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Housing, salary imbalances grow

It wasn’t too long ago that housing affordability had the attention of leaders in government and business alike.

Local think tanks in 2004 and 2005 held roundtables to discuss solutions to the affordability "crisis," and public officials held hearings on the matter.

Today, talk of housing affordability has all but vanished in the wake of a surge in foreclosures and an attendant drop in local home values. But analysts say Southern Nevada is still short of affordable housing, and decision-makers will have to grapple with that scarcity as the local economy grows.

"The affordability problem has not gone away at all," said Jeremy Aguero, a principal in local economic-research firm Applied Analysis. "As we switch over to focusing on the instability issue, let’s not forget that we’re going to have to hire better than 200,000 people over the next five to eight years as new hotel-casinos come online and ancillary services have to keep pace. It’s a whole new set of problems people aren’t even ready to talk about."

The average sale price of a single-family home fell 6.8 percent year-over-year in September, according to data from the Greater Las Vegas Association of Realtors. The average sales price among condominiums and townhomes was off 2.4 percent in the same period.

Even with the declines, though, average prices remain high compared to local incomes.

The median annual household income in Las Vegas was $53,000 in 2006, according to the U.S. Census Bureau. But the average price in September for a single-family home was $352,137, or nearly seven times the median income. The average condominium or townhome cost $217,494, or more than four times the median income, last month.

Experts say market conditions will prevent local home prices from falling to their pre-boom averages of less than $200,000.

First, consider land and construction expenses.

Land prices remain high, at $677,300 per acre, and home-building materials also cost significantly more than they cost in the early 2000s.

"Unless builders build and sell at a loss, they’re not going to be able to construct homes at 2001-2002 prices," Aguero said.

And because new homes are the substitute good or replacement product for existing homes, prices on new construction will prop up values on resales.

Besides, if local prices decreased to anything approaching a median of $200,000 or less, investors would flood the market looking for bargains, Aguero said. The demand would force up prices, similar to the dynamic that propelled the Las Vegas Valley’s 54 percent appreciation rate in 2004.

Constraints on land supply should also buoy local housing expenses in years to come.

"We are an island, like Manhattan, only we’re surrounded by a sea of (Bureau of Land Management) land and Native American property," said Steve Bottfeld, an analyst with local real estate research firm Marketing Solutions.

Southern Nevada has less than 70,000 acres of developable land, and the region’s builders and residents have chewed through 9,000 acres to 10,000 acres annually in recent years. That gives the area between five and seven years of property for new communities, Bottfeld said.

To divine the future of Southern Nevada’s home prices, Bottfeld suggested looking at other land-limited markets such as San Francisco, where the median home price in the second quarter was $846,800, or nearly 13 times the median household income of $65,497 a year. Despite the imbalance between salaries and housing costs, the median home price rose 7.6 percent in San Francisco in the second quarter, even amid nationwide depreciation, according to statistics from the National Association of Realtors.

Cities including Las Vegas, Boston and Seattle can expect home prices to outstrip incomes roughly sixfold for the foreseeable future, said Bottfeld, who’s assembling comparative cost analyses for an Oct. 25 market forecast.

Nor does Devin Reiss, president of the Greater Las Vegas Association of Realtors, expect housing prices to subside substantially. There’s just too much construction in the city’s resort corridor to anticipate a sustained downturn, Reiss said.

"With all the building taking place, some 50,000 people a year moving here and building permits on new homes way down, we’re likely in a couple of years to see the opposite of what we see today," said Reiss, who also is broker-owner of Realty 500 Reiss Corp. "We’ll see a shortage rather than an abundance of properties."

Plus, locals no longer can expect the easy, no-money-down financing that characterized the buying binge of 2004 and 2005. Buyers will again have to reach into their pockets for down payments, further pinching housing budgets.

What it all means, said Aguero, is a tougher hiring scene for local companies.

Transplants move to Las Vegas first and foremost for job opportunities, but the ability to find a place to live is key as well. And part of Southern Nevada’s appeal, at least until home prices spiked three years ago, was the affordable housing that allowed new residents to buy into the American dream of homeownership.

Combine sustained high home prices with national media citing Las Vegas as a "boomtown gone bust," and area businesses could find fewer takers for available positions, Aguero said.

It’s not all doom-and-gloom on the affordability front, experts say.

Start with the fact that income is just one indicator of how much home consumers can afford. Also important to buying power is home equity. Plenty of consumers who’ll hit the market in search of local properties in coming years will arrive from equity-rich environments in California, Florida and even Las Vegas.

Affordability in Southern Nevada also got the nod from Coldwell Banker, which found that home prices in Las Vegas are comparable to expenses in cities including West Hartford, Conn., and Provo, Utah.

The national real estate brokerage anointed Las Vegas "one of the nation’s more-affordable markets."

And simply educating consumers about the local market can ease affordability concerns, Reiss said. Perhaps $200,000 doesn’t buy the comfortable suburban spread it could have commanded three or four years ago, but Southern Nevada has opportunities for home shoppers on a budget.

The Multiple Listing Service of the Greater Las Vegas Association of Realtors showed more than 4,000 area properties listed for $200,000 or less on Tuesday.

"Every buyer is going to have to really take a look at what housing opportunities exist," Reiss said.

"It might be less than what they had anticipated. Plenty of condominium and townhome opportunities exist, and many homes have come down quite a bit in price. It’s just a matter of understanding what we have now in Las Vegas and the surrounding area, and what type of product we’re going to have available to us in the future."

Yet, analysts say it’s housing affordability, rather than current pricing uncertainties, that will characterize local real estate going forward.

"Affordability is going to be an issue we are going to be dealing with for the next 15 or 20 years," Bottfeld said.

"We are at a turning point, like Manhattan at the turn of the 20th Century. Manhattan didn’t really get a luxury market until the 1890s. Las Vegas didn’t get a luxury market until the beginning of the 21st Century. This market has transitioned dramatically, and that’s going to present an affordability issue for at least as long as I can see."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or (702) 380-4512.

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