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Oct. 17, 2007
Copyright © Las Vegas Review-Journal

Housing, salary imbalances grow

Home value decline, foreclosure surge not enough to solve affordability crisis

By JENNIFER ROBISON
REVIEW-JOURNAL

It wasn't too long ago that housing affordability had the attention of leaders in government and business alike.

Local think tanks in 2004 and 2005 held roundtables to discuss solutions to the affordability "crisis," and public officials held hearings on the matter.

Today, talk of housing affordability has all but vanished in the wake of a surge in foreclosures and an attendant drop in local home values. But analysts say Southern Nevada is still short of affordable housing, and decision-makers will have to grapple with that scarcity as the local economy grows.

"The affordability problem has not gone away at all," said Jeremy Aguero, a principal in local economic-research firm Applied Analysis. "As we switch over to focusing on the instability issue, let's not forget that we're going to have to hire better than 200,000 people over the next five to eight years as new hotel-casinos come online and ancillary services have to keep pace. It's a whole new set of problems people aren't even ready to talk about."

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    • The average sale price of a single-family home fell 6.8 percent year-over-year in September, according to data from the Greater Las Vegas Association of Realtors. The average sales price among condominiums and townhomes was off 2.4 percent in the same period.

    Even with the declines, though, average prices remain high compared to local incomes.

    The median annual household income in Las Vegas was $53,000 in 2006, according to the U.S. Census Bureau. But the average price in September for a single-family home was $352,137, or nearly seven times the median income. The average condominium or townhome cost $217,494, or more than four times the median income, last month.

    Experts say market conditions will prevent local home prices from falling to their pre-boom averages of less than $200,000.

    First, consider land and construction expenses.

    Land prices remain high, at $677,300 per acre, and home-building materials also cost significantly more than they cost in the early 2000s.

    "Unless builders build and sell at a loss, they're not going to be able to construct homes at 2001-2002 prices," Aguero said.

    And because new homes are the substitute good or replacement product for existing homes, prices on new construction will prop up values on resales.

    Besides, if local prices decreased to anything approaching a median of $200,000 or less, investors would flood the market looking for bargains, Aguero said. The demand would force up prices, similar to the dynamic that propelled the Las Vegas Valley's 54 percent appreciation rate in 2004.

    Constraints on land supply should also buoy local housing expenses in years to come.

    "We are an island, like Manhattan, only we're surrounded by a sea of (Bureau of Land Management) land and Native American property," said Steve Bottfeld, an analyst with local real estate research firm Marketing Solutions.

    Southern Nevada has less than 70,000 acres of developable land, and the region's builders and residents have chewed through 9,000 acres to 10,000 acres annually in recent years. That gives the area between five and seven years of property for new communities, Bottfeld said.

    To divine the future of Southern Nevada's home prices, Bottfeld suggested looking at other land-limited markets such as San Francisco, where the median home price in the second quarter was $846,800, or nearly 13 times the median household income of $65,497 a year. Despite the imbalance between salaries and housing costs, the median home price rose 7.6 percent in San Francisco in the second quarter, even amid nationwide depreciation, according to statistics from the National Association of Realtors.

    Cities including Las Vegas, Boston and Seattle can expect home prices to outstrip incomes roughly sixfold for the foreseeable future, said Bottfeld, who's assembling comparative cost analyses for an Oct. 25 market forecast.

    Nor does Devin Reiss, president of the Greater Las Vegas Association of Realtors, expect housing prices to subside substantially. There's just too much construction in the city's resort corridor to anticipate a sustained downturn, Reiss said.

    "With all the building taking place, some 50,000 people a year moving here and building permits on new homes way down, we're likely in a couple of years to see the opposite of what we see today," said Reiss, who also is broker-owner of Realty 500 Reiss Corp. "We'll see a shortage rather than an abundance of properties."

    Plus, locals no longer can expect the easy, no-money-down financing that characterized the buying binge of 2004 and 2005. Buyers will again have to reach into their pockets for down payments, further pinching housing budgets.

    What it all means, said Aguero, is a tougher hiring scene for local companies.

    Transplants move to Las Vegas first and foremost for job opportunities, but the ability to find a place to live is key as well. And part of Southern Nevada's appeal, at least until home prices spiked three years ago, was the affordable housing that allowed new residents to buy into the American dream of homeownership.

    Combine sustained high home prices with national media citing Las Vegas as a "boomtown gone bust," and area businesses could find fewer takers for available positions, Aguero said.

    It's not all doom-and-gloom on the affordability front, experts say.

    Start with the fact that income is just one indicator of how much home consumers can afford. Also important to buying power is home equity. Plenty of consumers who'll hit the market in search of local properties in coming years will arrive from equity-rich environments in California, Florida and even Las Vegas.

    Affordability in Southern Nevada also got the nod from Coldwell Banker, which found that home prices in Las Vegas are comparable to expenses in cities including West Hartford, Conn., and Provo, Utah.

    The national real estate brokerage anointed Las Vegas "one of the nation's more-affordable markets."

    And simply educating consumers about the local market can ease affordability concerns, Reiss said. Perhaps $200,000 doesn't buy the comfortable suburban spread it could have commanded three or four years ago, but Southern Nevada has opportunities for home shoppers on a budget.

    The Multiple Listing Service of the Greater Las Vegas Association of Realtors showed more than 4,000 area properties listed for $200,000 or less on Tuesday.

    "Every buyer is going to have to really take a look at what housing opportunities exist," Reiss said.

    "It might be less than what they had anticipated. Plenty of condominium and townhome opportunities exist, and many homes have come down quite a bit in price. It's just a matter of understanding what we have now in Las Vegas and the surrounding area, and what type of product we're going to have available to us in the future."

    Yet, analysts say it's housing affordability, rather than current pricing uncertainties, that will characterize local real estate going forward.

    "Affordability is going to be an issue we are going to be dealing with for the next 15 or 20 years," Bottfeld said.

    "We are at a turning point, like Manhattan at the turn of the 20th Century. Manhattan didn't really get a luxury market until the 1890s. Las Vegas didn't get a luxury market until the beginning of the 21st Century. This market has transitioned dramatically, and that's going to present an affordability issue for at least as long as I can see."

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

    Affordability still not assured
    The gap between what locals earn and what a new home typically costs has widened in recent years:
    Year Median
    Income    		 Median
    Home Price
    2000 $45,607 $155,548
    2001 $40,255 $170,000
    2002 $44,593 $183,557
    2003 $45,249 $201,119
    2004 $47,231 $251,119
    2005 $47,863 $313,372
    2006 $53,000 $341,990
    SOURCE: U.S. Census Bureau; SalesTraq


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    Money Trees, part II wrote on October 17, 2007 09:55 PM: Who wants this town to be Cheap (i.e., Stupid)? I don't! That just means crime and trash. I hope prices do not drop too much, which only attracts lesser quality (least educated) people. We have enough of that already, in one of the more highly "uneducated" states and towns.


    Money Trees wrote on October 17, 2007 09:44 PM: One word: "rent"! One phrase: supply and demand. To all the "affordability crusaders" (socialists), go to San Fran, or most other CA towns, and you will come back here with your tail between your legs lol.


    JD wrote on October 17, 2007 03:45 PM:

    The BLM controls the price of land. Time to drop the price to new lower market levels.


    cas127 wrote on October 17, 2007 11:03 AM: Yep, one would have thought that a fall in housing prices would have gone a long way towards solving "the affordability crisis".

    But government doesn't get to eat tax dollars, cycle them through its wealth draining bowels, and return the lovely spoor in over promised programs unless there is *always* some sort of "crisis".

    LV is only an island of the mind - trust me, the Feds would unload as much Nevada desert scrub as they could as fast as they could to sate their own uncontrollable kleptocratic urges if local developers with existing properties already in play weren't bribing local officials to stave off any more significant BLS auctions until the developers' projects "recover" (earn back the idiotic amounts the developers paid for raw land).

    Hey, RJ, throw up a graph of acres auctioned off at BLS auctions over the last ten years before we start having to endure BS about pending "land shortages".

    There is a very political reason why we have gone from auctioning off thousands of acres to basically auctioning off a couple of front yards.

    To say there is a pending land shortage in LV is moronic - the scarcity is self-evidently self-imposed due to the political influence of local developers.

    Any how come we never hear about the impact on job growth due to the increasing number of *cancelled* projects.


    Happy to rent wrote on October 17, 2007 10:43 AM: These $352,000 houses are barely worth $100,000.... poorly built with some wood, chicken wire and stucco.... No insulation, nothing that's going to last the next 50 years. It's a shame what goes for a home in this area. The developer's and builders should be ashamed of themselves for charging outrageous prices for these dives.


    oldlawdawg wrote on October 17, 2007 10:13 AM: By all means -- let's take the word of the national real etate brokers and the larger mortgage bankers -- the people who helped create this mess in the first place. Las Vegas does not have and will not have an affordable housing market because of naked greed, and political concessions for developeres to beuild luxury high rises has not helped at all. Our politicians have failed us by not only remaining quiet when everybody could see what was happening, but by actually encouraging it and, like Reid, Gibbons and others, profiting from it. While many new commers will arrive, many others will have to leave because they simply cannot afford a meaningful future in Clark County, a region that is now strictly a playground for the wealthy. Developers own Nevada, plain and simple, and unless and until we have politicians who will reign in and manage growth (and not prevent condo conversions from continuing -- one of the most blatant "nods" to the whims of developers in recent memory), home ownership will remain an illusion for the majority of Clark County residents.


    Vegas bust or boom??? wrote on October 17, 2007 09:34 AM: Who the hell knows.....
    pessimist, optimist, skepticism,
    bearish, or bullish....
    Life moves on.
    It's all cyclical.
    ....and 'this too shall past'


    Trisha wrote on October 17, 2007 09:04 AM: Your logic is faulty.
    1) Cannot compare the "average" price of a home to the "median" price of a home in San Francisco.
    2) On most articles, the RJ quotes the "median" new home price @ $307K and resales @ $276K.

    There are many homes in Summerlin, yes Summerlin, for about $260K at this point in time. On the East side, for $200K.

    Housing is fairly priced in Las Vegas and no reason why a couple, sans SUV, Wide-Screen TVs, jewelry, etc cannot afford a home in the town.


    Bill wrote on October 17, 2007 09:01 AM: Please!! A 46% increase in home prices over a 6 year period and salaries remaining relatively the same. As previously stated by me and now many others until home prices drop 25% to 30% so the real people who live and work here in Las Vegas can afford to purchase a home the real estate market will continue as is. The average worker here is Las Vegas is earning approximately $12.50 per hour. Now consider both husband and wife are working that's your $52,000 median income here in Vegas. Now see if you can huck that with a $300,000+ home. Home prices MUST be commenserate with income for the people who actually live and work here and that is all there is to it.


    JH wrote on October 17, 2007 08:10 AM: Mark my words. In the next 24 months, you are going to see some of the biggest changes in your life. This greed and unbridled use of credit is going to come to an end in this country. There are many families who earn way far less than the median income. For these families, just staying alive is a big chore. America has been dancing to the music for 60 years. Now it is time to pay the band. With the tremendous influx of baby boomers getting ready to join the Social Security system, the pressure is going to be immense. When the wealthy boomers decide they want to cash in all of those stocks they have been purchasing for the last 30 years, you can look forward to a stock market crash that will top all other crashes. Many sellers, and not many buyers. At least not many buyers at the prices that these people will be needing to sustain life in their retirement years. Guess they will have to work until they die unless they have a large inheritance coming their way from previous generations.


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