Analyst says new-home prices will drop another 5 percent this year

New-home prices will drop another 5 percent this year and stay essentially flat in 2011 as builders compete with more foreclosures and short sales, a Las Vegas housing analyst said Thursday at his quarterly presentation.

About half of new-home offerings are priced at $100 a square foot or lower, with floor plans by Harmony Homes going for as little as $65 a square foot in the master-planned Southern Highlands community, SalesTraq President Larry Murphy said.

Murphy had said in the past that prices couldn't go much lower because it costs more to build a new home than what it would sell for.

"How low can it go? A year ago, I thought I'd never say this, but yeah, new-home prices could come down more this year," he told about 80 real estate businesspeople at Crystal Ball.

SalesTraq reported a new-home median price of $182,440 in June, a 12.7 percent decrease from the same month a year ago. There were nearly 3,100 new-home sales in the first six months, compared with 2,300 in the year-ago period.

The resale median price has dropped 58 percent from its peak to $123,000 in June. However, it's only down 2 percent over the last 14 months, so "the bleeding has almost stopped," Murphy said.

Las Vegas could potentially see a flood of foreclosures by the end of the year, but probably won't because lenders are reluctant to take back homes, Murphy said.

Short sales, or homes sold for less than the mortgage owed, are increasingly becoming the alternative to foreclosures, which are costly for banks to process and typically sell for less than a short sale, he said.

Murphy estimated a "shadow inventory" of 6,500 homes owned by the bank that have yet to be released on the market, plus 18,500 preforeclosure filings that may or may not go to foreclosure.

Even a shadow inventory of 25,000 homes is not that many, he said. Las Vegas had 24,067 foreclosures in 2008 and 20,426 in 2009.

The government's loan modification program won't work in Las Vegas because homeowners are too far "underwater," or owing more than the principal mortgage balance. Homeowners need a 50 percent reduction in principal, and the banks just aren't willing to do that, Murphy said.

Some 80 percent of Las Vegas homeowners are underwater and half of the homes have negative equity of 25 percent or more, according to First American CoreLogic.

That's causing more homeowners to walk away from their mortgages, a phenomenon that's become known as "strategic default." Las Vegas leads the nation with a 16.2 percent mortgage delinquency rate.

"More people are delinquent on their home than they are on their automobile or credit card," Murphy said. "In my day, you made your house payment first and then worried about the car. You can get on the Internet and learn how to do a strategic default."

Realtor Steve Hawks said homebuilders are offering $20,000 price reductions and $10,000 broker commissions to lure buyers. Consumer traffic at new subdivisions has dropped 50 percent since the federal tax credit expired in April, he said.

"The tax credit helped the builders more than anybody, but it also caused a sucker's rally for new homes," Hawks said. "Everybody that bought new homes is now upside down about 20 percent or more from the real market. Unfortunately, the expiration of the tax credit has crippled the builders. They are scrambling right now."

Las Vegas' housing recession started with the subprime mortgage crisis and is now being fueled by 14.5 percent unemployment, real estate consultant Steve Bottfeld of Marketing Solutions said.

"The first phase was condo conversions and junk houses," he said. "Now we're evolving into the upper end. The second phase could be the force that puts upward pressure on prices. I agree we're not going to see huge increases this year, but we could see them next year."

Las Vegas needs to "blow up" about 10 percent of its housing stock to bring supply back in line with demand, Mark Boud of Irvine, Calif.-based Real Estate Economics said at Crystal Ball.

He also thinks homes are 58 percent undervalued in Las Vegas. About 12 cents of every dollar in household income goes toward mortgage costs, compared with 35 cents five years ago, Boud said.

"Las Vegas is a screaming deal, if you look at it," he said. "It's just hard to justify buying a home with such a high unemployment rate. Home prices are low not because of the job situation right now, but because of tight lending practices."

Loan-to-value ratios, or the amount a bank will loan on a home, are still going down, which means banks are even tighter about giving loans, he said.

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

Trending topics:

• economy
• housing market analyst
• Hubble Smith
• Larry Murphy
• new home sales prices
• real estate
• SalesTraq Crystal Ball
• short sales foreclosures

Comments

Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background.

1. Borg45 Jul. 30, 2010 | 9:32 p.m. Report Abuse

   I just hope the building department is making sure these homes conform to building codes while the square footage price drops.

2. hotrod57car Jul. 30, 2010 | 3:58 p.m. Report Abuse

   @"American Angel"
   
   Give me a break..its call UNEMPLOYMENT!! What don't you get with 14.5% ???
   
   @SBROOKS:
   
   There was a neighborhood in Fla that the banks owned that they forclosed on - everyone was gone, it was like 20 miles to the closest town and the banks BULLDOSED them because it was cheaper to do that than maintain them...
   
   And yet our city government APPROVED more developments up on blue diamond and elsewhere? What the heck are they thinking??

3. desertbighorn Jul. 30, 2010 | 3:28 p.m. Report Abuse

   The entire housing collaspe which led to the massive recession we're in was caused by two democrats...Senator Dodd, and Rep Frank. Both covered up Fannie and Freddis financial problems and ignored what they knew would be a financial meltdown. Bush tried 4 times to alert Congress to this but was completely ignored. And all this new stupid "financial reform" which was passed by the Dems. failed to include Fannie or Freddie. Wouldn't want to make a fellow Dem look bad

4. ping jockey Jul. 30, 2010 | 3:05 p.m. Report Abuse

   Not the Hopey Changey I was expecting. Maybe if we just give BO another 4 years...

5. Joel.Menschel Jul. 30, 2010 | 2:14 p.m. Report Abuse

   I hope that home values fall to an all time low. This way my property taxes would fall with them. What a great state we live in. Encourage more LOW LIVES and TRAILER TRASH people to move here.

6. MysterMr Jul. 30, 2010 | 9:33 a.m. Report Abuse

   I believe these numbers - mostly because Jeremy Aguero and Applied Analytics didn't have anything to do with them.

7. sbrooks@ymal.com Jul. 30, 2010 | 8:22 a.m. Report Abuse

   What do you mean LV could see a potential flood of foreclosed homes by the end of the year, but wont because lenders are reluctant????? Just because the graveyard is full doesn't mean people stop dying.....Until the inventory is FLUSHED, a recovery is impossible. The banks would just be kicking the can down the road. I say foreclose every one of them. Then a recovery will slowly begin. Or you can bull dose a few thousand JUKE box neighborhoods and build real homes.

8. american angel Jul. 30, 2010 | 8:01 a.m. Report Abuse

   I BLAME IT ALL ON GREED.

9. Jackov.Smirnoff Jul. 30, 2010 | 5:02 a.m. Report Abuse

   At least Strip rentals are cheaper. First month free, no credit check.

10. BluesMan Jul. 30, 2010 | 12:50 a.m. Report Abuse

    you know why home prices are coming down! cause they are making your neighborhoods look more ghetto! They're taking away your tree's that surround your community. I don't live in a gated community, but man o man it's freaking annoying to see this happen, my area has offically turned ghetto. Cops never roam there late at night, and there is always graffiti. I never seen this in my life in this town! God, the crime rate must've went up! That's freaking scary!

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