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Las Vegas Housing Market Conditions

Is the Recovery Near?

The national housing market continued to struggle in the third quarter of 2009, despite historically low interest rates and new federal subsidies to first-time homebuyers. The nation’s foreclosures reached an all-time high with one in every 136 households receiving a foreclosure filing this quarter, according to a report from RealtyTrac®. This represents a 5 percent increase from the previous quarter and a 23 percent increase from the third quarter of 2008. In addition, roughly one in four U.S. mortgages had negative equity in the third quarter of 2009, says a report from First American CoreLogic. This means a potential for more record-breaking foreclosure numbers as these underwater borrowers default on their mortgages. Overall, these third-quarter national indicators confirm the opinion of most forecasters which calls for a national housing recovery no earlier than 2011.

The positive news for the national housing market included a 4 percent increase in sales of existing homes, and a 5 percent increase in new home sales from the previous quarter. However, this spur is likely a temporary phenomenon as it was mostly driven by the tax credit for first-time homebuyers and government efforts to keep mortgage rates low.

The housing market indicators for Southern Nevada were no better than those of the national market. The median home sale price continues to fall as the market continues to deal with the excess supply of housing. This was consistent with other indicators reported at the state level. One in 23 households in Nevada received foreclosure filings – a 59 percent increase from the same time last year. Also, Nevada was the worst state in the nation in terms of negative equity mortgages in the third quarter. A staggering 65 percent of the state’s homeowners with mortgages had negative equity. These factors point toward a slower housing recovery in Southern Nevada compared to other areas of the U.S.

The Case-Shiller Home Price Index for Las Vegas was down another percentage point in the third quarter compared to the previous quarter. Las Vegas home prices have now been falling for 37 consecutive months. The median sale price of new and existing homes was down to $160,000, from $165,000 in the second quarter of 2009. This continued decline in home values, coupled with one of the nation’s highest unemployment rates, has made Las Vegas the poster child for foreclosure filings and negative equity mortgages. The drop in home values over the past year has not affected housing size. The median house size has remained virtually unchanged over the last year. This could be attributed to a relatively low proportion of new homes on the housing market.

Figure 1 Case-Shiller® Housing Price Index: January 1987 to May 2009

Increasing housing affordability in Southern Nevada has led to a reduction in the time spent on the market for housing units sold. Fifty-nine percent of single-family residential units sold in the third quarter spent less than 30 days on the market. This represents an increase of 3 percentage points from the previous quarter and a year-to-date increase of 17 percentage points. The continued trend toward increasing housing affordability and decreasing time on the market is a sign that market forces are at work and that the excess housing supply is being absorbed. This trend needs to continue in order for the Southern Nevada housing market to reach the recovery stage.

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