Effective homeownership rate in Las Vegas perilously low, according to Fed study

Southern Nevada homeowners were dealt a hand in the real estate and mortgage tragedy for the ages that had very little chance of keeping them in the game for long. Severe price erosion has yanked tens of thousands way underwater – a suddenly everyday term in Sin City where the mortgage balance is higher than property value – that has pushed them to reconsider the merits of continuing to honor the original home loan agreement. Making payments on a, say, $400,000 mortgage when the house is only worth $200,000 is bothering increasingly many as something they probably should not be doing. Renting is becoming a viable option. 

The Federal Reserve Bank of New York has taken the underwater factor into account in its recent study on homeownership in the U.S. The Census Bureau supplies quarterly the official numbers on it, for instance reporting that the all-time high of 69% was reached in 2006. At the end of 2009 it leveled off at 67.2%, clearly pulled lower by the adverse effects of the housing meltdown. But with the underwater dynamic included, the Fed estimates the national “effective” homeownership rate should be 5.6% less over the next several years. It means then that the number ought to be around 61.6%. In itself, nationally, it’s not that drastic.

But the issue is about to spawn a cardiac arrest-like impact when Las Vegas figures are flashed up on the wide screen, at least among those residing in the desert entertainment oasis. In August of 2009 the Census Bureau’s official homeownership rate in Southern Nevada showed 58.6%, the peak being 65% a few years ago. And here comes the numbing shocker; per the Fed’s calculations the “effective” rate here now is a mere 14.7%. Ouch. Due to the underwater metric the gap widened by over 40%. Case-Shiller home price index was employed to come up with an estimate for the count of underwater mortgage borrowers in Vegas.

Las Vegas is one of the worst-hit cities with hair-raising price drops, inevitable for a real estate market gone wild. Strong population growth, booming economy and also enticing mortgage availability fueled rampant over-building and optimistic investor speculation, juicy ingredients in a time-tested recipe good for a stunning housing collapse. A disparity from the national homeownership rate was expected because of that, but it being so wide came as a surprise. 14.7%! Thought-provoking for sure.

Southern Nevada – home to Canyon Gate, Rhodes Ranch, Henderson, Green Valley, North Las Vegas and Southern Highlands – has lately attracted scores of cash-heavy investors to acquire value-priced property that mostly end up as rentals, diluting homeownership. That predictably is then largely responsible for the Census Bureau’s rate dropping to the higher 50s. Quite a few distressed mortgage borrowers, however, hang on and never become an underwater statistic the Fed has used. It’s hard to say what exact weight the Fed has applied in its estimate concerning that, but getting to 14.7% means they believe a great number will ultimately lose, or walk away from, their homes.

Of course anything is possible in the aftermath of a mortgage banking and housing fiasco of these proportions, but it just seems surreal to see the homeownership level in Southern Nevada to sink that low. The economy is weak, but not dead. The Strip does have a pulse, although it misses a beat here and there. A range of 35-40% at the real estate market’s very bottom might be more realistic.

 

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Provided by: 

Esko Kiuru
Mortgage Consultant, Father, Golfer, Skier, Beer Aficionado

www.BluefoxToday.com - syndicated mortgage and real estate blog

eskokiuru@gmail.com
My cell: 702-499-1006

Home loans in Southern Nevada - including Las Vegas, Summerlin, Henderson, Green Valley, Mountains Edge, North Las Vegas, Southern Highlands, Anthem, Boulder City, Pahrump and Mesquite - and all of Nevada.