Taking Bets on the Las Vegas Housing Revival
Renee and Dwaine McCuistion, who lost their Las Vegas home after defaulting in 2010, are feeling lucky again. They bought another property in October for $475,000, 42 percent less than what the previous owner paid. “With everything so low, we felt it was imperative to start building equity again,” says Renee, sitting on the patio of the four-bedroom house at Red Rock Country Club.
Home prices fell 62 percent from 2006 to early 2012—the steepest drop in any U.S. metropolitan area—yet Vegas is again enticing buyers. The number of homes listed for sale has dropped to a 1.5-month supply, down from the four-month stock that’s typical in the area, says Jeremy Aguero, principal at Applied Analysis, a Las Vegas research and advisory firm. One reason for the inventory squeeze: Investors such as Blackstone Group, GTIS Partners, and Haven Realty Capital are buying deeply discounted homes in bulk to rent out at a profit.
Home prices in Las Vegas rose 3.8 percent in the 12 months through September, according to the S&P/Case-Shiller index, compared with a 3 percent rise nationally. “In the last six months, people have gotten their money together and realized that prices overcorrected,” says John Burns, a housing consultant. “Las Vegas homes are a tremendous value.”
Risk and excess have long been the city’s defining characteristics. “When you bring an act into this town, you want to bring it in heavy,” wrote Hunter S. Thompson in his 1971 book, Fear and Loathing in Las Vegas. And so it was when Nevada led the U.S. housing boom with an estimated 275,000 new homes built from 2000 to 2007, according to the U.S. Census Bureau.
The McCuistions were like many Las Vegas residents betting on bigger homes with bigger loans. Renee, 49, who worked as a manager at a credit-card processing center, was the main breadwinner. Dwaine, 45, is a police officer. Their joint annual income came to $175,000. Near the peak of the boom in 2007, the couple bought a $679,000 four-bedroom home in a golf development in the northwest part of town, taking out a 30-year jumbo loan of $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 in monthly housing costs. “You could see the lights of the city twinkling at night,” says Dwaine. “We overlooked three fairways.”
Then an old back injury worsened for Dwaine, and 60-hour workweeks at the payment center caught up with Renee, who began experiencing headaches and neck pain. By early 2010, with Las Vegas prices already in free fall, both were facing spinal surgeries, medical leaves, and severe declines in income. The couple defaulted on the jumbo loan in December of that year and moved out of their home when it sold for $349,900 in March 2011 in an all-cash short sale. “It was humiliating,” says Renee. “We were raised to be emphatic about our finances and credit, and we lost control.”
In one sign that the Las Vegas market has turned, properties are drawing multiple bids. Richard Weiss, who relocated from Arizona in January with his wife and two small children, said he “lowballed” bids on a dozen properties before realizing that he needed to go over 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.
Not everyone is convinced the comeback is sustainable. Nevada’s 11.5 percent unemployment rate remains the worst in the U.S. Gary Beasley, managing director for Waypoint Real Estate Group, a bulk investor, has so far steered clear of Las Vegas because he believes the momentum could dissipate: “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.”
Although they defaulted on their jumbo loan, the McCuistions kept current on the second mortgage and the loan for the rental property. That track record, along with medical hardship, convinced their current lender to grant them a new mortgage for the Red Rock Country Club house, says Heidi Kasama, their broker. The monthly payment on the McCuistion’s main mortgage this time is about $1,800, says Renee, who hasn’t returned to work. Dwaine’s pay is supplemented by a military pension. Recent research from the Federal Reserve Bank of San Francisco shows just how fortunate the McCuistions are: Only10 percent of borrowers who were seriously delinquent on their home-loan payments have regained access to the mortgage market within 10 years. “It’s like we won the lottery,” says Renee.