Area housing market won’t completely recover until 2012

The housing market in Las Vegas won’t fully recover until first quarter 2012, facing challenges this year similar to last year with high foreclosure rates and stagnant new home sales, a housing analyst with The Concord Group said today.

Marta Borsanyi, principal of the Newport Beach, Calif.-based real estate firm, defines full recovery as three to four new home sales a month per subdivision and low single-digit price appreciation.

A year ago, Borsanyi predicted a recovery in existing home sales, which proved correct with a 47 percent increase in resales through November 2009.

Demand for new housing functions as the “lever” for recovery, Borsanyi said. New home sales declined 45 percent last year and are down 75 percent from the normal conditions seen in 1996 to 2001, when they averaged about 24,000 a year. They dropped from 45,000 at the peak of the housing bubble in 2005 to just 4,500 in the last 12 months.

Long-term demographic fundamentals remain strong for Las Vegas, positioning the new-home market for recovery when population and employment begin to increase again — and they will, Borsanyi said. The base of 700,000 households is projected to grow by 2.5 percent, or about 18,000 households, over the next five years.

However, current economic struggles, poor consumer sentiment and high foreclosure rates will prevent new-home demand from reaching intrinsic growth levels until 2011, she said.

In the meantime, Borsanyi expects to see some velocity increase in new home sales, possibly late this year, assuming employment projection accuracy and relief in the credit markets.

“We are bottoming out, probably in October,” Borsanyi said. “After that, things will go up and I think it will be a healthy clip, if there will be employment growth. That is the key.”

Current total employment in Southern Nevada is about 850,000, down 9 percent, or 90,000 jobs, from its peak. New home prices fell 18 percent to $250,000 in 2009, including a 3 percent decline in the third quarter, Concord Group reported in its Las Vegas Housing Market Outlook. The percentage decline is much higher than other U.S. housing markets, with only the Inland Empire region of Southern California showing a steeper decline (22 percent).

Borsanyi said she expects to see new home volume slowly ticking up this year, with an 18-month lag in prices.

“It won’t be hard to get there in one to two years,” she said. “In the recovery process, if you go back four different cycles of development, it always starts with volume before prices. It was 18 months in the Inland Empire before prices started to kick in.”

Borsanyi said new-home prices are depressed because of “very negative comps,” or comparable sales of equal-sized homes in the same area. The market gets healthy when sales pick up and the “smart money” makes purchases in that section of the cycle, she said. It can be difficult to obtain financing for new homes when values are depressed because of the appraisal process, Borsanyi noted.

“Those comps are always going to be a lower value because you are looking back. That was the problem with appraisals when the market was coming down,” she said. “The appraisal process is very tilted toward higher prices when the market is going up and lower prices when it comes down.”

Demand for finished residential lots is projected to precede the Las Vegas housing recovery by about 12 months, starting in first quarter 2011, the housing analyst said. Entitlement and repositioning strategies need to begin another 12 months before that in order to prepare the lots for delivery.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.