Renee and Dwaine McCuistion, who lost their Las Vegas home after defaulting in 2010, are feeling lucky again. They bought another property last month for $475,000, 42 percent less than what the previous owner paid.
“It’s like we won the lottery,” said Renee, sitting on the patio of the four-bedroom house at Red Rock Country Club beside Dwaine, her police officer husband. “With everything so low, we felt it was imperative to start building equity again.”
Las Vegas, the center of the U.S. housing speculation and collapse that sparked a global financial meltdown, is again enticing buyers after a 62 percent price drop, the steepest of any American city. Demand has intensified among investors such as Blackstone Group LP, the world’s largest private-equity firm, as well as families like the McCuistions who are climbing back up the real estate ladder as Nevada’s supply of bank-owned property tumbled the most of any state, CoreLogic Inc. data shows.
Las Vegas home prices rose 1.4 percent in September from the previous month, tied with San Diego for the biggest gain among the 20 cities tracked in the S&P/Case-Shiller index. Las Vegas jumped 3.8 percent annually, compared with the 3 percent rise in the composite measure, as the U.S. housing recovery benefited from record low mortgage rates and affordability.
“In the last six months, people have gotten their money together and realized that prices overcorrected,” John Burns, a housing consultant, said in a telephone interview, referring to bargain-hunters seeking deep discounts amid confidence that a floor has been reached. “Las Vegas homes are a tremendous value.”
The revival in the desert city that pioneered casino gambling, and fed dreams of homeownership with little money down and a speculative road to riches, follows the wreckage of the nation’s worst foreclosure crisis. Nevada led the U.S. housing boom with an estimated 275,000 new homes built from 2000 to 2007, the biggest increase of any state, according to the Census Bureau, before its spectacular demise.
“When you bring an act into this town, you want to bring it in heavy,” Hunter S. Thompson wrote in his 1971 book, “Fear and Loathing in Las Vegas: A Savage Journey to the Heart of the American Dream.” “Don’t waste any time with cheap shucks and misdemeanors. Go straight for the jugular.”
Las Vegas had the highest rate of foreclosure filings per household for 22 consecutive months from December 2009 to September 2011, according to data provider RealtyTrac Inc. About 70 percent of mortgage holders in the city still owe more than their homes are worth, and $80 billion in home equity has been wiped out, said Jeremy Aguero, principal at Applied Analysis, a Las Vegas-based research and advisory firm.
Now, a “feverish” demand for property has again taken hold, he said. The number of listed homes for sale has dropped to a 1.5-month supply, down from a typical four-month stock of available properties, in a squeeze recalling the boom, he said.
Around the peak in 2007, the McCuistions were like many Las Vegas residents betting on bigger loans for bigger homes. With a 17-year-old son living at home, and both on second marriages, the couple had a $175,000 joint income, with Renee, 49, earning the bulk as manager of a credit-card processing center and Dwaine, 45, bringing in a cop’s salary.
They bought a $679,000 four-bedroom in a golf development in the northwest part of town, taking out a 30-year jumbo loan for $611,000 with a fixed 7 percent interest rate, as well as a $57,000 second mortgage. A third mortgage for a condominium they rented out, plus mortgage insurance because of a low down payment, made for $6,000 of monthly housing costs.
“You could see the lights of the city twinkling at night,” said Dwaine. “We overlooked three fairways.”
Then an old back injury worsened for Dwaine, and 60-hour weeks at the payment center caught up with Renee, and she began experiencing headaches and neck pain. By early 2010, both were on their way to spinal surgeries, medical leaves and severe loss of income, with Las Vegas prices already in free fall from the August 2006 peak.
The couple defaulted on the jumbo loan in December, and moved out of the house on Killians Green Drive when it sold for $349,900 in March 2011 in an all-cash short sale, where a lender agrees to accept less than the amount owed on the property.
“It was humiliating,” said Renee. “We were raised to be emphatic about our finances and credit, and we lost control.”
There was nothing unusual about their situation in a city filled with bad bets. Even now, Las Vegas prices are below 2000 levels on average, according to the S&P/Case-Shiller Index.
“Everybody who bought between 2002 and 2010 has lost money on their investment,” said Burns, chief executive officer of Irvine, California-based John Burns Real Estate Consulting. Still, the revival has just begun -- “the first or second inning,” he said.
Builders including Los Angeles-based KB Home increased home starts in Las Vegas by 62 percent in the second quarter from a year earlier, on the bet that buyers will pay a premium for new construction, according to Greg Gross, Nevada region director for Metrostudy. Multiple offers on desirable bank-owned and short-sale homes are also common, said Kolleen Kelley, president of the Greater Las Vegas Association of Realtors.
Richard Weiss, who relocated from Arizona in January with his wife and two small children, said he “low-balled” bids on a dozen properties before realizing that the market had turned and offers had to be above the asking price. He finally succeeded on Oct. 18, completing a short-sale purchase for $230,000 on a home that sold for $549,900 in 2005, a 58 percent discount.
Las Vegas short sales almost doubled in October from a year earlier to 43 percent of total home purchases, according to San Diego-based real estate research firm DataQuick. Foreclosure sales fell to a 17 percent share, from 53 percent a year earlier.
Bank-owned inventory will be “depressed for at least six to 12 months,” partly the result of a Nevada state law in effect since October 2011 that’s made it harder for lenders to initiate default proceedings, according to Jonathon Weiner, vice president, research and development, at Jacksonville, Florida-based data provider Lender Processing Services Inc.
Nevada’s foreclosure inventory, measured as repossessions per total mortgages, fell by 1.6 percentage points in September from a year earlier to 4.9 percent, the largest annual drop among U.S. states, CoreLogic data show. Nevada had the fifth-highest proportion of foreclosures, behind Florida, New Jersey, New York and Illinois.
“There are significant headwinds to the recovery, but the Las Vegas pipeline is being processed,” said Mark Fleming, chief economist at the Irvine, California-based company.
Other metrics also are looking up for Las Vegas, including a record 40 million visitors expected in 2012 that would surpass the peak volume set five years ago by about 800,000, said Scott Russell, research manager at the Las Vegas Convention and Visitors Authority.
Spending per visitor has risen to $676 from last year’s $645, and hotel room rates are up 1 percent to $112 a night on average. Both figures trail the record $750 spend and $132 room rate set in 2007, according to the authority.
Casino revenue rose 2.6 percent through September at hotels on the city’s namesake boulevard, better known as The Strip, and more than $1 billion in hotel redevelopment is complete or underway, including a $110 million refurbishment of guest rooms at MGM Resorts International’s flagship Bellagio and a $160 million renovation of rooms, dining and nightclub space at the MGM Grand.
In the downtown area north of The Strip, Zappos.com Inc.’s purchase of the 1960s-style City Hall for an office campus is part of company founder Tony Hsieh’s $350 million investment in commercial real estate and education.
Still, not everyone is convinced that the Las Vegas comeback is sustainable. Housing may reverse course without a source of new jobs, said Gary Beasley, managing director for Waypoint Real Estate Group LLC, an Oakland, California-based bulk investor that has so far steered clear of Las Vegas, in contrast to Blackstone, GTIS Partners and Haven Realty Capital LLC. Nevada’s 11.5 unemployment rate is the worst in the U.S.
“Las Vegas tends to be a very cyclical market, and will probably come back, but we’re unclear what would be the catalyst for price appreciation,” Beasley said in an interview.
The U.S. housing rebound is also showing limitations. Sales of new homes unexpectedly declined by 0.3 percent in October to a 368,000 annual pace, figures from the Commerce Department showed today in Washington.
That’s not deterring people like the McCuistions. Although they defaulted on jumbo-loan payments, the couple kept current on the second mortgage and the loan for the rental property. The mitigating circumstances, along with medical hardship, convinced their current lender to extend repayment terms for the Red Rock Country Club house, said Heidi Kasama, their broker and incoming president of the regional Realtors group.
Only 10 percent of borrowers who were seriously delinquent on their home-loan payments have regained access to the mortgage market within 10 years, according to an Oct. 29 Federal Reserve of San Francisco research note. “It’s only a very small fraction,” said Weiner, the LPS research director.
The McCuistion’s main mortgage this time is around $1,800, about the same as their rent while the couple tried repairing credit scores that sank to 650 from more than 800, said Renee, who hasn’t gone back to work. Dwaine’s pay is supplemented by a military pension after a 20-year Air Force career. Lower rates and a conforming loan also helped reduce the outlay.
“Very slowly, we’re selling to people who water their lawns, put out the garbage and become part of the community,” said Kasama. “It’s been very painful.”