Positive equity should prevent a tsunami of foreclosures in Las Vegas in 2020
In this post, we will explain why we shouldn’t see an avalanche of foreclosures in Las Vegas as a result of the COVID-19 recession.
The Great Recession of 2007-2011 resulted in a tsunami of foreclosed homes, condos, and especially high-rise condominiums that took years to burn through and resulted in prices falling by up to 70% in some cases. The main reason was the incredible run-up in prices resulting in tens of thousands to hundreds of thousands of dollars in negative equity when the Las Vegas real estate market collapsed.
In 2020, this situation is completely reversed, and as we will show you, homeowners who have purchased their homes on or before 2017 have a great deal of equity in their homes.
While the median price only shows the market activity in lower price ranges, it is the price per square foot that measures whether or not home prices have appreciated or not. It is calculated by adding up the sales price of all homes sold in a period, like a month or a year, and dividing it by the total square footage of houses sold.
Home-price appreciation in the last five years by June 2020
This graph shows the sales price per square foot of homes by primary year for the last five years, which was at $122 per square foot in 2015 and has risen to $175 in 2020, where it has been unchanged for the past four months. By 2020, Home prices in lower price ranges are up by about 43.5% since 2015.
The table below shows home appreciation by percentage from 2015 by June 2020.
|Home price appreciation 2015-2020||2015||2016||2017||2018||2019||2020|
|Price per square foot of houses||$122||$128||$142||$162||$170|
|Appreciation rate by 2020||43.5%||36.7%||23.2%||8%||3%||NA|
Would a 10% or 20% price correction for Las Vegas homes result is a lot of foreclosures?
Home prices are up by 3% since 2019 and 8% since 2018, so if we have a 10% correction in home prices, only those who bought a house in 2019 and 2020 will be underwater. Keeping in mind that homebuyers who bought their home in 2018 have been paying the mortgage for the past two years, they should not be underwater. A 10% price correction is going to be like a blip and should not result in a considerable number of foreclosures in Las Vegas.
Even in case of a 20% price correction, only houses purchased after 2018 will be seriously underwater, and some may get foreclosed. Even with a 30% price drop, which will not happen, homes that were purchased after 2017 will be in serious trouble.
Lastly, the Federal Government has learned its lessons from the last Great Recession. To prevent foreclosures, the CARE Act provides for six months of forbearance that is extendable by another six months. It also extended the foreclosure timeline to six months, so we will not have many in the next eighteen months. In case the economy is not fully back by then, it will do all it can to prevent them, and short sales are the way to do it.
So if you are waiting for an avalanche of Las Vegas foreclosures for sale, don’t hold your breath. However, price drops are likely at some point but nowhere close to a 30% price correction.