It is universally accepted that the increase in Las Vegas foreclosed homes has affected just about everyone in the country. The list is headed by homeowners and future homeowners and includes the entire banking and lending industry, real estate professionals, politicians of all stripes, most businesses…in short: nearly everyone.
With the growth of the number of foreclosed homes in all regions and its obvious effect in lowering housing prices, we have grown used to the headlines and TV analysts as they feature the negative economic effects. Foreclosed homes are usually portrayed as the fallout from national regulatory and financial industry mismanagement…a legitimate point of view, but scarcely the entire story.
Almost universally overlooked is the fact that it is the number of foreclosed homes that is an unusual artifact of what is otherwise a normal market phenomenon. The size of the artifact has created an abnormal tilt in most parts of the residential market, which has in turn created the market conditions that are so unusual. The upshot of this – the “foreclosed homes effect” – is a climate of unusual risks, unusual writedowns, and (the overlooked and underreported part) unusual opportunities.
The risks and losses are, of course, real. Foreclosed homes can multiply risk via the often cited “contagion effect”. A home that is in perfect condition in a perfectly safe and well-maintained neighborhood loses imputed value simply by geographical proximity to foreclosed properties. If such a homeowner has no intention of refinancing or putting his home on the market, the foreclosed home contagion has no real effect at all. The paper loss is not acted upon and the home continues to yield its actual, real-world value by furnishing pleasant, comfortable shelter, and a not inconsiderable tax saving. It may be somewhat unnerving to realize that a hypothetical sale would yield less than previously, but also reassuring to know that homeowners have the option of keeping the effect mostly abstract.
On the other hand, the history of market cycles is unambiguous when it comes to the big picture. Markets go up, and markets go down. And then they go up and down again. Foreclosed homes are part of the down cycle, just as appreciating prices will be part of the next up cycle. History has never witnessed a perpetually down cycle — especially when it comes to necessities like housing.
If foreclosed homes are a solid economic marker, then rising numbers of foreclosed homes are a major marker, and it is foreseeable that as soon as those numbers begins to fall, a turnaround is impending (if not already in progress). It is also true that for the prospective homeowner whose intention is neither a quick refinance nor turnaround sale, a fallen market is exactly what he might be looking for. For January’s Las Vegas buyer focused on the true (shelter) value of a prospective home, worries about possible double dips in the economy are not necessary. He or she need merely assess the value of a property to their family, the likelihood that the neighborhood will continue to be safe and well maintained, and make plans accordingly. For such buyer, especially those who had to sit out a decade and more of spiraling real estate prices, the “foreclosed homes effect” can now provide an unanticipated opening.
Mark Karten is a Las Vegas Realtor who specializes in listing and selling homes in Las Vegas, North Las Vegas and Henderson. If your home is “upside down” – learn more about your choices before you think of walking away – a short sale might be the right option.