Real estate foreclosure danger increases
September 19, 2005
Las Vegas area at risk
There are some warning signs that the Las Vegas-area housing market is slowing down, according to Alexis McGee, president of Foreclosures.com. Price appreciation is flattening and existing-home sales are dropping, which "could indicate that the price boom in Clark County, Nev., could be coming to an end," McGee reported in an announcement today.
Foreclosures.com offers foreclosure data, analyzes housing trends and assists investors in six U.S. markets.
There were 5,728 new for-sale listings in August in Clark County, with the median list price of $349,000 – the same as in July, McGee reported.
"However," she said, "the actual median sales price in August was $309,000. That was still a record, but the appreciation curve is essentially flat. The situation in Las Vegas is exacerbated by the high percentage of home purchases by speculators. Normally, foreclosure is a lagging indicator of financial distress in a household, but speculators often have negative cash flows in their properties. When price appreciation slows or stops they run for cover, and now may have more difficulty selling quickly to cut their losses."
New-home prices had increased about 27 percent year over year, while resale year-over-year home-price appreciation was 13.1 percent, and the average time on market was now 48 days for new listings.
McGee also said that a steady decline in foreclosure activity in California had leveled out, and a combination of slowly rising interest rates and a shift to a buyer's market would make it harder for distressed homeowners to refinance or sell their way out of trouble.
"Foreclosure activity in California is no longer declining," she said. "And this activity is now actually below historic baselines in several markets. The default rate has nowhere to go but up."
According to Trendgraphix Inc, the Sacramento metro area saw 2,318 price reductions in May of this year. In July, there were 4,100. August, at mid-month, was on track for 4,500. "That's a cooling market," McGee said. "We see a plateau forming with modest price corrections in overheated markets. Real income growth has to catch up and restore lost affordability."
Also, she added, a period of increased defaults was on the horizon partly because of the use of exotic loan programs, such as interest-only loans and so-called option ARMS (also known as negative-amortization loans).
In New Jersey, there were 3,196 notices of default and notices of trustee sales, McGee reported, followed by 1,992 in July and 1,929 in August.
"The increased use of interest sensitive loans in the face of rising home prices would lead to an increase in mortgage defaults in the near and intermediate future," she also noted. "The percentage of New Jersey homeowners paying 35 percent or more of their pretax income for housing expense increased to 29 percent of all loans in 2004. And in 2005 that number will probably increase further."
Many New Jersey home buyers are using interest-only loans to qualify for more house than they could otherwise afford were headed for trouble, and McGee referred to these loans as "financial time bombs. When they convert to fully amortized adjustable-rate loans in two to five years, monthly payments can jump by 40 percent or more. Such a payment shock can lead to default."
Copyright 2005 Inman News