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Oct. 10, 2007
Copyright © Las Vegas Review-Journal

Housing woes: Let's get real

Analyst calls for 'acceptance' of 20 percent decrease in home prices

By HUBBLE SMITH
REVIEW-JOURNAL

For-sale signs abound Tuesday on Twin Falls Drive in a Henderson neighborhood. Both new- and existing-home prices are falling.
Photo by John Gurzinski.

Las Vegas home sellers need to come to grips with the seventh step in the grief recovery process, housing analyst Tim Sullivan said Tuesday.

"Acceptance," the president of San Diego-based Sullivan Group said. "We're going to see a 20 percent decline in prices. We've got to accept it and move on."

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    • New home builders, with recent price reductions and $27,000 incentive packages on average, are getting close to the bottom, Sullivan told a group of more than 200 real estate professionals during his seminar at the Four Seasons.

    Subtracting incentives from the median new home price of $323,900 in August, new homes' net prices are about $297,000, compared with a $319,000 net price in 2006, Sullivan said.

    "Las Vegas has lost weight and Las Vegas is more flexible again," said Sullivan, who said he began exercising and dieting himself so he could lose about 30 pounds.

    "Like humans, the housing market is organic and we're in a cycle. Anyone here who's over 35 has experienced it before," he said, explaining that he feels much better after losing the extra weight.

    The good news, Sullivan said, is cycles are happening more quickly. The last few recessions have lasted about nine months, compared with three to five years in the past, he said.

    Some of the signals to look for that will show the housing market has bottomed out will include a resale supply of only seven months' worth of homes; no more erosion in sales; a further drop in building permits; an increase in mortgage purchase application agreements; a dramatic increase in affordability; and at least one major builder leaving the market.

    Bill Hoover, southwest regional president for Pageantry Homes, said his company has been able to balance different cycles in its three markets of Seattle, Phoenix and Las Vegas.

    "We started analyzing everything we're doing a year ago, basically monitoring cash flow," he said. "It's the old adage, 'Cash is king.' Our owner, Don White, his background is in financing. He's very judicious in the way he handles money."

    Las Vegas was averaging about 40,000 new home permits a year from 2003 to 2005 when supply skipped ahead of demand, Sullivan Group Vice President Ken Perlman said. The employment-to-permit ratio was skewed by an oversupply that was "masked" by investors, he said.

    Permit activity has dropped by more than half. He estimated 18,000 permits this year, which is necessary for the market's recovery.

    Perlman said gross metropolitan product for Las Vegas, a measure similar to the nation's gross domestic product, is running at about 2.5 percent this year.

    Population growth has slowed from 60,000 new residents a year to 50,000 and employment growth has also slowed, but remains positive. The 30,000 new hotel rooms planned for the Strip would create about 43,000 jobs, he said.

    "Demand for housing growth is there," Perlman said. "We believe population growth will ultimately buoy the housing market. I mean, 50,000 people have to live somewhere."

    Tom McCormick, president of Las Vegas-based Astoria Homes, said he was glad to see Sullivan differentiate between the new-home market, which has a two-month supply of inventory, and the resale market, which has a nine-month supply.

    "Where we run into trouble as a builder is when everything gets lumped together," McCormick said. "Builders have been more aggressive in marketing. If you're looking for a new home, there's very little to choose from. If we have to come down 20 percent, we're there with incentives and that's why we're able to move homes. The resale market hasn't adjusted and they're having trouble."

    Home Builders Research reported a median price of $275,000 on resale closings in August, down about 5 percent from a year ago.

    Perlman said Las Vegas has some positive long-term aspects. Home prices remain 86 percent above the median in 2002 and most homeowners have a good deal of equity. Compared with the $740,000 median home price in San Diego, Las Vegas is still relatively affordable, he said.

    "Tourism is the ace in the hole for Las Vegas' economy," Perlman said, citing gaming revenue that surpassed $10 billion in 2006. "The casino industry is strong."

    Sullivan said people who own homes will be staying in them longer. Investors are still "lurking" out there, but he doesn't see them coming back strong.

    "Hold on. The market is changing and we've made the right strides," he said.

    Contact reporter Hubble Smith at hsmith@reviewjournal.com or (702) 383-0491.

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    DarthVader wrote on October 23, 2007 09:43 PM: If you buy a home now be prepared to lose another 20% on your equity. The downturn in housing prices has not hit bottom. Buyer beware!


    deadcat bounce wrote on October 10, 2007 08:04 PM: hurry !


    catch a falling knife




    alan berk wrote on October 10, 2007 06:48 PM: With 26,000 homes for sale can anyone tell me why they are still building new ones!!!!?








    Joe Friday wrote on October 10, 2007 06:12 PM: anon...month's supply of inventory of resale homes used to be around five months. During the bubble it was less.

    Resale market = 9 months supply?? Closer to TWO YEARS!

    No doubt this guy will look you straight in the eye and lie to your face. He should get a "lier's award" from the real estate industry. Of course finding the biggest lie from that bunch wouldn't be an easy task.


    Positive wrote on October 10, 2007 03:28 PM: "James" is clearly a well educated individual !

    If you add a families income together, you would be surprised at what they can qualify and pay for.

    The Home as an ongoing ATM machine is gone as 40% yearly growth never will continue in an area, but the American Dream to own a new home still exists, and it still exists in Las Vegas !


    James wrote on October 10, 2007 03:10 PM: And those service jobs that are continuing to grow need other services. They need doctors, lawyers, firefighters, teachers, Big-Macs, gasoline, and clothes. The gentleman on this thread that says the casino industry needs to pay their fair share because he has not profited from them needs to realize the same point I made above.....jobs in our primary industry (tourism) leads to jobs in all other community based industry and services...a snowball effect. We are all earning money due to the effects of tourism in Las Vegas.

    The "anti-growth" guy should move to Oregon...Vegas is the wrong place for you to live sir...."CITY of Lights."

    I'm with "Positive" on this as well. We are not living in Detroit....people are moving here at a pretty solid pace. Condo conversions have ended and apartment occupancies are near capacity. None of us have a crystal ball, but this article does make some intelligent points about where we are at with respect to "the bottom." Most of the analysis I have read center around 15% to 20% decline in home values.....and if the builders are giving incentives and price drops that are near this number, we are probably pretty close to that bottom!

    Considering the strong influx of people moving here, the apartment occupancies at capacity, that builders have dramatically slowed production, and people's fear of buying homes right now due to the mortgage industry problems (we all know someone who is “waiting”). Ummmm...I predict another boom. Wish I had that crystal ball to find out exactly when, but I'd argue we are going from straight down, to straight up again. It appears as if the credit problem is getting resolved pretty quickly...and we all know that it will ultimately get resolved.

    Cheers.....James


    newhomes4sale wrote on October 10, 2007 03:03 PM: positive you hit the nail on the head, your comments were on target. Some positive news about the housing market is good new for buyers and sellers. The media has added to the problem and greed from the builders, now i hope Las vegas don't make the mistake again.


    Caveat Emperor wrote on October 10, 2007 02:19 PM: "We started analyzing everything we're doing a year ago, basically monitoring cash flow," Bill Hoover, southwest regional president for Pageantry Homes, said.

    Is this guy college educated? What fookin grammar! OI!!!

    Alanberk---your blogging makes me cackle. I cackle SO MUCH harder when I assess my situation-I live 5 miles from my job, I can bike to work along a wash out of traffic, and I only paid 135,000 for my 2000sf house.


    David R Huntington wrote on October 10, 2007 02:13 PM: Yes, new residents are moving into the valley. Yes, new resort construction will create more jobs.
    BUT, will those jobs enable the ability to AFFORD a house at todays prices? Say all you will about growth, but the bottom line is most jobs in Las Vegas are in the service industry and those jobs do not afford the wages to service $200,000- 300,000 mortgages.


    anon wrote on October 10, 2007 01:44 PM: how about someone showing us some historical numbers regarding inventory... 24 months of supply taken in a vacuum doesnt mean a whole lot,... how does this compare to other years? months?


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