Analysts: Home Prices Won't Fall Source: Las Vegas Review - JournalPublication date: 2006-07-21
By Jennifer Robison
By JENNIFER ROBISON
Despite historically high inventory, the cost of housing in the Las Vegas Valley increased in the first half of 2006 and will continue to rise through the end of the year, according to housing analysts.
At the quarterly Crystal Ball housing-trends seminar on Thursday, market watchers said the valley's residential real estate market has defied detractors who said the good times couldn't last.
"Home prices are still going up in Las Vegas," said Larry Murphy, president of real estate monitoring firm SalesTraq. "That flies in the face of bubble theorists. There never was a bubble in Las Vegas, and there isn't one in the future."
In June, the median price of a new home in Las Vegas reached $337,250 - a 17.2 percent increase over the $287,761 median of June 2005. The big jump came despite relatively flat sales: The number of new homes sold in June was 3,502, a 1 percent increase when compared with 3,467 closings in the same month a year ago.
Through the first half of 2006, area builders closed on 18,295 units, up 7.3 percent over the 17,048 homes they sold in the first six months of 2005.
The median price of a new home in the first six months of 2006 was 12.7 percent higher than the median of the same time period in 2005.
In the first part of the year, the Las Vegas Valley's resale submarket showed some softness.
Buyers snapped up 4,152 existing homes in June, a 24.3 percent decline from the 5,482 resales that changed hands in June 2005. In the year's first half, homeowners have sold 22,547 existing homes, a 14 percent drop from 26,232 sales in the first six months of 2005.
Yet prices were up 5.7 percent year-over-year in June, from a median of $273,000 in 2005 to $288,550 last month. In the first half of 2006, the median resale price was 7.1 percent ahead of the same time a year earlier.
"Existing-home prices have not collapsed. They've come down to a more normal pace, especially compared to the 40 (percent) or 50 percent we experienced in 2004," Murphy said.
Steve Bottfeld, a senior analyst with research firm Marketing Solutions, said the price increases should continue through the end of 2006 even as sales decline.
Bottfeld predicted that the local market would finish 2006 with 50,000 resales, down from 54,828 resales in 2005. He also forecasted that builders will close on 39,000 new homes in 2006, up slightly from 38,705 units in 2005.
The overall falloff in closings will come as the market grapples with substantial inventory.
About 20,000 resales are on the market in Las Vegas as investors and homeowners with adjustable-rate mortgages look to trade in their properties.
"Speculators and people who bought homes with (adjustable-rate mortgages) in 2004 are in a lot of trouble and they're trying to get out," Bottfeld said.
Also propping up inventory of existing homes are sellers who want top dollar for properties they bought several years ago. They need maximum equity to move up to the pricier new homes they're eyeing, Bottfeld said. He noted that his market research in the second quarter uncovered for the first time local consumers who have canceled out of up to three new-home deals as they leave their existing home on the market in search of higher offers.
SalesTraq's Murphy said that though the tally of existing-home listings sounds high, the inventory totals 6.8 months of supply at current sales rates.
Housing supply is also abundant in the new-home sector.
Area builders were actively selling 503 subdivisions in June, a record high for the market and a 17.2 percent increase over the 429 communities they were marketing in June 2005, Murphy said.
The condominium-conversion market has a two-year supply of homes, with 15,785 apartment units designated as potential conversions, Murphy said, though he added there were no guarantees that all those rentals would change over to for-sale properties.
In the high-rise and mid-rise submarket, 37,307 units are in planning, marketing or under construction, SalesTraq's numbers show. But Murphy said that glut of supply isn't alarming because developers will take up to four years to finish those projects.
The sheer availability of housing options in Southern Nevada won't hamper appreciation in coming months, Bottfeld said.
He said he believes the median price of a new home will have risen 8 percent to 12 percent for the year by the end of 2006, while he expects the median for a resale to have gone up 5 percent to 8 percent.
With so many homes competing for buyers' dollars, why would analysts foretell price increases?
Bottfeld said three factors will promote appreciation.
Las Vegas has led the nation in job growth for 13 consecutive quarters. Local job formation in the first quarter was 7 percent, and the city has added nearly 65,000 positions in the last 12 months.
"We have a bigger demand for new people than anyone else in the country," Bottfeld said.
Also forcing prices upward are construction expenses.
Bottfeld said the cost of home building is rising 1 percent to 3 percent a month, and builders will need to pass at least some of that bigger tab onto buyers.
Finally, the valley continues to struggle with a lack of buildable land, so the cost to acquire vacant parcels will likely stay on its upward course. Bottfeld said some plots designated for residential development are selling for as much as $1.7 million an acre. At that price, a traditional single-family subdivision with a density of five homes to six homes per acre would carry a land cost per unit of more than $283,000.
"Prices have to continue to rise," Bottfeld said.
Median price of a new home in Las Vegas in June.
Median price of a new home in Las Vegas last June.
Number of new homes sold in June.
Number of new homes sold last June.
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