Nevada’s residential housing market received a brief boost in the first half of 2010, but the overall outlook for the sector remains down for the remainder of the year.
The boost came largely via federal tax incentives for homebuyers, but once that program ended in April, the results proved to be much like joining a diet program: great while you’re on it, but tough to maintain success once you stop.
“Not much has changed except the expiration of the tax credit, which was an artificial stimulus,” said Dennis Smith, President of Home Builders Research, Inc.
Home builders in Southern Nevada showed some confidence in the effect of the tax credit by pulling 2,460 new building permits in the first five months of the year – more than double the amount requested in the same period from 2009. More than 2,000 new homes sold between January and May this year as well, while more than 17,000 existing properties sold within the same time frame. About 300 new homes exist in standing inventory right now, Smith said.
Despite the new permit surge, many in the real estate community cast a cautious eye toward the shaky underpinnings of Southern Nevada’s economy. Unemployment of 14 percent in the state leads the nation and sobers even the firmest believers, especially with the accompanying belief that the more accurate figure goes north of 20 percent when counting those whose benefits have expired and those who are underemployed.
“We still are in very, very bad shape,” said Irene Porter, Executive Director/CEO of the Southern Nevada Home Builders Association.
At the end of 2009, there were 26 traditional home building companies – defined as having pulled five or more permits for single-family, detached homes in 2009 – in Southern Nevada, compared with 38 at the end of 2008, 47 at the end of 2007, and 77 at the end of 2006. The historic high was 179 homebuilders in 1996, and the number has decreased annually with the exception of the peak year of 2004.
Realtors report a mixed bag in Southern Nevada. Statistics from the Greater Las Vegas Association of Realtors (GLVAR) show home sales and inventory increased while prices dipped between May and June. A recent report from MDA DataQuick of San Diego, however, suggests Las Vegas recorded its first year-over-year loss in 21 months in May with a 3.3 percent combined new and resale drop. Differing methodologies among reporting agencies often account for such discrepancies.
GLVAR President Rick Shelton said the local housing market “seems to be taking one step back for every two steps forward.”
“To really rebound from the downturn of the past few years, we need to see home sales, inventory and prices all pointing in a positive direction for an extended period of time,” Shelton said. “For the most part, two of these three key factors have been in place. We just need prices to go up consistently.”
GLVAR shows the median single-family home price in Southern Nevada during June was $140,000, down 1.4 percent from May’s $142,000. That matched the median price in June 2009, marking the third straight month GLVAR reported year-over-year home prices either being stable or increasing.
Some truth about today’s new ‘normal’ in Southern Nevada creeps out from within Realtors’ cautious optimism: any trend line that does not point downward represents a victory.
“(The residential market is) about where I expected it to be when you don’t have any jobs,” Smith said. “It could be worse. We still have sales, we’re still selling houses and we’re still building some houses.”
Hope, however audacious, existed for more while the first-time and existing homebuyer tax credits spurred sales earlier this year. Congress passed a series of tax credits designed to help clear the enormous backlog of foreclosed and bank-owned homes on the market.
For homes purchased starting in April 2008, the credit for first-time buyers who haven’t owned a home in the past three years took the form of up to a $7,500 interest-free loan and repayment was required. Congress increased the credit to a maximum of $8,000 with no required repayment for most on homes purchased between January 1 and November 6, 2009.
Beginning November 7, 2009, an additional category of new homebuyers – long-time residents who own their own homes – was added. The credit for this group is a maximum of $6,500, which, in most cases, does not have to be repaid. This action by Congress also included a loosening of income requirements to qualify for the credits.
The period from November 2009 until the credit’s expiration this April created a noticeable bump in sales not only in Nevada, but throughout the country. Smith said net new homes sales in the Las Vegas area jumped from 0.2 per week per subdivision to one per week per subdivision.
When it became clear that many sales during that time involved short sales and other complicated closings, Congress passed an extension of the closing deadline from June 30 to September 30.
Yet the boost proved to be more a prop than a panacea. The National Association of Realtors reported a 30 percent drop in nationwide home sales from April to May, which also represented a fall of more than 15 percent year over year. Sales quickly fell in Nevada as well, as Smith reports a return to the same new homes sales level as prior to the credit in Las Vegas.
“After the tax credit expired, what amazes me is that some national publications wrote stories implying they are very surprised that the housing market slowed down now, saying sales are weak,” Smith said. “I don’t understand how they can come up with that conclusion. Sales are back to where they were prior to the tax credit.”
Smith feels the tax credit proved to be a great short-term idea, but doubts the sustainability of such patch fixes.
“Absolutely (it’s good) in terms of sales,” Smith said. “Is it good for the long term of the industry? I don’t know. Sooner or later, the housing industry has to stand on its own. Unfortunately, Las Vegas is lagging some of the other metro areas around the Southwest and other parts of the country.”
The Reno market also experienced the positive impact of the credit, said Ken Amundson, President of the Reno-Sparks Association of Realtors.
“I believe it definitely has had an effect,” Amundson said. “Some of the effect has been to pull homes from future sales by encouraging quick decisions or early decisions.
“I think it is inevitably like a sale at Macy’s or somewhere else, where you’ve got shirts on sale for 15, 20, 30 percent off. Typically, you don’t go back next month and buy more at full price. I think what it did is encourage people to believe in the system. It encouraged people to buy and consider buying, and be part of the conversation.”
For May, Reno home sales were up one percent from a year ago at 298 homes sold. May’s median sale price was $187,000, an increase of 4 percent from May 2009.
“One of the most encouraging things about our market at this point is our (May) median home price was exactly equal to May 2009,” Amundson said. “This is the first time in probably five years that we have been able to say median home price, year over year for the same month, is not lower.”
Amundson noted a pair of trends in his market: the rise of short sales and the drop in bank-owned sales. Short sales accounted for close to 40 percent of closings in May, as opposed to 14 percent a year earlier. Sales of bank-owned, single-family homes peaked near 50 percent last year at this time, but fell to 27 percent in May.
Those shifts hold true in Southern Nevada as well. GLVAR reported an increase in short sales and a decrease in sales involving foreclosed homes. In February, 22 percent of all resales in Southern Nevada were short sales. That number increased each month, topping out 34 percent in June. Meanwhile, bank-owned homes are accounting for a decreasing percentage of all local home sales, dropping from 53 percent in February to 38 percent in June.
A rebound is not here in Nevada, Amundson said, but there are signs of one on the horizon.
“I suspect that if we’re not at a bottom, we’re certainly at a plateau that is near the bottom,” Amundson said.
That sentiment holds true in Southern Nevada as well.
“It’s not the end of the line,” Smith said. “It’s a cycle. Unfortunately, it’s the worst we’ve seen.”
An irony exists in the tenuous residential market, as Smith points out, and it gives some solace to Realtors as well: the same affordability of both new and resale homes that helped fuel the boom of the late 90’s and early 2000’s again exists, but under much different economic conditions.
“One of the things that got Vegas on the map was affordability and we have that now,” Smith said. “It’s not the same as it was because discretionary income is gone, but we still have it.”
Yet the combination of tightened credit for potential homeowners and continued weakness in the job market prevents that affordability from feeling real quite yet. The federal tax credits brought a temporary sense of ease, but the local and national market spoke once they expired.
Momentum simply cannot be sustained without a continued period of job growth to generate income and to ease public fears.
“(Job growth) really is (the only metric of recovery,)” Smith said. “The only way it’s going to improve is if the job market improves. You have to have job creation in order for people to go out and make big purchases like new homes.”
Amundson’s take on the Northern Nevada market speaks well for the entire state.
“If we look back at 1990-2000, our normal growth rate was about 4 percent,” Amundson said. “Long-term and short-term have kind of caught up with each other. A return to 4 percent growth would be a return to normal.
“When people are able to voluntarily sell a home instead of selling them in distress, that would be a big win right there.”
Housing Stats
The Southern Nevada median price of the traditional new home recorded sales in May was $186,784. This was a year to year decline of $27,206 or 12.8 percent. The median price for the traditional homes was $194,921 in April.
The median single-family home price in Southern Nevada during June was $140,000, down 1.4 percent from May’s $142,000. That matched the median price in June 2009.
The total number of local single-family homes sold in Southern Nevada in June was 3,360. That’s up 16.5 percent from 2,884 in May, but down 11.2 percent from 3,785 sales in June 2009.
For May, Reno home sales were up one percent from a year ago at 298 homes sold. May’s median sale price was $187,000, an increase of 4 percent from May 2009.
