Archive for February 6th, 2010

Strategic Defaults and the Las Vegas Market

Saturday, February 6th, 2010

The issue of strategically defaulting on a residential mortgage is shaping up to be one of the central issues facing the national housing market in 2010, and Las Vegas real estate is no exception. The media has keyed into this issue and given it extensive coverage, including some very compelling articles in the New York Times over the past month. The discussion mostly centers around the difference between private individuals and their feelings of payment responsibility (regardless of the numbers), versus the way businesses make decisions about non-payment in purely financial terms. To choose “strategic” default simply means that payment is stopped even if the resources are there for payment to be made, simply because payment makes no sense on a purely numerical basis. Let’s face it, a purely numerical basis can become very compelling when the numbers represent real dollars in people’s lives.

The big question for 2010 is how many additional residential properties will fall into foreclosure for this specific reason, beyond the large number already expected due to recessionary factors and high unemployment numbers. It seems to me that “strategic default” at the private/individual level is very much a snowball issue. What do I mean? People always feel safer and more confident in numbers and all it’s going to take is enough people willing to step outside conventional behaviors and norms before the whole idea hits a tipping-point and becomes a more socially accepted decision. If strategic default does in fact become a significant contributor to overall foreclosure statistics in 2010 and beyond, it will be a classic “grass roots” movement. You can potentially see this trend developing neighbor by neighbor, street by street, community by community. Will this end up happening on a large scale? It’s just too soon to know, but the potential for this new economic decision making calculus (concerning individual mortgages) to snowball over time is very real.