Las Vegas housing analyst Dennis Smith expects to see some fairly significant price cuts in the resale segment of the market in the next few months to move some of the 20,384 homes listed for sale in the valley.
The median price of a resale in August was $289,000, down $1,000 from July. Since January, the resale median has increased $4,000, or 1.4 percent.
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"The good news is we're getting closer to the bottom," Smith, president of Home Builders Research, said Thursday. "That means it's going to start going up sooner rather than later. I'm looking at 2007. I think '07 is going to be flat. You're going to see some products come on line in '07 that will do well because of lower pricing."
The number of existing home sales dropped in August to 3,641, compared with 5,786 in the same month a year ago.
Smith counted 3,278 new home sales in August, bringing the year-to-date total to 24,776, a 3.1 percent increase from a year ago. The median price of a new home has remained flat for five straight months. The August price of $325,544 is up slightly from $324,517 in July after peaking at $328,702 in April.
"In resales, buyers are reluctant to give up the gains they've absorbed over the past few years," Smith said. "What they don't understand is that's paper gain. If you've got a house that's been on the market for six months, you'd better adjust the price downward. It's going to happen. People will have to lower prices."
Look for home builders to take advantage of lower material and labor costs over the next few months and reduce home prices in new subdivisions, Smith said. Builders such as KB Home are selling at $150 to $165 a square foot in new communities in the southwestern Las Vegas Valley and other areas with a lot of builder competition.
"Why? Because the cost to produce those houses comes in less than the cost to build a year ago," he said. "What we're seeing with new homes is the cost to build is going down because as sales decrease, subcontractors lose work. If subcontractors lose work, they lay off people or they'll lower their price to get more business. If that's the case, the builder will offer more space at a lower price per square foot."
Permit activity for new home building has slowed as home builders look to reduce their standing inventory of unsold homes. Builders pulled 1,764 permits in August, down 40.4 percent from 2,959 in the same month a year ago, local research firm SalesTraq reported. The year-to-date total of 17,579 is down 17.1 percent from a year ago.
"New home permits have been falling as the market begins to adjust to shifting economic conditions," SalesTraq President Larry Murphy said. "The incredible reduction in permit activity over the last four months strongly suggests that builders are responding to a market correction."
Nationally, single-family permits are down 11.8 percent for the year and housing starts are down 8.8 percent. The downward trend in the numbers continued in August and will continue through the rest of the year, Susquehanna Financial Group home building analyst Stephen East said.
"As painful as the headline numbers look, they are exactly what this oversupplied market needs," he said. "These levels are much more in line with year-over-year sales rates, showing that the builders are displaying some restraint in putting up new product."
Christopher Bentley, owner and broker of The Bentley Group in Las Vegas, said the multifamily residential market in Las Vegas is benefiting from the downturn in single-family home sales.
"Speculators are now selling to end users, so that's helping the apartments," he said. "We saw the single-family homes and condos as a shadow market because they were competing with us. Now with the resale homes ... 40 percent are vacant now that speculators are selling houses and no longer renting them."
Sellers who bought at the height of the market in 2004 and 2005 have no room to come down on prices, yet they can't afford the "negative cash flow" from renting homes below their mortgage payments, Debi Averett of Phoenix-based HousingDoom.com said.
"Do I think Las Vegas is going to tank forever? No," she said. "But what I think is doomed is the speculative part of the market. Isn't it interesting that 35 to 40 percent of the people who did this were speculators and now there's 40 percent of the homes on the market that are vacant? What do you know."
SalesTraq showed a new home median price of $329,897 in August, down from $337,272 in July but up 12.9 percent from a year ago. This was achieved during a period in which inventory is at an all-time high and consumer demand appears to be cooling, real estate consultant Steve Bottfeld of Marketing Solutions said.
"Under ordinary circumstances, rising prices in the face of those two factors would not make economic sense. But, this is Las Vegas and there is always more than meets the eye," he said. "Critics argue, for example, that incentives inflate new home prices. That's not true. Incentives detract from a builder's bottom line. But, no matter what the builder gives the buyer -- cash back, options, upgrades -- the price of the home is still the price of the home."
