Mar. 04, 2007
Copyright © Las Vegas Review-Journal

Gain rates for local home prices lose steam as housing market cools

By HUBBLE SMITH
REVIEW-JOURNAL

Cick image for enlargement. Graphic by Mike Johnson. A 2,024 square-foot home in Summerlin recently listed at $389,900. A year ago this home would have sold for $50,000 more. Photo by Jeff Scheid.

Home appreciation in Las Vegas has slowed dramatically from the torrid pace of two years ago and turned negative in some areas of the valley last year, a local housing market analyst said.

Median existing home prices increased 3.6 percent valleywide to $285,000 in 2006, based on more than 90,000 existing home closings recorded by the Clark County assessor’s office in 2005 and 2006, Larry Murphy of Las Vegas-based SalesTraq reported.

Murphy’s breakdown of 52 ZIP codes in the Las Vegas Valley showed 35 areas with positive appreciation, seven unchanged and 10 on the negative side.

The largest declines were 4 percent in ZIP codes 89044 and 89085, while gains reached 18 percent in 89030 and 89103.

“These results fly in the face of the doomsday sayers who only a year ago were predicting that property values in Las Vegas would drop precipitously when the real estate bubble burst in Las Vegas,” Murphy said. “It also flies in the face of local analysts who have been declaring all year long that property values are dropping. The fact is that following the boom of 2004 when we saw appreciation rates of 40 percent, the only thing that has dropped has been the appreciation rate itself.”

Murphy has had to make adjustments over five years of reporting appreciation by ZIP code, “tweaking” his calculations to account for factors that can skew the numbers. For example, he separated luxury high-rise condominium sales in ZIP code 89109, which includes the resort corridor east of the Strip, from single-family home sales to come up with 5 percent appreciation for 2006.

Some ZIP codes were omitted due to small sample sizes that would result in unreliable calculations, he said. New ZIP codes that were created in 2006 but did not exist in 2005 were also omitted.

One of several boundary changes came in 89011, which was exclusively Lake Las Vegas in 2005 and was expanded west past Boulder Highway in 2006. The median home price for that ZIP code is $399,000, or $310.99 a square foot, and the average home age is 11.6 years. A year ago, the median was $894,750, or $440.94 a square foot, and average age was 3.1 years.

Murphy had to compare only sales at Lake Las Vegas from 2006 to the numbers from 2005 to come up with 4 percent appreciation for 89011.

“Otherwise we’d have the erroneous conclusion that prices dropped 40 percent. It would look like a disaster and it wasn’t. It was ZIP code changes,” he said.

Murphy said people need to keep in mind when they look at the ZIP code appreciation map that a 2 percent increase in 89134, for example, does not necessarily mean that their specific home appreciated by 2 percent. It means that half the homes in 89134 appreciated by more than 2 percent and half the homes appreciated by less than 2 percent.

With nearly 18,000 homes for sale on the Multiple Listing Service and sales of existing homes down 24.1 percent in 2006, prices started to slide at the end of the year. The Greater Las Vegas Association of Realtors reported a 2.6 percent decline of median home prices in January to $302,000.

Kurt Lehman of Realty One Group found it “hilarious” that consultant Steve Bottfeld predicted positive home price appreciation at the Crystal Ball 2007 housing seminar in February. Lehman said prices have to come down after the spikes of the past few years.

“Simple economics says that 25 (percent) to 35 percent appreciation in housing asking prices doesn’t work when wages and salaries only go up maybe 3 percent,” he said. “It’s an oversupply and an inability-to-buy thing. The market cannot bear these prices.”

A January report from the Washington, D.C.-based Heritage Foundation ranks Las Vegas-Paradise near the bottom in its Housing Opportunity Index by Affordability. With 2006 median family income of $58,200 and median home price of $306,000, Las Vegas is No. 174 in housing affordability out of 203 U.S. metropolitan statistical areas.

The percentage of people who could afford a median priced home in Las Vegas dropped from 79 percent in 1999 to 14 percent in 2006, John Restrepo of Restrepo Consulting Group said.

“We’ve had (price) adjustments here, but it’s not making homes any more affordable,” he said. “That’s our challenge. There’s no magic bullet.”

Lenders were bending income-to-expense ratios three and four years ago to get people into 100 percent mortgages, literally more house than they could afford, Lehman said. Now Las Vegas has the second-highest foreclosure rate in the nation, he noted.

U.S. homeowners are seeing a slight decline in home values on a year-over-year basis for the first time in years, according to home value data from Zillow.com. The appreciation rate is measured by the Zindex home value indicator, which measures the value of all homes in an area, not just those that sold.

Despite a surge in values in many regions over the past several years, national home values are down by 0.5 percent year-over-year and 4.8 percent quarter-over-quarter.

A local homeowner who asked not to be identified put his home on the market last year at $430,000 when comparable homes in his northwest neighborhood (ZIP code 89131) were $450,000. It sat for months. He kept lowering the price and recently sold it for $350,000. His home appreciated 37 percent in less than three years of ownership.

“I still do not know why this home did not sell in the $400,000 range,” he said. “I have just about every conceivable upgrade in this house. We did make a lot of money in a brief period of time, which of course I am thankful for.”

Debi Averett of Phoenix-based Housingdoom.com said home sales will increase in the next few months, but it’s only a seasonal thing and won’t say much about the market.

“The inventory is going to grow faster though and that is going to continue to put a damper on prices,” she said. “At the current rate of sales, it would take 13 months to sell all of the current single-family inventory, assuming no other homes are listed. Given all the homes taken off of the market last year, 2007 may be the year of deferred pain as sellers return to the market and the market continues to transition down.”

Median prices for existing homes in Las Vegas have more than doubled from $125,000 in 2000 to $285,000 in 2006, Murphy said. The smallest increment of dollar increase came in 2002 when prices rose $9,000 from the previous year to $145,000.

ZIP codes with the highest appreciation are in more mature areas of the city and had median prices substantially below the valley’s median.

West of Interstate 15 between Flamingo Road and Tropicana Avenue, 89103 had 758 sales at a median price of $215,000, compared with 966 sales at a median of $192,750 in 2005. Average age is 24.8 years.

In the middle of North Las Vegas, 89030 had 842 sales at a median price of $195,000, compared with 939 sales at $160,000 in 2005. Average age is 40.4 years.

The largest declines were in 89044, a new development south of Henderson Executive Airport, where 212 homes were sold at a median of $358,000, compared with $372,450 in 2005; and 89085, a new ZIP code north of the Beltway in North Las Vegas, where seven homes were sold at a median of $376,515, compared with one sale for $441,000 in 2005.

Clark County Assessor Mark Schofield said appreciation and depreciation throughout Las Vegas Valley will have “zero impact” as it relates to property taxes.

Even with the market correction, home values didn’t drop enough to get to the relief level of the 3 percent property tax cap on owner-occupied, single-family homes, Schofield said.

“If for some reason values dropped to reach the 3 percent cap, then we all ought to move out of town,” he said.

Home owners saved $245 million on property taxes in 2005-06 and will save an estimated $790 million in 2006-07 with the cap, Schofield said.

The Office of Federal Housing Enterprise Oversight ranks Las Vegas 79th out of 275 metropolitan statistical areas with 9.8 percent appreciation as of third quarter 2006. Nevada is 23rd among states at 8.63 percent appreciation. The office uses mortgage lending data from Fannie Mae and Freddie Mac.

Bob Hamrick, president and chief executive officer of Coldwell Banker Premier Realty, said what happened in Las Vegas is not that properties are worth $100,000 less than they were a year or two ago, but they may not have been priced accurately then.

Contrary to predictions of falling prices, the National Association of Realtors showed Las Vegas average home prices actually appreciated 2 percent as of third quarter 2006, Hamrick noted.

“Our market continues to grow, our economy continues to grow and our population continues to grow,” he said. “Those factors offset whatever hyper-appreciation that existed.”