory, and the economy is just not cooperating."

SalesTraq reported a median existing-home price of $122,847 in May, a 1.4 percent decrease from a year ago. It's down from a peak of $285,000 in 2006.

"I hate to say it, but we could see prices decline another 10 percent," Murphy said.

Kaye Cuba, senior director of valuation services for Cushman & Wakefield in Las Vegas, set the number a little higher, at a 15 percent to 20 percent further decline on the residential side.

After offering a glimmer of hope that home sales were picking up and prices were stabilizing, the housing market took a turn for the worse after the homebuyer tax credit expired in April.

Purchase applications fell for the ninth time in the last 10 weeks, the Mortgage Bankers Association reported for the week ending July 9. The seasonally adjusted purchase index dropped 3.1 percent and now stands at the lowest level since December 1996.

"This unprecedented slide in the purchase index further confirms that homebuyers largely remained on the sidelines through the month of June and now, it appears into July as well," the bankers' report said. "While we believe the relatively modest index declines over the past few weeks suggest sales are no longer in free fall, it appears homebuyers have yet to re-emerge to any significant degree post the tax credit, as we believe many consumers sense home prices still have further to fall."

Most housing analysts were expecting a surge in home closings in June as buyers rushed to get the federal tax credit. Instead, sales fell 11.2 percent in Las Vegas to 3,360 in June, the Greater Las Vegas Association of Realtors reported.

"Looking ahead, given the moderation we are currently witnessing in sales activity, we would not be surprised to see sales tail off further in the wake of the tax credit expiration," Raymond James analysts Buck Horne and Paul Puryear wrote in a June report. "Thus, while the Las Vegas resale market has demonstrated signs of stabilization, we are becoming increasingly concerned about the potential for renewed price declines."

With 14 percent unemployment and a 51 percent decline in home prices, Las Vegas is one of 13 housing markets that will never recover, 24/7 Wall St. website said.

"Most cities with sharp drops in home values are also the hardest-hit by the recession's impact on employment," the website said. "These areas may take years to get back to normal employment rates of 5 percent. In the meantime, home prices will continue to stagnate or worse, continue to fall because of lack of buyers."

Murphy said the Las Vegas economy must show substantial improvement for housing to recover, including a significant drop in the unemployment rate, a push toward higher room rates and a return of free-spending visitors. Also, population growth has stalled or even declined, taking away demand for new homes.

"I thought we'd hit bottom when median prices hit $120,000 last year and stayed between $120,000 and $125,000," Murphy said. "It really hasn't recovered. It just stopped bleeding. Given the state of the national economy and Nevada's economy, it's entirely possible we could see prices go down again."

SalesTraq showed repossessed homes dropping below 1,000 in December, January and February, then climbing back to 1,248 in March, 2,146 in April and 1,688 in May. There were 6,932 foreclosures through May, compared with 8,714 in the year-ago period.

Some housing experts see short sales as a panacea for the foreclosure crisis, even though the short-sale process can take four to six months to complete. Two years ago, short sales accounted for about 8 percent of Las Vegas existing-home sales. That figure had doubled to 16 percent by late last year and has increased by 2 to 5 percentage points a month.

David Brownell of Keller Williams Realty in Las Vegas sees a fundamental shift in the local housing market as short sales catch up with and maybe surpass foreclosures.

He counted 1,550 foreclosure sales in June, or 38 percent of total sales, compared with 1,403 short sales, or 34 percent of the total. That's the closest they've ever been.

"At the end of last year, I predicted that short sales would become the majority of the Las Vegas market for closed units," Brownell said. "This may be the last month that REO closings finish in first place. I feel a new market developing, another shift is occurring, and I think we are settling into a market dynamic that will exist for three, five, maybe even 10 years."

Inventory of homes for sale on the Multiple Listing Service has also started to climb after falling from a peak of more than 23,000 in 2006. It's up to 21,361 in June, the Realtors association reported.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.