In Las Vegas, which has the highest foreclosure rate among large U.S. cities, the wave of defaults that began with subprime borrowers and the unemployed has spread to upscale homeowners who see no point in staying, even if they can afford to. "You feel like a sucker if you're paying a $5 million mortgage on a house that's worth $2 million," says broker Zar Zanganeh.
In the first quarter, 30 homes in Clark County, which encompasses the Las Vegas Strip and surrounding residential areas, with mortgages exceeding $1 million were repossessed by banks or bought by third parties in foreclosure sales. That's up from 20 homes a year earlier, according to ForeclosureRadar, a company that tracks defaults. Short sales, in which the bank agrees to accept less than the loan balance, and bank-owned properties accounted for about three-quarters of all home sales in the period, according to the Greater Las Vegas Association of Realtors.
About 100 homes in the county are listed for $3 million or more, a five-year supply at the current sales pace. One listing with Zanganeh's firm, Luxe Estates Collection, is a never-occupied, bank-owned mansion overlooking a golf course designed by Jack Nicklaus in The Ridges, a community west of Las Vegas. The asking price is $3 million for the 8,550-square-foot house, which was repossessed in 2010 and had a $3.2 million mortgage from the Community Bank of Nevada, a lender seized by regulators in August 2009. Zanganeh is also handling a seven-bedroom home with a panoramic view of the Strip. Nicolas Cage, the Oscar-winning star of Leaving Las Vegas, paid $8.5 million for the house in 2006. It went into foreclosure in December 2009. The next owner, who property records show paid $4.2 million, has put the house on the market for $7.9 million—an "unrealistic" price, according to Zanganeh.
In Nevada, 23 percent of delinquent borrowers said they "strategically defaulted," or walked away from their homes by choice rather than necessity, according to a January report by the Nevada Association of Realtors. "It's folks that feel the hopelessness of it all," says Rob Wigton, chief executive officer of the state association. "They've rolled the dice and lost." The population of Clark County has fallen by about 16,000 from its estimated high of 1.97 million in 2008, according to the government-funded Nevada State Demographer.
Las Vegas home values have plunged 58 percent since the 2006 peak, the most of the 20 metropolitan areas tracked by the S&P/Case-Shiller Home Price Index. Prices fell 7.4 percent in March from a year earlier, to a median $125,950, the Las Vegas Realtors reported on Apr. 8. Almost 70 percent of Las Vegas area homeowners with mortgages were underwater at the end of 2010, meaning they owed more than the value of the property, according to CoreLogic (CLGX), a real estate information company. Among cities with a population of more than 200,000, Las Vegas has led the nation in the pace of foreclosure actions since November 2009, with one of every 31 homes being subject to a filing in the first quarter of this year, RealtyTrac, an information provider, reported on Apr. 14.
About 20 percent of Las Vegas homeowners seeking short sales owe at least $750,000, according to Jamie Cogburn, a Las Vegas plaintiff's attorney who says he has handled 350 such sales and is working on 200 more. One of his clients is a doctor with a home now valued at about half its $1 million mortgage. The doctor earns enough to save for a 20 percent down payment on his next home within a few months at current prices, he says. "People with a higher income can go buy another house," Cogburn says. "You've got to cut your losses at some point, just like with a stock."
The bottom line: Las Vegas has 100 homes for sale with asking prices of $3 million or more, many of which have been foreclosed on by lenders.