Flippers Flailing as Housing Market Keeps Falling
In the rampant real estate speculation in Las Vegas three years ago, people lined up outside Pulte Homes offices overnight as if they were waiting for the release of the latest video game console or concert tickets.
Having seen his house in an upscale part of suburban Henderson, Nev., jump $200,000 in value in 18 months, Sam Schwartz felt he couldn’t miss any part of the boom - and that taking out a Nevada mortgage right there and then was a no-brainer.
He spent the night in the parking lot with TV, snacks, drinks, and about a hundred other people. Schwartz intended to buy a new home and then quickly sell it within the year - for a huge profit.
Most people waiting were flippers just like him.
“We saw real evidence of what was possible in this crazy, inflated market, and we wanted to get a piece of that investment equity,” Schwartz said.
But when home prices unexpectedly took a backward step, many home investors seeking to cash in quickly were left “upside-down,” or owing more on their home mortgages than what their homes were worth.
The result was a glut of homes in the marketplace, communities spotted with empty houses and for sale signs - and a foreclosure rate in Nevada that leads the nation as owners unable to sell became saddled with unbearable debt.
Foreclosure filings across the United States rose 47 percent last month from a year ago to 149,150 - one for every 775 households, according to statistics from Realty Trac.
For the third straight month, Nevada’s foreclosure rate led the nation when it rose 220 percent from a year earlier to 4,738 filings, or one per every 183 households.
In Clark County, which encompasses Las Vegas, one of every 30 homes began the process toward foreclosure last year.
The day Schwartz reserved his property, the sales staff was raising the Nevada home prices $20,000 after every fifth buyer came inside. The $500,000 house he and his wife were eyeing had shot up to $540,000 by the time they sat down.
Somehow, it still seemed like a good deal.
“Everybody was thinking, ‘Hey it’s not the end of the world, because the homes across town are selling for $720,000. We have almost $200,000 in equity in the house and it isn’t even built yet,’” Schwartz said.
He put down $5,000 on a home that ended up costing $560,000 with upgrades.
While Schwartz was able to cancel prior to the closing on a property that suddenly was worth only $490,000 - and reven ecoup their earnest money deposit on a legal technicality - others were less fortunate.
“There’s going to be a lot of depression, a lot of anger. A lot drinking, gambling, and desperate stuff going on,” he said.
More than other states hit by the mortgage loan crunch, high foreclosure rates in Nevada, California and Florida was driven by speculation, said Rick Sharga, vice president of marketing for Realty Trac.
“It was a combustible mix of risky home loans and risky real estate deals,” he said.
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