Las Vegas Sun

September 24, 2016

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After years of wild swings, Las Vegas home prices settle into a groove

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L.E. Baskow

This file photo from February 2016 shows a Las Vegas home for sale. The Greater Las Vegas Association of Realtors reports that after years of volatility in the real estate market, median sales price of previously owned single-family homes has leveled out at about $220,000 over the past nine months.

Las Vegas home prices went through a wild roller-coaster ride the past decade or so: they soared, crashed, shot up again, then downshifted.

Today, the ride seems almost boring. For the first time in a long time, prices are flat.

The median sales price of previously owned single-family homes — by far the bulk of Las Vegas’ for-sale housing market — has hovered around $220,000 since June. Prices still are up 7.5 percent year-over-year but have been roughly the same for the past nine months, according to the Greater Las Vegas Association of Realtors.

The stalled prices are good for buyers — who wants to pay more for a house? — and industry analysts say the trend reflects a more stable and more normal market after years of price swings and other volatility. It also comes as investors, who revived Las Vegas’ resale market after the economy tanked, continue pulling out.

Click to enlarge photo

Las Vegas home prices have hit a plateau since June 2015.

The stagnation, however, could give sellers heartburn. And considering Las Vegas is the underwater capital of America, the plateau in prices prevents homeowners from escaping upside-down status.

But Brian Gordon, a principal with Las Vegas-based Applied Analysis, said it was "probably a good thing over the long run" that prices have flattened.

In a normal year, analysts say, home values grow 2 to 5 percent. After last decade’s boom and bust, resale prices for single-family homes grew 24 percent in both 2012 and 2013, 10 percent in 2014 and 6 percent last year, GLVAR data show.

Gordon said he expected price-growth to keep slowing, but he’d be “hesitant to suggest we’ll see any material downturn in prices.”

He said prices grew much faster than wages in recent years, but now they’d become “better aligned.” He also noted the economy was on “more-solid footing,” indicating a continued demand for homes.

Gordon also pointed out that housing sales no longer were dominated by distressed properties, which blanketed the valley after the bubble burst.

In 2012, bank-owned homes comprised 26 percent of single-family resales; short sales accounted for 37 percent; and “traditional” deals, or those not controlled by lenders, comprised 36 percent.

In 2015, foreclosed homes comprised 7.7 percent of single-family resales; short sales, 7.5 percent; and traditional deals, 84.7 percent, according to the GLVAR.

“Stability really has emerged,” Gordon said.

Amid flat prices, house shoppers might have more time to save money for a down payment “without the worry of prices continuing to go up and possibly out of reach,” said Ralph McLaughlin, chief economist for San Francisco-based Trulia, a home-listing service.

This, however, can create competition for sellers. For instance, they might have to spend more money to spruce up their house to lure a buyer, McLaughlin said.

Overall, home-value growth around the country is “coming back down to Earth” and becoming “more sustainable,” said Aaron Terrazas, senior economist with Seattle-based listing service Zillow. But in cities like Las Vegas, he noted, the trend makes it harder for borrowers to get above water.

Some 21 percent of Las Vegas-area homeowners with mortgages are underwater, meaning their debt outweighs their home’s value, according to Zillow.

That’s down from a peak of 71 percent in early 2012 but still highest among large metro areas — reflecting how high prices soared during the bubble, how badly they crashed, and how much room they have before reaching peak levels again.

Underwater borrowers typically can only sell their homes through short sales, in which lenders approve selling the property for less than what’s owed on the mortgage. It’s a potentially time-consuming, paperwork-heavy process that can badly bruise a seller’s credit score, and there’s no guarantee a bank will approve the deal.

According to Terrazas, many underwater borrowers are unable to sell their homes. The result is a reduction in listings, especially among lower-priced houses that draw first-time buyers, he says.

Zillow called negative equity "one of the most persistent reminders” of America’s real estate bust and “a major barrier to a full recovery in certain markets.”

As Terrazas sees it, underwater borrowers will linger “for a long time,” especially in places like Las Vegas.

Meanwhile, house prices have leveled off as investors, who gobbled up cheap homes in bulk after the economy crashed, have continued backing out amid the shrunken inventory of bargains and a crowded home-rental market.

So-called institutional investors — or non-lenders who buy at least 10 homes per year — accounted for 2.2 percent of home purchases in the Las Vegas area last year. That’s down from 7.6 percent in 2014 and 14.1 percent in 2013, according to RealtyTrac.

The result is the market must rely more on mom-and-pop buyers. If Las Vegas relied heavily on them a few years ago and didn’t have investors propping things up, the market would have stayed dormant much longer.

Foreclosures, bankruptcies and short sales swept through the valley during the recession, wrecking people’s credit and making it all but impossible for many of them to buy a house for years.

Today, Las Vegas’ economy remains at the bottom of the pack nationally in many ways. The valley’s unemployment rate, 6.5 percent, is second-highest among large metro areas, according to the U.S. Bureau of Labor Statistics, and its foreclosure rate is fifth-highest among metro areas, says RealtyTrac.

But it’s on the mend — jobs are growing, mortgage lending is slowly climbing after falling for years, visitor levels hit a record-high last year — and mom-and-pop buyers appear to be picking up at least some of the slack from investors.

Moreover, people sometimes forget that home prices typically grow just a few percentage points a year, said John Restrepo, founder of Las Vegas-based RCG Economics.

The housing market is becoming “more normal,” and that’s not a bad thing, he said.

“I don’t see any major catastrophes out there at this point,” he said. “It’s just slower.”

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