If you’re wondering where all of Nevada’s foreclosures are, well, so’s RealtyTrac.
The California-based real estate website reported Thursday that state and local housing defaults stumbled in July, falling for the second straight month despite a Nevada law that was supposed to pave the way for foreclosures.
RealtyTrac Vice President Daren Blomquist said he was “somewhat surprised” to see Nevada’s numbers drop in June and July, after steady gains in 2012 and early 2013. It seemed, said Blomquist, that banks had finally adjusted to Assembly Bill 284, a law that required the person signing default papers to have personal knowledge of who owns the promissory note.
But just as lenders got comfortable with AB 284, the Legislature enacted new laws in the spring. One of those laws should make it easier for banks to foreclose, because it removed the personal-knowledge requirement in June. But another law taking effect in October would require banks to send warning letters 30 days before they file an initial notice of default, and give consumers options besides foreclosure. So lenders need to look at their procedures, Blomquist said.
“We think foreclosure decreases are somewhat artificially exaggerated by the laws,” he said. “There’s confusion once again in the landscape of foreclosures in Nevada. These laws will keep foreclosure activity at a trickle, and that will keep the state’s housing market where it’s at — a seller’s market with prices prone to rising fairly quickly, given strong demand and low supply.”
Of course, a foreclosure slowdown in Nevada is relative. Though it’s well below peak levels, the state still ranked No. 6 for default activity in July, behind New Mexico, Connecticut, Ohio, Maryland and Florida, RealtyTrac found. One of every 731 homes in Nevada is somewhere in the foreclosure process, compared with a national rate of one in 1,001 homes. Clark County led the way in the state, with one in every 613 homes in foreclosure. Nye County, with its Las Vegas bedroom community of Pahrump, was a close second, at one in 645 homes.
Yet, far fewer homes went into the process than a year ago. Clark County’s notices of default, which start foreclosures, fell to 340 in July, down 57.4 percent from 800 in July 2012. Nationally, preforeclosures were down 33.2 percent.
The shortage of inventory showed up in prices: The median foreclosure price in Clark County was $135,000, well above the $118,000 national median. And the difference between median prices of foreclosures and nonforeclosures was $22,000, compared with a national gap of $63,000.
Blomquist said it could be months or years before balance returns to Nevada. Consider Maryland, where a law froze foreclosures in 2010. It took two years to sort out regulatory changes, but defaults in Maryland finally started hopping again in late 2012, and have surged this summer. Maryland is now No. 2 for foreclosures, with starts spiking 275 percent year over year in July. Or look at California, which in January passed a homeowners’ bill of rights similar to the one that’ll take effect here in October. Foreclosures in the Golden State remain depressed eight months later, Blomquist said.
So count on at least six months to a year before Nevada’s foreclosure rate picks up noticeably.
A few factors could blunt the effects once defaults begin rising, and Nevada likely won’t return to anything near its foreclosure rate of 2009 and 2010, Blomquist said.
For one thing, double-digit-percentage price gains mean more locals have equity. About half of locals were under water in July, down from more than 70 percent in 2011. As short supply continues to lift prices, negative equity should drop even more, Blomquist said. Plus, Nevada’s back in the top 10 for job growth, and an improving economy could help as well.
“In two years, more people might have a job or enough equity to avoid foreclosure,” he said.
Still, based on what’s happened in other states, a wave of foreclosures is coming, one way or another, he added.
“The irony is that the market is so starved for inventory right now that it could be a great time to absorb those foreclosures. But Nevada’s kind of in this strange market that’s both recovering and still dealing with a lot of lingering distress. From a macro market perspective, it would be better if it dealt with these foreclosures sooner rather than later, but in an effort to make sure homeowners are fully protected from abuses, we’re seeing new laws that may prevent that from happening.”
Contact reporter Jennifer Robison at email@example.com or 702-380-4512. Follow @J_Robison1 on Twitter.