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Las Vegas Real Estate Market

As an investor in the Las Vegas real estate market I've had my share of highs and lows. What was once a thriving region for investment properties is now a graveyard of foreclosure houses that has nearly brought the market to its knees.

Most investors who gambled in the Las Vegas real estate market have not fared well. As it is with most types of investments that fall apart, the only winners in this game have been the banks. Some speculate Las Vegas is receiving karmic payback for its sins, but I place blame on the greed of banks and Wall Street investors.

Las Vegas has been hit hard on many levels. The economic recession led to decline in the tourist industry. Thousands of employees lost their jobs which caused them to default on mortgage installments and eventually lose their home to foreclosure. Worse yet, nearly 20,000 residents have moved out of Vegas due to lack of employment opportunities.

The abundance of foreclosure homes in this area has caused property values to decline by as much as 58-percent and left thousands of homeowners owing more than their home is worth. Many homeowners with underwater mortgages are entering into strategic foreclosure in attempt to force banks to reduce the principal balance through loan modification or agree to real estate short sale.

The problem with strategic foreclosure is banks aren't required to alter loan terms or agree to let homeowners sell their property for less than the balance owed on the mortgage note. This foreclosure prevention strategy can easily backfire and create financial problems that take years to overcome.

FICO, the company that establishes guidelines to determine credit scores, recently developed methodology for assessing homeowners that will attempt to enter into strategic foreclosure. The methodology can be used by mortgage lenders to predict which homeowners are likely to engage in this behavior. This can help banks prepare home saving strategies or minimize financial losses caused by short sales or foreclosure.

The majority of homeowners who attempt this strategy to obtain mortgage relief tend to be credit savvy with credit scores above 720. Since property owners have excellent credit ratings they believe their FICO scores will weather the fallout caused by foreclosure or short selling.

However, FICO scores can decline by 100 points or more once foreclosure or short sales are reported to the major credit bureaus. Reduced FICO scores place borrowers into lower credit brackets. Lenders assess interest rates based on credit scores, so those with lower scores pay higher rates of interest.

While homeowners who enter into strategic foreclosure will have to deal with the financial fallout, Las Vegas homeowners pay the cost. More foreclosures equates to further reduction in home values which causes more people to consider strategic foreclosure. It seems to be a never-ending cycle.

The Las Vegas Realtors Association reports nearly 75-percent of Las Vegas home sales consist of short sale homes and bank owned properties. Additionally, almost 25-percent of properties that have entered into foreclosure are the result of strategic foreclosure. This hurts homeowners who are attempting to sell their house because they cannot compete with the reduced prices of bank owned foreclosure properties.

According to Las Vegas Realtors, nearly 75-percent of all home sales are bank owned properties and short sale homes. Of the properties that enter into foreclosure nearly 25-percent are the result of strategic foreclosure.

The majority of Las Vegas real estate professionals concur that housing prices have yet to reach rock bottom. Obviously, this will create further financial hardship for Vegas homeowners, but could be a boon for investors.

It's been reported that Mayor Oscar Goodman will be launching a foreclosure marketing campaign to bring new residents and investors into the area. Everyone I know is optimistic about the program because it could breathe new life into the Vegas market and potentially boost home values so homeowners won't have to face the agonizing decision to walk away from their home.

At Simon Volkov, we'll continue to follow events occurring in the Las Vegas real estate and throughout the country. We invite you to subscribe to our mailing list to stay abreast of current conditions and trends. While you're here feel free to browse our real estate market and investing article library offering hundreds of articles on investing, foreclosure prevention, bank owned properties and real estate short sales.