Aug. 24, 2006
Copyright © Las Vegas Review-Journal

Closings of new homes at lowest level since April 2003

By HUBBLE SMITH
REVIEW-JOURNAL
Las Vegas’ housing market picked the hottest month of the year to show its clearest signs of cooling.

New home sales in July dropped 41 percent from the same month a year ago and existing home sales fell 35.1 percent as the market continues its downward slide after two years of record-breaking sales and price appreciation.

The 1,808 new home closings were the fewest since April 2003 and slightly more than half of the 3,474 closings in the previous month, local research firm SalesTraq reported Wednesday.

“I was kind of shocked when I saw 1,800 new home sales,” SalesTraq President Larry Murphy said. “I started downloading the file and I knew it was a small file.”

Murphy has challenged the housing bubble theorists every year by citing increasing prices in Las Vegas, but now admits he “underestimated the slowdown.”
Existing sales slid to 3,400, compared with 5,235 a year ago.

Median prices of both new and existing homes climbed 3.2 percent in July. However, the new home median of $299,152 is down significantly from $337,395 in June. The median price for existing homes was $289,000, a scant $450 increase from the previous month.

“It’s becoming increasingly harder to deny that Las Vegas is a typical bubble market, but that has not stopped some like Larry Murphy from trying,” Debi Averett said in her Phoenix-based Housingdoom.com blog. “More real estate professionals are recognizing that they lose credibility by denying the obvious trend. Join the dark side and embrace the bubble, Mr. Murphy. Bubble talk may seem like a conspiracy now, but in the end, you will see that a business model based on actual market conditions is better for the market and better for Las Vegas.”

Kurt Lehman of Realty One Group in Las Vegas said he’s thought for some time that many of the housing experts “keep looking through ivory tower, rose-colored glasses.”

New home building permits declined 47.7 percent in July to 1,566 as builders look to reduce their standing inventory. The 515 active subdivisions in Las Vegas are up 20.6 percent from last year.

“If you look at permits, they’ve been in the red (negative) for the last few months,” Murphy said. “What happened in July is a reflection of buyer behavior from three months prior. I think the builders realized that because they started cutting down on permits and started offering huge incentives and bonus commissions for Realtors. That’s why they pulled back on permits. They saw that happening.”

Nearly the same number of mid-rise and high-rise units (282) closed in July as condominium conversions (290), offsetting each other as far as the median price of a new home, Murphy said.

Mid-rise and high-rise prices are around $500,000, while apartment conversions topped $200,000.

Steve Bottfeld, real estate consultant with Marketing Solutions, said it’s important to understand why the Las Vegas housing market performed badly in July.

Most analysts point to a variety of negative economic factors. They’re right, but the impact of vertical construction in Las Vegas on housing sales, prices and especially inventory appears to be consistently underestimated, Bottfeld said.

“Almost unnoticed on the canvas of the Las Vegas housing picture are nearly 38,000 high-rise and mid-rise homes in various stages of development,” he said. “They paint a very different portrait of every aspect of the market.”

More than 5,000 vertical units had closed escrow as of July and 90 percent of the 11,734 units under construction are in escrow, Bottfeld said. Still another 11,620 are actively being sold.

Recent news that Nevada ranked among the top five states with the largest slump in housing sales during the second quarter is only part of the story here, Bottfeld said.