The newest numbers reveal a sustained slide in Las Vegas home values. Six months ago, home prices here were 3.1 percent below the values historic fundamentals warrant. That wasn't even enough of a shortfall to qualify as undervalued.

Today, though, consider Las Vegas undervalued. Out of the 330 markets IHS Global Insight and National City track, Las Vegas ranks near the bottom, at No. 287. The report's researchers declare as undervalued any market with prices more than 14 percent below market fundamentals.

To determine historically normal values, analysts look at median prices from 2000, household income, population density and interest rates.

Housing economists say they're not surprised values in Las Vegas fell significantly through 2008.

It's common for markets that enjoyed steep overvaluation -- Las Vegas peaked in the third quarter of 2006 at 30.8 percent above fundamentals -- to experience similar exaggerations on the down side, said Richard DeKaser, chief economist of National City and developer of the statistical model behind House Prices in America.

That's because inflated markets foster overbuilding and speculative investments. And when builders or real estate investors overextend themselves and later flood the market with large supplies of homes, the property glut pushes home prices well below equilibrium value.

On top of that typical correction in oversupply, Las Vegas claims thousands of foreclosure properties, and foreclosures "have a contagion effect" on prices, DeKaser said.

Larry Murphy can tell you all about that contagion effect.

Murphy, president of Las Vegas housing-analysis firm SalesTraq, said his sales and pricing data show parallel local housing economies: a standard resale market with a median price of $217,000 in October, and an inventory of bank-owned homes commanding a median of $166,000. Those foreclosures make up two-thirds of all home sales right now. After you account for foreclosures, the overall resale median in Las Vegas is $184,000.

Murphy said he agrees with DeKaser's and IHS Global Insight's conclusions. He did some recent numbers-crunching of his own for a client, and found that annual appreciation averaging 3 percent to 4 percent for the last 25 years would have roughly yielded today's median value.

"We're about where we should be in the overall cosmic scheme of the universe," Murphy said.

National City's internal numbers indicate that the precipitous devaluation of 2008 should slow in 2009.

The bank holding company forecasts a floor under local housing prices at a median of around $182,000. That's $10,000 below the third quarter's $192,000 median, and well off the 2006 high of $295,000. The company's economists estimate Las Vegas will bottom out sometime in early 2010, which means it will take 15 months to drop about 5 percent on top of the 30 percent or so the market fell in 2007 and 2008.

For consumers, undervaluation should signal purchasing opportunities, DeKaser said.

"Real estate is now a good buy in Las Vegas," he said.

Before you survey 2008's falling prices and dismiss that analysis, think about conventional wisdom in 2005. People often assume past performance predicts future trends, so DeKaser heard plenty of snickers three years ago, when he warned that housing values would tumble.

Recalled DeKaser: "People would look in the rear-view mirror and say, 'Wow, prices went up 30 percent in the past two years. What are you talking about?'"

Yet, history shows that markets experiencing significant undervaluation provide a "strong likelihood that buyers will be rewarded over the longer term," DeKaser said.

That doesn't mean anyone will make money flipping local homes in the next 12 months. But it does mean buyers with time horizons of five years or longer are likely to realize "lucrative" returns on homes they buy today, he said.

Murphy said he's not sure how low housing prices here will go, but he noted that KB Home and Richmond American dropped prices over the weekend on some north and northwest subdivisions to around $75 per square foot. Murphy has long said builders couldn't make money selling local homes for less than $100 per square foot, so he was "shocked" to see the new data.

Murphy said he's also concerned about the number of foreclosures yet to hit the market. The Las Vegas Valley has a 7.5-month inventory of bank-owned homes, and that's before a potential new wave of foreclosures hits the market as homeowners grapple with spreading job loss.

"How low can prices go? I don't know," Murphy said. "But they can't hit zero."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.

After several years of overvaluation based on factors including historic median prices, household income, interest rates and population density, Las Vegas now faces serious undervaluation:

Third quarter 2004	Third quarter 2005	Third quarter 2006	Third quarter 2007	Third quarter 2008
Price: $240,800	Price: $274,800	Price: $294,900	Price: $272,400	Price: $191,500
Overvalued: 22.3%	Overvalued: 24%	Overvalued: 30.8%	Overvalued: 17.6%	Undervalued: 18.8%

Other regional markets and their valuation in the third quarter:

St. George, Utah: At $223,700, 39.7 percent overvalued

Salt Lake City: At $260,700, 18.8 percent overvalued

Phoenix: At $197,500, 3.9 percent overvalued

Los Angeles: At $384,400, 1.6 percent overvalued

San Francisco: At $666,100, 15.6 percent undervalued

Stockton, Calif.: At $161,000, 27.7 percent undervalued

San Diego: At $337,000, 19.1 percent undervalued Share & Save

Leave Your Comment	31 Reader Comments
Terms & Conditions The following comments are provided by readers and are the sole responsiblity of the authors. The reviewjournal.com does not review comments before publication nor guarantee their accuracy. By publishing a comment here you agree to abide by the comment policy. If you see a comment that violates the policy, please notify the web editor. Some comments may not display immediately due to an automatic filter. These comments will be reviewed within 48 hours. Please do not submit a comment more than once.
Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. GET REAL wrote on December 11, 2008 07:21 PM: YEAH RIGHT, Forgot to mention all of the over building of these super cheap quality homes on postage square lots with out of state buyers buying 4 or more to rent out. (Oversupply) Over 7,000 foreclosures on the market and we are priced right?? (Vacant) Vacancy percentages for apartments are also going up. Rents have been coming down. Oh.. just wait until the fourth quarter earnings reports come out for the casinos and watch the unemployment levels go from the current level of just over 7% to even higher. YEP... it's undervalued. TOO FUNNY. Meghan wrote on December 10, 2008 08:29 AM: Value is in the eye of the beholder. They aren't saying that just because the homes were once $300k, they're now undervalued - if you go back to '06 you'll see that these same people concluded we were overpriced somewhere in the neighborhood of 28-41%. What is interesting though, is the contradiction from Larry Murphy saying he agrees with DeKaser/IHS - but then says we pretty much are where we should be. So what is it folks? Mark wrote on December 09, 2008 04:57 PM: Does, Plaster chicken wire and Styrofoam ring a bell. Did anyone ever see these houses being put together, anyone who thinks the Vegas houses are quality are just asinine. Overvalued is what they are, Just because there was a average of 300k and now the price is down doesn't make the house undervalued. D wrote on December 09, 2008 03:36 PM: When Home prices reach 1997-8 levels then they will be of value.With the poor construction quality these homes are not worth these high prices. Joe Bama wrote on December 09, 2008 03:34 PM: If bama gives us each a house we can get a HELOC and buy an american made car thus killing two birds with one stone. With ideas like this you think i could get a cabinet position? vegasdomar wrote on December 09, 2008 01:24 PM: Got a point. We are still feeling the effects of Reagan and Carter. Especially the housing collapse. don wrote on December 09, 2008 01:07 PM: HEY FAIR AND BALANCED! All you have to do is open your mind and close your mouth and go to some mediocre website like NYT and numerous other and they list all 63 questions. I'm not as paranoid as you better be. I've got mine, no kids or grandkids and will most likely be dead before this administrations' policies have finished doing their damage. If you're young and have kids and grandkids then good luck telling them in the future what a genius you were. LV Renter wrote on December 09, 2008 12:15 PM: Well Murphy finally made a statement that is true. Prices cannot become zero. Should we forgive hime for every incorrect statement he has made in the last three years on housing prices based on finally getting it right? sorry wrote on December 09, 2008 12:04 PM: Well EFC is right, the people who should have been controlling the growth in this city had another G in mind, greed. I kick myself on an hourly basis when I think of the mistake I made buying a house here years ago. I should have known better. And cheap construction? without a doubt. Overpriced? without a doubt. The odds I am stuck here becuase I will never be able to sell my house and recover my initial downpayment? without a doubt. johnfromdowntown wrote on December 09, 2008 11:17 AM: Maybe the land under the homes is undervalued but actual homes are not. I've never seem more cheaply constructed homes than I have in las vegas. I'm surprised some just don't blow away. Undervalued? No Way! Read All Comments