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Las Vegas Housing Market Conditions

Housing Market Continues to Sink

United States:

Amid a slow U.S. economic recovery, the national housing market indicators continued to show a worsening of the market during the first quarter of 2011. The fear of a shadow inventory of financially distressed homes, weak demand, and a lack of credit availability are weighing on the housing market and are contributing to a decline in home prices. The S&P/Case-Shiller National Home Price Index, covering all nine U.S. census divisions, was down by 4.2%, compared to the fourth quarter of 2010. The year-to-year decline was 5.1%. At a value of 125.4, the U.S. composite index was back to its mid-2002 level. Home-price declines were widespread. Both the 10-city and 20-city composite indexes were down by an annual rate of 3.6% and 2.9%, respectively.^a

The declining home values raise the probability of a negative equity position (“underwater” homes) and most likely will increase the loan delinquency and default rates. At the national level, in the first quarter of 2011, 27.7% of all residential properties with a mortgage had a negative equity (22.7%) or had less than a 5% equity. These figures indicate slight improvements (about 0.2%) compared to the fourth quarter of 2010, when 23.1% of all mortgaged residential properties had a negative equity, and 4.8% had less than a 5% equity. For the first quarter of 2011, 18% of mortgage borrowers without a home equity loan and 38% of borrowers with a home equity loan were underwater. The default rate continues to increase with the size of negative equity. For example, the 2011 first quarter default rate among homes with up to 5% underwater was about 2%. The homes that were underwater by 150% or more had a default rate of close to 12%.^b

During the first quarter of 2011, 681,153, or 0.52% of all housing units in the nation received a foreclosure filing. This figure is 15 percent and 27 percent lower than the fourth quarter of 2010 and the first quarter of 2010, respectively. Default notices, at 197,112, were also down by 17 percent and 35 percent from the fourth and first quarters of 2010, respectively. A total of 215,046 properties were foreclosed on. This figure is 6% and 17% lower than those of the fourth quarter and first quarter of 2010, respectively. Foreclosed homes accounted for 28% of residential sales in the nation during the first quarter of 2011, up by 1 percentage point from the fourth quarter of 2010 and down by 1 percentage point from the first quarter of 2010. The average sale price of foreclosed homes, at $168,321, was about 27% lower than that of nonforeclosed home sales. The foreclosure discount was the same as that of the fourth quarter of 2010.^c

As an attempt to stabilize the housing market, a total of 1,739,975 mortgage loans were modified during January 2008 to the end of the third quarter of 2010. At the end of 2010, 48% of these modified loans remained current or were paid off, 4.4% completed foreclosure, 10.1% were in process of foreclosure, 9.6% were 30 to 60 days delinquent, and 21.7% were more than 60 days delinquent.^d An additional 208,696 loans were modified during the last quarter of 2010.

Nevada:

In Nevada, the housing market showed some slight signs of improvement in the first quarter of 2011. In first quarter 2011, Nevada remained the top state in the nation with negative equity mortgages. The loan-to-value ratios were 69.7% nationwide and 114.7% for Nevada. This is a slight improvement. In the fourth quarter of 2010, the ratios were 70% nationwide and 118% in Nevada. In the first quarter of 2011, 62.6% of the mortgaged properties in Nevada were underwater (with negative equity), down slightly (2.7 percentage point) from the fourth quarter of 2010. Another 4.8% were near negative equity (less than 5% positive equity). Nevada was followed by Arizona (50%), Florida (46%), Michigan (36%), and California (31%).^b

Nevada posted the nation’s highest foreclosure rate during the first quarter of 2011. A total of 32,066, one in every 35, housing units received a foreclosure filing. However, this figure is 10.4% and 7.2% lower than the fourth quarter of 2010 and the first quarter of 2010, respectively. During the first quarter of 2011, foreclosed homes accounted for 53% of residential sales in Nevada, down by 6 percentage points from the fourth quarter of 2010. The average sale price of foreclosed homes, at $128,589, was 5.4% lower that the previous quarter. The average foreclosure discount was 17.5%. Homes in preforeclosure sold with a discount of 6.3%, and Real Estate Owned (REO) sales had a discount of 22.5%.^c

Las Vegas:

For the first quarter of 2011, the S&P/Case-Shiller National Home Price Index reported an index of 97.18 for the Las Vegas metropolitan area, a decline of 1.1 percentage points since the previous quarter and a 5.4 percentage point decline from the first quarter of 2010. The home prices in Las Vegas are back to their May 1999 levels. At 66%, the Las Vegas metropolitan area led the nation in terms of homes with a negative equity, followed by Stockton (56%), Phoenix (55%), Modesto (55%), and Reno (54%). The CBER/Lied Institute calculation, using CoreLogic® data, shows that the median house price dropped from $135,000 in the last quarter of 2010 to $130,000 in the first quarter of 2011. The median price per square footage also dropped from $74 to $72.

While house prices continued to decline, the same as the rest of the nation, creating a perception of uncertainty in the Las Vegas real estate market, other statistics point to slight improvements. The Las Vegas metropolitan area also saw a slight decrease in foreclosure filings during the first quarter of 2011, but still retained a substantial lead in foreclosures over other U.S. metropolitan areas. The Las Vegas metropolitan area, with 26,275 units, or 3.2% of all housing units, one in every 31 homes, had the highest foreclosure filing rate among the metro areas of the nation.

This figure, however, is 11.5% and 7.7% lower than the fourth quarter of 2010 and the first quarter of 2010, respectively. (See RealtyTrac, April 13, 2011, report.)

The CBER/Lied Institute estimate an excess housing supply of 10,203 in the Las Vegas metropolitan area for first quarter 2011—a decrease of 3.6% from the fourth quarter of 2010 estimate (Table 1). The apartment vacancy rate, at 10.6%, was unchanged from the fourth quarter of 2010. Clark County redeemed drivers’ licenses ticked up from 11,919 in the first quarter of 2010 to 14,257 in the first quarter of 2011. Residential-building permits increased from 1,073 in the fourth quarter of 2010 to 1,278 in the first quarter of 2011. Between the two consecutive quarters, the number of available single-family residential units for sale dropped by 116 to 22,167 units.

Stephen P. A. Brown, PhD
Professor of Economics
Director, Center for Business and Economic Research

Nasser Daneshvary, PhD
Professor of Economics
Director, Lied Institute for Real Estate Studies

^aS&P/Case-Shiller Home Price Indices (http://www.standardandpoors.com/)
^bCoreLogic® (http://www.corelogic.com/About-Us/ResearchTrends/Negative-Equity-Report.aspx)
^cRealtyTrac® (www.realtytrac.com)
^dOCC and OTS Mortgage Metrics Report, fourth quarter 2010. The report for the first quarter of 2011 is not yet available.

Table 1 Estimated Excess Supply of Housing Units in the Greater Las Vegas Area by Housing Type: 2011Q1
Type of Housing Unit¹	Vacant Units²	Estimated Units in the Greater Las Vegas Area	Assumed Percent Normal Vacancy Rate (%)	Estimated Normal Vacant Inventory	Estimated Excess Supply³
Single-family detached	11,402	474,069	1.5	7,111	4,291
Condominium	1,813	89,911	3.5	3,147	(1,334)
Townhouse	1,027	39,767	2.0	795	232
Apartment	17,402	163,833	6.4	10,418	7,014
Total	31,674	767,580	2.8	21,471	10,203
¹Excludes mobile homes and multiplex units ²Vacant units listed for sale on Multiple Listing Service. Analysis provided by Residential Resources. ³Estimated excess supply = estimated units less estimated normal vacancy inventory