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Underwater Mortgages Still Plague Las Vegas Housing Market

Illustration/Natalie Cullen

You’re scared. You purchased your dream home in Summerlin or Green Valley a few years ago and now you find yourself still underwater on your mortgage.

What happened with the economic recovery?

Some 22 percent of Southern Nevada homeowners have mortgages that are underwater, according to Zillow. Meaning their debt outweighed the value of their home.

That's down from 28 percent last year and down dramatically from its peak of 71 percent in 2012.

Zillow says Las Vegas' rate was the highest among the 35 metro areas they surveyed and well above the national average of 13 percent.

Svenja Gudell is the chief economist with Zillow. She told KNPR's State of Nevada that Las Vegas still as a massive number of underwater homes, or negative equity homes, because so many went under during the housing crisis and so many people were so dramatically underwater.

 "Vegas just had such a massive amount of underwater homeowners," she said. "It wasn't only the problem that folks were underwater but they were deeply underwater."

 She said it takes time to move someone who was 80 or 90 percent underwater back to positive equity in there home.

Many people who were underwater either short sold their homes, which is selling it for less than what it is mortgaged for, or walked away and let their homes go into foreclosure.

However, Scott Beaudry, the president of the Greater Las Vegas Association of Realtors, pointed to another section of homeowners: those who are underwater but happy with their home.

"A lot of those individuals are comfortable where they are at," he said, "They understand that they are underwater. They may be underwater tens of thousands of dollars. They may be underwater just slightly. And they're comfortable. They're raising their family in the home that they love."

Beaudry believes it will take time for many of those underwater properties to come back to value. He said the buyers need to come back to the market because, of course, more demand means higher prices for everyone.

He said boomerang buyers, which are buyers who went through a foreclosure or short sale, are returning to the market. He also said that many of the investors that once dominated the market following the crash have moved on, allowing people to buy homes they want to live in.

"The regular buyers are back." he said, "We're headed into a much better position."

Gudell agreed that it is really time that will eventually heal the housing market. She said 'effective negative equity' is a big factor for many people.

To calculate effective negative equity, Zillow adds together at the people who are underwater and those who have just a little bit of equity in their home. 

As Gudell explained, usually when someone sells his house, he takes the equity from the home to pay for the down payment and other expenses of purchasing another home, but if a person has less than 20 percent equity he will think twice about selling. 

Michelle Johnson, president and CEO of the Financial Guidance Center, explained another problem she is seeing with clients coming to the center for help.

She said many of the unique loan products, like the 80/20 loan that allowed people to buy a home with two loans and none of their own money or home equity loans that people got when home prices were soaring, are just now coming to fruition.

"I think all of those together along with the underwater is creating this new, smaller tsunami," Johnson said.

She said it is vital for people to know there are resources available for struggling homeowners and she said those coming back into the market need to fully understand the loan product they are buying.

Michele Johnson, president and CEO, Financial Guidance Center; Svenja Gudell, chief economist, Zillow; and Scott Beaudry, president, Greater Las Vegas Association of Realtors.

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