The Las Vegas housing market has a long way to fall, but at least home prices are drifting toward the range of sanity: [Thank you Judge!]
As the local housing market took off in 2004 and 2005, new construction led the way, with freshly built single-family homes surging toward a median price of $350,000. Local real estate research companies could find virtually no new single-family construction below $200,000 by 2005, said Dennis Smith, president of Home Builders Research.
Now, 25 new-home subdivisions in Southern Nevada are selling single-family houses with starting prices below $200,000, according to an analysis of reports from local tracking firms and sales numbers found on builders’ Web sites.
That’s as little as $110 per square foot in some communities. Compare that cost to expenses at the market’s apex in 2004 and 2005, when roughly $185 per square foot would have been the least-expensive price in the Las Vegas market, Smith said. [ That’s a drop of 41% folks- you can guess what that means for resellers]
While this represents a significant improvement in the Las Vegas market, the market has a ways to fall. This comment by the reporter, Jennifer Robinson, surprised me:
Today’s smattering of sub-$200,000 communities isn’t exactly a death blow to high housing prices in the Las Vegas Valley: With more than 500 actively selling new-home neighborhoods in the region, the majority of communities remain above the $200,000 mark.
Still, the lower prices mean a bit of relief for working-class Las Vegans who can’t afford the city’s $312,639 median new-home price.
Prices shouldn’t be in the $200,000 for working class Las Vegans, that’s where it needs to be for middle-class Las Vegans. In September 2006 In Business Las Vegas reported:
The National Association of Home Builders issued a report in the third quarter of 2006 indicating that only 14 percent of the homes in Clark County are affordable to households earning the median income (median household income approximately $53,000). Today, the median price of a resale home in Las Vegas is $278,000, more than five times the median income, while the median price of a new home is $326,750 (of all product types), or six times the median income.
So even with a 41% drop in the square foot price, here’s the problem:
Traditional lending guidelines suggest buyers should qualify for home loans at about three times their annual income. Therefore, assuming a down payment of 20 percent, the median income would be $21,133 short of qualifying for a $278,000 resale home.
For a working class family to purchase one of these homes then would require an "exotic" loan- they couldn’t qualify under traditional guidelines- and the foreclosure rate in Las Vegas tells us how well these wonky loans have worked out for people.
The disparity between the price of renting and buying is a huge incentive for people to rent. There is simply no financial incentive for the majority of Las Vegans to buy in the current market. Prices will have to fall significantly still before most sellers can qualify under traditional lending guidelines and Las Vegas is an affordable market again. That however, does not prevent local "perma-bull" Larry Murphy from once more declaring we are near a bottom:
