Jan. 27, 2007
Copyright © Las Vegas Review-Journal

HOUSING: Home sales end 2006 on decline

By HUBBLE SMITH
REVIEW-JOURNAL

Click image for enlargement. Construction continues Friday on homes in the Valencia Terrace development near Bonanza Road and Pecos Road. The median new home price in Las Vegas was $337,781 in December, up 8.9 percent for the year. Photo by Ralph Fountain.

Las Vegas took a beating last year from analysts who predicted housing prices would decline anywhere from 6 percent to 30 percent, that it was one of the most overvalued markets in the nation and the “bubble” had finally burst.

Although new home sales started strong in 2006, at least part of their predictions were ringing true. By the middle of the year, the housing market had definitely pulled the parachute, finishing with six consecutive months of declines. There were 3,034 new home closings in December, compared with 4,161 in December 2005, Home Builders Research reported.

For all of 2006, Las Vegas had 36,051 new home sales, down 7 percent from the previous year.

The resale market hit the skids in Las Vegas as inventory grew to more than 21,000 and homes sat on the market for six months without getting a bite. Home Builders Research counted 2,678 recorded resales in December, bringing the total for the year to 41,892, a 28 percent slump from 2005.

But even as sales fell, prices held steady for existing homes and increased for new homes.

The median new home price in December was $337,781, up 8.9 percent for the year. Omitting luxury high-rise condos and apartment conversions, the median price of a traditional single-family home was $330,094, still up 4.3 percent.

The resale median of $285,000 is unchanged from a year ago.

“My view is that prices are getting close to rock bottom with a little ways to go,” Kurt Lehman of Realty One Group said. “It’s so useless to generalize, since the market here is so diverse. We keep hearing about median prices going up, but all it means is that the few houses that sold have more above that median than below. That figure says nothing to the average home seller who keeps dropping his price and has had no offers for six months.”

Lehman found 1,454 single-family homes that closed escrow in December. The Multiple Listing Service showed 656 contingent sales, which means they’re in escrow but open for backup offers, usually indicating the buyer must still qualify for the loan or has another house that must be sold first.

An additional 764 homes were pending sale. The contract is in escrow and looks solid, but has not yet been funded and recorded.

Dennis Smith, president of Home Builders Research, said information is knowledge and some people have learned how important it is to study the market.

“Many folks new to the business just had their first lesson in how shifts in supply and demand can change the housing industry,” he said.

The biggest story of 2006 regarding the resale segment has to be the large inventory of listings, Smith said. The Greater Las Vegas Association of Realtors showed 17,834 single-family listings in December and 4,833 condos and townhomes, down from the peak in September and October.

Although he deemed the decline in inventory a positive signal, Smith said it’s still too early to believe the supply of resales is changing significantly.

“It does look like it has peaked and is at least going in the right direction,” he said.

Larry Murphy of SalesTraq reported 2,970 new home closings in December, down 29.4 percent from the same month a year ago. His tally of 35,484 sales for the year is down 8.5 percent from 2005.

Existing home sales fell 31 percent in December to 2,907 and the annual total fell 24.1 percent to 41,771.

Murphy showed median new home prices at $336,641 in December, up 7.9 percent. Existing prices were $284,000, down 0.2 percent.

Jeremy Aguero of Applied Analysis, a Las Vegas research firm, said he expects existing home prices to go negative in the first and second quarters this year.

“Realistically, housing prices have already dropped 7.5 percent,” he said Thursday at the Preview Las Vegas 2007 economic forecast.

Prices are holding steady on a per-square-foot basis, he said, and the ratio of employment growth and residential permit activity may be poised to rise. Generally, a healthy ratio is 1.3 new employees for every new housing unit. With employment growing at 5 percent and permitting down 25 percent, the ratio could be headed higher by the end of this year, Aguero said.

Either employment growth has to slow, which is unlikely, or home builders need to bring more homes to the market to avoid another huge run-up in prices, he said.

Smith of Home Builders Research said new home permits turned around in December. He sorted through 2,089 permits, bringing the total to 23,219 for 2006, a 25 percent decline from 2005. It’s the largest year-to-year decrease of building permits he’s ever documented.

On the upside, December’s total was the largest monthly count since June.

“Is the December permit increase an indication of a positive market adjustment? It could be, although we caution if indeed it is a positive signal, the adjustment will not signify a return to the permit levels averaging 3,000 permits a month,” Smith said.

Murphy’s permit count for December was substantially lower at 905, the fourth consecutive month under 1,000. His total for the year is 20,999, down 30.3 percent from 2005.