Gambling Capital Is Flush With Empty Houses

By Joel Achenbach
Washington Post Staff Writer
Thursday, October 30, 2008

LAS VEGAS There are 6 million empty homes in the United States. Or 6.2 million, to be slightly more precise. Empty houses are normal to some extent -- part of the usual friction of building, selling, renting. But ask the people who study the numbers, and who understand the "overhang" in housing inventory, and they'll tell you: This country has about a million homes too many.

Thousands of them are right here. From an airplane, this valley appears to have been flooded in a biblical deluge of subdivisions. Las Vegas, a dusty rail stop a century ago, has been the fastest-growing urban area in the nation for two decades and is now a desert metropolis of 2 million people. The vast majority live in developments that sprawl to the edge of the mountains.

The overabundance of houses in Las Vegas and elsewhere played a major role in creating the nation's financial crisis -- and, via toxic securities, the global financial crisis. The road to recovery also goes through the housing market. What's taking place here is something of a war of attrition, empty house by empty house.

It'll take a couple of years to burn through the excess inventory, estimates Jeremy Aguero, principal analyst with the Las Vegas research firm Applied Analysis. "We're probably looking at an overhang of about 28,000 homes," he said.

The solution, local executives say, will come not from Washington policymakers but from the market itself. When there are too many houses, builders stop building them. That has already happened, and many Vegas home builders have gone out of business. Construction workers, meanwhile, suddenly find themselves dealing blackjack.

People here have concluded that the reestablishment of a functioning housing market will require pain and patience. And sometimes a bulldozer. At one development in Henderson, the model homes suddenly looked too luxurious for the post-crash economy, said Kipp Cooper, government affairs director of the Greater Las Vegas Association of Realtors. So the builder obliterated them and put up more modest, cheaper model homes.

Things are bad in a housing market when a "tear-down" is a house too nice to be left standing.

A Downward Spiral

Steven Lu is shopping for a house. It's a lot like scavenging, for there are thousands of foreclosed "bank-owned" properties. Banks sell them at steep discounts, eager to get them off the books. A savvy buyer will have the keen vision of a buzzard.

Lu lives part time in Los Angeles and most of the time near Shanghai, where he runs two factories. He's an investor, and is particularly interested in foreclosures. Las Vegas and surrounding Clark County had 11,250 foreclosed homes on the market at last count. "A bank house is cheaper. It's below the cost," he said, poking around the planned community of Mountain's Edge.

Lu eventually made an offer on a four-bedroom foreclosed property on Soda Canyon Street in the southwest part of town, said his real estate broker, Coco Wang. When built at the peak of the housing boom in 2005, the house sold for $354,000. But like so many people, the owner watched the value plummet. The owner defaulted, and the bank put the house back on the market for a song -- just $149,000. Speculators swarmed.

This has been the pattern in recent months: lots of activity around the roadkill, but few sales among new homes. There's a vicious feedback loop. Untold thousands of homeowners find themselves "underwater" in their mortgages, owing more on their houses than the houses are worth. Many homeowners and speculators have decided that the best financial move is simply to give up, and abandon the property. "Jingle mail" is the industry term for when someone mails the house keys to the bank.

That leads to more cheap houses being dumped on the market, and still lower prices -- a downward spiral.

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