Is the Las Vegas Real Estate Market the Greatest Sin of All?

I've been investing in the Las Vegas real estate market for several years and currently own a few rental homes there. This market used to be very good to me. Now, I take a financial loss on every rental property owned in Clark County Nevada.

The Las Vegas real estate market has not fared well with the roll of the dice. The only winners in this game of roulette have been the banks. Speculators are convinced Las Vegas is paying the price for all its sins, as if the state of Nevada is being forced to pay a karmic debt through an endless sea of foreclosures.

I suppose they could be right, but considering the entire country is littered with bank owned homes I'm thinking blame rests with greedy Wall Street investors, not the powers of the Universe.

Vegas has taken a hard hit on many levels. It's difficult for a city that relies on people tossing around disposable income to survive during economic recession. As the tourist industry declined a lot of people lost their jobs. Before long they lost their home to foreclosure. In the past 2 years, nearly 20,000 residents have moved away from lack of employment opportunities.

I have a rental property located in a community hit hard by foreclosure. Each time I drive by the house I look out over an endless sea of short sale and bank owned "For Sale" signs. It's become such a ghost town I expect to see tumbleweed rolling down the middle of the street.

I was talking with a realtor friend who makes a living selling high-end real estate. He said the latest housing crisis in Vegas is the wealthy are moving out using strategic foreclosure. A lot of these high-end properties are owned by celebrities and the mega-rich as investment properties, not their primary residence.

Data gathered through the Case-Shiller index report reveals Las Vegas home values have declined by 58-percent since February 2006. The wealthy are electing to let their property fall into foreclosure because every time they pay their mortgage installment they lose money.

While most people don't feel sorry for the rich and famous, they have taken hard financial punches as well. The only difference is they can afford to hire attorneys to fight the banks and avoid being held responsible for deficiency amounts when their house sells short of the amount owed.

According to Las Vegas Realtors, nearly 75-percent of all home sales are bank owned properties and short sale homes. Of the properties that enter into foreclosure nearly 25-percent are the result of strategic foreclosure.

The Atlantic recently reported, "FICO has developed a new methodology for catching strategic defaulters." The majority of people who enter into this strategy to obtain mortgage relief are typically credit savvy. They believe it is better to walk away from real estate worth less than owed than to continue making mortgage payments.

Speculators believe that Vegas has yet to reach rock bottom and housing prices will further decline throughout the year. This will obviously be a negative for homeowners, but could be a boon for the market.

Mayor Oscar Goodman is reported to be launching a foreclosure marketing campaign to attract new residents and investors. I, for one, hope it works because the market is in desperate need of resuscitation. Not to mention, I don't want to reduce rental rates any further. Otherwise, I'll end up paying tenants to live in my investment properties.

Resources:
Standard and Poor's Case-Shiller Home Price Indices
Greater Las Vegas Association of Realtors
The Atlantic: FICO Can Read Underwater Homeowners' Minds
U.S. News Money: Strategic Defaults and the Foreclosure Crisis