Property greed comes back to bite


More than 3,500 houses in Nevada's gambling city were seized in September, writes Mark Hennessyin Las Vegas

FACED WITH growing numbers of calls from people with houses for which they cannot pay and daily bills that they cannot meet, the Las Vegas Crisis Centre, which runs the suicide hotline in the desert gambling capital, has had to add extra staff.

"They may have already lost their stocks, they are looking at foreclosures, their whole world is changing, and so a lot of callers are considering suicide as an option," said the centre's executive director, Kathy Jacobs.

Up to three years ago, Nevada was the construction boom capital of the United States - one in three of the homes existing today were built between 2000 and 2007. Now, many are lying empty and worth half or less of their original price.

One in every 90 houses is threatened with repossession. More than 3,500 were seized in September alone, bringing the total for the year to 22,500 - compared to fewer than 8,000 in the whole of last year, according to local auctioneers.

Foreclosures, though, tell only part of the story. Nearly 50,000 house-owners have opted to sell their homes for anything that they can get before the keys are taken back by the bank in an attempt to preserve some shred of a credit record.

Late on Monday night, thousands milled happily on Las Vegas Boulevard, better known as the Strip, watching the gracefully executed water displays put to the music of Frank Sinatra in front of the Bellagio casino.

The camera flashlights mask the reality that the local economy is hurting badly, particularly once one realises that most of the partially completed buildings visible have been put into hibernation by their developers.

So far, more than $10 billion worth of development, intended to add another 10,000 rooms to the city's bed total, have been delayed, while gambling revenues have fallen for eight months in a row, according to the Nevada Gaming Control Board.

Even the strippers are complaining about declining earnings, while car valets, a few of whom made $100,000 at the peak of the boom, have had their hours cut in half.

Seen from outside the US, the subprime mortgage crisis is a human tragedy where the lowly paid, ill-educated worker loses a home that he should have never been given a loan to buy; he is now faced with life on the street or dependence on meagre welfare and food stamps.

Certainly, this image meets reality in many places, particularly in Cleveland, Ohio, and other places in the the midwest that were depressed before the current recession even began.

It is accurate some of the time in Las Vegas, but the full picture is more complicated, with people losing houses that they bought for investments rather than as places to live.

"Listen, when the milkman owns five houses you know you are in trouble," says auctioneer Bob Ratliff (54).

He began selling property in the city four years ago, after a lifetime spent working for major US corporations, just before the market began a decline that turned later into a rout.

Like many other auctioneers, known as realtors in the US, in the city, he takes a more sanguine view.

"We've been here before," he tells The Irish Times. "Remember the savings and loans crisis in the 1980s? There was devastation then. Interest rates went up to 19 per cent.

"We go through cycles. This one will go on for a little longer," he adds, before pausing. "Well, perhaps it is going to go on a lot longer: five, six years maybe - but nobody has a crystal ball, so we don't know."

The housing boom was built, he argues, on greed on the part of the banks and on the part of the buyers. Buyers bought in the expectation that the houses would jump in value, believing that they would have sold on at a profit before the mortgage interest rate jumped.

"People get paralysed by bad news, they can't move," Ratliff continues. "I think that there is a good opportunity to buy real estate. Buying property only works if the mortgage matches, or nearly matches, the rent that can be got from it. That is happening now.

"We are all after the almighty dollar," he adds, saying that he never sold a client a subprime mortgage and directed all of them into fixed-rate loans. "We don't live in Ethiopia. We live in America. Our problem is that we Americans have got soft.

"If I was in Bismarck, North Dakota, or somewhere like that, I would be worried by everything that has happened and has yet to happen, but I don't. I live in Las Vegas, a world-class city and world-class cities will survive - and we will survive this," he said.

Beverly Pegasus, who works as a realtor's assistant in Red Rock Real Estate, agrees with Ratliff that the glass is half-full, pointing out that every house now put on the market, however unwillingly, is attracting multiple bids - even if the prices are deliberately underplayed.

So far, however, prices have not increased, despite the increasing attention of foreign buyers - some from China, England, but many from Canada, blessed with a strengthening currency and the availability of mortgages from banks there unaffected by the subprime crisis. "Investors got us into this mess and investors will get us out of it," she argues.

Like everyone else in Vegas, she has seen her wealth on paper dwindle in recent times. The house she bought with her husband, David, for $420,000 is now worth just $250,000, and it may drop further before the bottom is reached.

Some buyers, she acknowledges, were the victims of unscrupulous lenders who steered them away from fixed-rate loans to subprime offerings. They started off with low interest rates but then rose sharply and kept rising.

"Undoubtedly, there were many like that, but in many cases it was pure greed. They were looking to 'flip' the property and sell it on and make a 100 grand profit before the rates increased," she says.