A funny thing in foreclosure country

LAS VEGAS — On the northern edge of this metropolitan area, far from the tourists and the neon fantasy of the Strip, lie the remains of the city's housing collapse.

The telltale signs of distress -- overgrown lawns and foreclosure placards -- are fewer now. Homeowners' associations have cracked down on banks and investors to maintain neighborhood standards and property values in subdivisions that came to life less than 10 years ago.

But that doesn't mean the houses are lived in.

This shadow inventory of homes that are vacant -- or soon to be -- totals anywhere from 40,000 to 80,000, a conservative estimate, according to Dennis Smith, president of Home Builders Research, a Las Vegas consulting firm.

Yet just a few miles away, backhoes and bulldozers are breaking ground for new homes. Buyers stream into sales offices and model homes. And the Southern Nevada Home Builders Association reports waiting lists for new construction.

"I know it's hard to believe, but Las Vegas is growing again," said Robert Lang, an urban-affairs professor at the University of Nevada, Las Vegas. "This so-called shadow inventory isn't nearly as big as people think it is."

It's fair to wonder: How can that be when Nevada is once again No. 1 for foreclosures, most of them in Las Vegas' Clark County? Or when North Las Vegas even considered using eminent domain to take over properties before the banks do to keep people in their homes?

A funny thing is happening in foreclosure country. Many buyers who want existing homes may not be able to buy them. Either the homes are bogged down in the complex foreclosure process or they've been snapped up by investors who rent them out or hang on to them until prices go up.

"The resale inventory is very low," said Robert Beville, president of Harmony Homes, the second-largest private home builder here. "The last couple of years, the banks held off foreclosing on houses … We only had 3,000 houses."

That's not enough to accommodate the influx of people into this desert boom town. During the bad times, more people left Nevada than moved in, but that pattern seems to have finally flipped. About 25,000 more people arrived than left in 2012.

When Monique Yarnell, 31, and her husband, Yates Minner, a 31-year-old U.S. Marines captain, decided to settle in Las Vegas earlier this year, they considered buying an existing home, but "the homes weren't available," she said. "It did seem like it was going to be quite difficult. Industry professionals told me it was going to be quite a complicated process."

Instead she worked with Harmony to design and build a 3,300-square-foot custom home in Henderson, Nev., for less than $500,000.

What is happening in Vegas is playing out in many parts of the Sun Belt burned by the housing crisis. Now construction is picking up slowly, raising concern that the build-and-bust cycle is starting all over again.

"We've learned lessons," said Kenneth Perlman, senior vice president at John Burns Consulting, a real estate research firm. "Certainly, builders are offering new products in the Vegas market … But we're still far, far from even a normal market."

At the peak of the boom, there were about 35,000 new-home sales a year in the Las Vegas area. This year, they're projected to hit only 8,500.

"We’re talking about 8,500 new-home sales relative to a population that’s 2 million," he said. "That's really not a lot of volume."

Most builders no longer build on spec, meaning they'll put up a house only if they have a buyer lined up. Gone are the days of consumers picking among rows and rows of new homes and moving in within 30 days.

Construction of West Park Villas, a William Lyon Homes development of three-story townhomes in Summerlin, came to a halt after the market crashed. It resumed a year ago and is now sold out.

All this activity still raises the question, What happened to all the empty homes?

Some went to investors, who snapped up resale homes after the market tanked because they were such a bargain (with a median price of $121,000), Big rental companies found a niche in the rental single-family-home market. Other buyers are hanging on to them until prices go up, and banks don't always foreclose, preferring to make money servicing the loans while they struggle to figure out new legislation, Smith said.

Then state laws changed. Banks pretty much stopped foreclosures after one law designed to make the process easier passed. Foreclosures plummeted. Now they're picking up again as lenders try to beat an Oct. 1 deadline, when the state's Homeowner's Bill of Rights takes effect. That will lengthen the process because banks will be required to send a warning letter 30 days before filing a notice of default. It will also give homeowners options other than foreclosure.

Foreclosed homes made up less than 10% of existing homes sold in July, down 63% from the year before, according to DataQuick, a real estate research firm. Half continue to be bought by absentee owners -- investors or second-home buyers.

Foreclosures are expected to come to a halt after the law kicks in, once again cutting into the potential inventory of resale homes.

"People think there is a bunch of inventory, but it's not immediately available," Lang said. "It's not like the minute somebody loses a house to foreclosure that the house immediately freed up."

And then there is the old law of supply and demand.

"Some people want new," Smith said. "The home-building industry is building houses on demand, building houses people want."

New construction is more energy efficient. About 300,000 homes in the area were built before energy codes were put in place. Also, new homes are likely to be far away from neighborhoods that still show the scars of a down market.

"In this town, if they're empty now, chances are they've been occupied by squatters," Smith said. "And if they’re empty now, the upkeep on that house is zero."

Dave Tina, president of the Greater Las Vegas Association of Realtors, points out that the neighborhoods with vacant houses are viewed as less desirable.

Yarnell, a consultant who helps high schoolers prepare for college, was willing to buy an older home but admits that she was thrilled to be able to help Harmony design and custom-build her home. She wanted an extra-large master bedroom and a workout room, and she got them.

"But if I had found my perfect home (already built), it wouldn't have discouraged me at all," she said.

The burst of new-home construction worries some.

"The bears believe that Las Vegas home prices will crash again because of the overwhelming number of underwater homeowners," Perlman said, referring to homeowners who owe more on their mortgage than their houses are now worth.

He disagrees.

H said values will rise, and he doesn't think that the widespread sale of distressed homes to investors hurts the market.

"Having investors purchase homes, rehab those homes and rent those homes out, I would generally argue, is a good thing," he said.

The bigger challenge may be skyrocketing land prices now that construction is picking up.

"I'm more nervous about land sellers than this shadow inventory," said Nat Hodgson, executive director of the builders' association. "Foreclosed homes have turned out to not really be competition for the new-homes market."