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The effects of America's worst property crash go very wide
Mar 24th 2011 | LAS VEGAS | from the print edition
TO THE many dubious distinctions of Las Vegas, add one more: foreclosure
capital of America. According to RealtyTrac, a property-listings firm, one in
every ten homes in the city was in some stage of foreclosure last year, almost
five times the national rate. In North Las Vegas, a poorer suburb, the figure
was one in five. These statistics would be even grislier were it not for
lenders inability or reluctance to eject all those who are in default at once.
People who have managed to hold onto their homes are far from lucky: property
prices are around 60% below the peak they reached in 2006, leaving 70% of
homeowners in the area owing more on their mortgage than their property is
worth. (Nationally, the proportion of homes that are under water is a
still-awful 23%.)
All this makes Las Vegas the most extreme example of the many cities in America
s sunbelt that grew rapidly thanks to the cheap and abundant credit of recent
decades, only to suffer fearsome property crashes during the subprime crisis
and the ensuing recession. The ten most foreclosure-afflicted cities in the
country are all in Arizona, California or Nevada, notes RealtyTrac. Of the ten
most foreclosure-prone states, only one Michigan, with its car-related problems
lies outside the sunny south and west. As these places are now discovering, it
is not just unfortunate property-owners who feel the reverberations of such
monumental busts, nor are their effects confined to pocketbooks.
The signs of the crash are everywhere in Las Vegas. The city s outer suburbs
are eerily quiet, thanks to the preponderance of unsold and foreclosed homes.
There are few lights in any windows, and few cars on the roads. Banners and
boards advertising hugely discounted housing flap and rattle mournfully in the
desert wind. In North Las Vegas every second house on some streets carries a
For Rent sign, offering rates of as little as $150 a month. One or two houses
on each street have been boarded up and abandoned. Even on the city s famous
strip of cavernous casinos and high-rise hotels, the razzle-dazzle is marred
by the grey concrete hulks of abandoned building projects.
When a property crash becomes as pervasive as Las Vegas s, explains Devin
Reiss, a former head of the Nevada Association of Realtors (NVAR), it takes on
a life of its own. Nasser Daneshvary of the University of Nevada, Las Vegas has
found that the value of homes near foreclosed properties falls faster than the
market as a whole, until so many homes are foreclosed that average property
prices fall to the level of foreclosures. That, in turn, leaves more homeowners
deeper in negative equity, saddled with mortgages that vastly exceed the value
of their homes. NVAR reckons that as many as a quarter of those who suffer
foreclosure do so by choice, to escape such a trap. Locals swap stories of
cunning borrowers who buy second homes for a song before deliberately
defaulting on their first mortgages.
This sort of downward spiral, in turn, has a dire effect on local governments,
which tend to rely on property taxes for much of their revenue. Clark County,
which includes Las Vegas, expects its take from property taxes will fall by
over a fifth this year. The problem is all the more severe, says Susan Brager,
the chairman of the county commission, since demand for the services the county
provides has risen amid the downturn. Local authorities also end up picking up
the pieces when developers go bust or homes are abandoned, leaving fees unpaid,
infrastructure to be completed and property to maintain.
All of this ripples through the local economy. The construction business, once
a mainstay, has withered. Local governments are trimming their staff. Some of
those who have lost their homes or jobs have moved away: the population of
Nevada started falling in 2008 for the first time in decades. And even those
who stick around may be infected by the surrounding gloom. Alan Swinson, a
builder living in North Las Vegas, says he has struggled to keep up with his
mortgage in the past and is now determined to scrimp and save all he can to
ward off future calamities. One recent study found, perhaps unsurprisingly,
that high levels of foreclosure tended to drag down not just investment in
property but also car sales.
The knock-on effects go further, argues Terrie D Antonio, the head of Help of
Southern Nevada, a charity. Moving house can cut people off from their friends,
churches, schools and community groups. Many have lost their homes because they
have lost their jobs. All this leaves them isolated and depressed. And that can
lead to drug and alcohol abuse, domestic violence, juvenile delinquency and so
on. The number of people turning to Help about all these problems has jumped in
recent years, Ms D Antonio says. A 2009 survey of Latino families around the
country whose homes had been foreclosed had similar findings: amid the stress,
marriages broke down; family members fell out; children s academic performance
suffered.
The proliferation of foreclosures has impinged on politics, too. Local
politicians all have pet schemes to pep up the property market. Democrats at
both state and federal level have tried to cast themselves as friends to
struggling homeowners, voting for various measures to encourage forbearance by
banks and tide over borrowers in arrears. Shelley Berkley, the Democrat who
represents Las Vegas in Congress, huffs and puffs about Republican plans to
shelve such schemes: Talk about kicking people when they re down! But
Republicans in districts with lots of foreclosures are more sympathetic to the
over-indebted than the party as a whole. Joe Heck, the Republican who
represents many of the city s suburbs, recently cast the sole Republican vote
to preserve one of the programmes Ms Berkley is so worried about. His
predecessor, Dina Titus, a Democrat, was booted out of office last year amid
anger about the state of the economy yet another victim of America s housing
bust.
from the print edition | United States