Analyst: Las Vegas home prices expected to keep dropping

Recent legislation cracking down on robo-signing and other questionable foreclosure procedures by lenders has not helped the market recover, Smith said.

Assembly Bill 284 had good intentions, but it’s only extending the recovery period until lenders feel safe about releasing their "shadow inventory," he said.

"2012 in my opinion is going to be the most interesting year yet because of intervention from the government that’s trying to manipulate housing recovery," the president of Home Builders Research said during his hourlong presentation. "Just look at the shadow inventory."

Amherst Securities produced an analysis that showed 2.5 million homes nationwide are real estate-owned, or bank-owned, and that 4.5 million people have stopped paying their mortgage and are likely to lose their homes. Including underwater homeowners, the number of potential foreclosures could range from 8.2 million to 10.3 million.

"Those numbers have really shaken policymakers in Washington," Smith said. "We could see 10 million out of 55 million mortgage holders go to default."

CoreLogic, a Santa Ana, Calif.-based mortgage data provider, estimates that 61 percent of Las Vegas mortgages are upside down, exceeding the market value of the home. With 422,000 mortgages in Las Vegas, that’s roughly 257,000 homeowners at risk of default, Smith said.

"Let’s assume half of those turn into foreclosures. Right now, given the malcontent out there, I don’t think that’s too far from reality," he said.

Negative equity for most Las Vegas homeowners is around $50,000 to $100,000, and could be higher in some areas of the valley, Smith said. No government program has overcome that deficit, he said.

Fannie Mae and Freddie Mac are still refusing to reduce principal mortgage balances, and loan servicing companies have no incentive to reduce principal because they collect fees based on payment amounts, Smith noted.

Home Builders Research reported 48,822 resale closings in 2011 at a median price of $110,000, down 7.6 percent from 2010.

"I don’t think we’re going to see any drastic improvement in the resale median," Smith said. "We have to see what happens when that spigot of bank-owned homes gets turned back on."

New-home sales fell to 3,894, the lowest level since Home Builders Research began tracking the market in 1988. Median price fell 2.7 percent to $212,250.

New homes won’t see a significant bump in production until 2015 or 2016. Prices will bounce along the bottom and remain fairly consistent into 2013. The only thing that would change the new- home median price is an increase the resale median, Smith said.

Smith reported a slight increase in consumer traffic through new home subdivisions and an uptick in net sales to 0.5 units a week, up from 0.4 sales earlier in 2011.

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