Home, sweet home

Friday, April 23, 2004 | 5:10 a.m.

line By Jennifer Shubinski LAS VEGAS SUN

WEEKEND EDITION

April 24 - 25, 2004

LAS VEGAS SUN

In the Las Vegas Valley in March the median new-home price was $225,813, up 20 percent from March 2003, Home Builders Research Inc. reported.

But it's the Las Vegas resale home market that has experienced the most dramatic price increases.

The median price of a resale home in the Las Vegas area in March was $208,500, up 30 percent from March 2003, Home Builders Research reported.

After several years of valley home prices fluctuating at or slightly above the national median price, things changed dramatically in 2003 and early this year.

The National Association of Realtors reported that in 2001 and 2002, the median sales prices of existing single-family homes in the Las Vegas Metropolitan Statistical Area (Clark and Nye counties and neighboring Mohave County, Ariz.) were just slightly above the national medians for those years.

The Realtors said the Las Vegas median price of $149,100 in 2001 rose to $159,800 in 2002, compared to $147,800 and $158,100 respectively nationwide. But by the end of 2003, the Las Vegas median price of $191,100 had leapfrogged well ahead of the national median of $171,600, the Realtors reported.

And looking at the numbers from Home Builders Research, which covers Clark County and uses different research methods than the National Association of Realtors, the Las Vegas Valley runs about $30,000 above the rest of the nation for the cost of an existing home.

That quintessential American dream, owning a home, is alive and well in Las Vegas for people such as Tom Instone.

In fact, it's paid off handsomely for Instone and his family. The house they bought six years ago for $148,000 is now valued at $320,000.

But that same dream is in danger of evaporating for others, such as Debra Ponder and her boyfriend, Nick Perfetti.

Frustrated in their search for a home in Las Vegas, where they lost bidding wars when they made offers on two houses, the couple finally gave up and bought a home in Pahrump. With the home came a one-hour, twenty-minute commute each way to Perfetti's job in Las Vegas.

In the booming Las Vegas residential real estate market, whether you look at the glass as being half empty or half full depends on whether you're buying or selling.

For sellers, the glass has been more than half full of late -- it's been overflowing.

At the end of last year, housing analysts expected the median price of an existing home in the area to hit $200,000 by the end of 2004.

This past week analysts said that because of the huge appreciation rates since the beginning of the year, the median price shot past that $200,000 mark in March, nine months early.

The real estate community is abuzz about the frenzied market -- and what it means not just for individual homeowners, but also for the local economy.

"Low housing costs are one of the reasons people (have been) moving to Las Vegas," said Larry Murphy, president of SalesTraq, a real estate research firm. "(If this continues) you won't find retirees flocking here like they have been. They will go to Texas, Arizona. It's not as big a draw as it used to be, this thing called affordable housing."

Others still find the area's current prices a great deal -- especially when compared to neighboring California. The rising Las Vegas market has attracted droves of investors, second-home buyers and those unable to afford homes in other states, where housing is even more expensive.

Many of the new arrivals are coming from Southern California, according to Census Bureau numbers. The median cost of a new home in Los Angeles County is about $437,000, and in San Diego County it is $543,500; the numbers spike in Ventura and Orange counties, where the median new home price is $716,500 and $706,353 respectively, the Meyers Group, a research firm, reports.

As for Southern California resale homes, they are hardly a bargain. The median cost of a resale home is $390,600 in Los Angeles County, $414,400 in San Diego County and $416,500 in Ventura County, according to Meyers Group. The cost tops out in Orange County, where the median resale home is $448,700.

Those numbers make the median price of a new home in Las Vegas look good.

The rising prices are being felt by economic-development agencies such as the Nevada Development Authority and local employers trying to recruit employees from out of state.

They used to be able to say that Las Vegas home prices were comparable or below national prices. They can't say that anymore.

"Part of the Nevada dream is that this is the first time many of their employees get to own a house," said Somer Hollingsworth, NDA president and chief executive. "I'm very concerned about the price of houses and very concerned about the price of land." Of course, Southern Nevada's housing prices are still cheaper than California, where the NDA focuses most of its recruitment efforts. And, for some, the rising prices are an attraction.

Arte Nathan, vice president and chief human resources officer at Wynn Resorts, said the executives and managers who the gaming company recruits from out of town are impressed -- not scared off -- by the area's housing prices.

"The prices have gone up, but not enough to make the city look bad or to be unattractive to people looking here," he said. "It's a state with no personal income tax, it still has great weather, the property taxes are still much lower than other large urban areas, and there are all the other attributes of the city."

A combination of factors is fueling housing-price increases, analysts said: continuing low mortgage rates, the increasing price of land and investor pressure on the market. The biggest factor, though, is simple economics: Demand far outweighs supply.

"They all go together to result in the type of pricing increases we've been seeing," said Dennis Smith, president of Home Builders Research Inc.

The price of land is dependent on a number of factors, including location and infrastructure, but in some parts of the Las Vegas Valley, residential land is almost $400,000 an acre, local analysts said.

For at least a year, developers and builders have talked -- and complained -- about the shrinking supply of developable land for reasonably priced housing. Builders are buying up all available land, including industrial-zoned parcels, which they are getting rezoned for housing developments.

The absorption of land is outstripping the supply that is annually released by the Bureau of Land Management. At the rate developers are using up land inside the valley's federally set "disposal boundary," the area has less than a 12-year supply of land for development, said Richard Lee, local development expert and vice president and director of public relations for First American Title Co.

The Las Vegas Valley and the BLM disposal boundary can be loosely defined as the boundary created by the mountains surrounding Las Vegas.

Last year, Las Vegas-area home builders closed escrow on 25,230 homes, 12 percent more than 2002 and 56 percent more than 1995, Home Builders Research reports.

The increase in the number of new houses sold is still not enough to satisfy the demand, and there are waiting lists for new homes, market observers said.

"Most of my clients need something in the foreseeable future," said Tanya Murray, a real estate agent with Realty Executives of Nevada. "Most builders have such a long waiting list, and prices continue to escalate before the lot is released. The problem ... for the buyer is they can be priced out of a home that they could afford when they were put on the waiting list."

Real estate agents and builders tell stories of fistfights over new homes, lines hundreds-of-people deep just to get their names on a list to buy a new home and overnight stakeouts so that prospective buyers get a shot at one of the finite number of homes.

"Escala (in Summerlin) is a community where people camped out; there was a considerable amount of people waiting" said Todd Hahn, vice president of sales and marketing for Pulte Homes. "When people are camping out, what do you do when you open the doors, when they've been camping out for two days?" What Pulte did was release more homes than the company had planned to that day to satisfy more buyers.

While the grand opening of the community was in February, Pulte Homes actually started selling homes in January for $460,000 to $524,000, ranging in size from 1,900 square feet to 2,500 square feet. February was the first time buyers could actually walk through models.

Las Vegas-area builders offer homes on "phased-release" programs, meaning they only sell a certain number of homes at a time. With each phased release comes a price increase.

During Pulte's most recent release the weekend of Feb. 28, the same models sold anywhere from $602,000 to $665,000.

Hahn said the price increase seems dramatic because of the short amount of time, which normally would have been spread out over several months. He also said the prices reflect the rising costs associated with building houses, the quality of the product and the desirable location.

Investors

Desirable locations, dramatic price increases and high demand have attracted investors to the Las Vegas market, and in particular to new-home communities.

Many investors have taken advantage of builders' phased-release programs. Investors often buy a home during the early stages of a new community and later sell the property for a profit. Others rent out the property in hopes of future appreciation and rental income -- drawing the ire of home builders and new homeowners who live in the property they own.

Builders say they are trying to develop communities and don't want investors buying the new houses because such purchases can be disruptive to the neighborhood.

Over the past few months, builders have been trying to restrict investors from buying in their new-home communities. Some builders require buyers to occupy the home or pay a fee if the property is sold soon after the initial sale.

"The investor/speculator buyer has come into this market in a big way," said Tim Sullivan, the principal in charge of real estate consulting at the Meyers Group. "That is what we need to watch, and that is the concern."

Even steep price increases are being used to weed out the investor-buyer, builders say. By getting rid of investors, builders may be able to slow sales and waiting times for new homes, Smith said.

"We never thought that we would hear of the day when some home builders are actually trying to slow sales velocities," he said.

Those exclusionary tactics by home builders are in turn pushing some investors into the existing home market -- and in many cases, they can pay cash or offer to pay more than the list price for a house.

"The influx of investors in the marketplace is like pouring gasoline on a fire; the demand just gets larger," Smith said.

Existing homes

Shannon Rivers and her husband, Dan, looked for a house for four months.

Every time the couple looked at a house, it had already been sold for the asking price.

"They went real fast, and if you didn't make an offer the day you saw it, you didn't get it," said Rivers, who was looking in the $140,000 to $155,000 price range.

The Rivers were finally able to snag -- for $155,000, the top of their price range -- a 1,288-square-foot Henderson home built in 1978.

"It definitely wasn't my first choice," she said.

Ponder, who moved with her boyfriend to their new home in Pahrump on April 3, recalled similar frustrations.

"As we went longer and longer without a house (in Las Vegas), the prices were going up and the houses were getting smaller," Ponder said.

In the end, Ponder and Perfetti paid $188,000 for a 1,632-square-foot house on one-third of an acre in Pahrump, and see nothing but an upside so far. Not even the commute bothers Perfetti. Ponder is looking for a job closer to home.

"I think I like it a lot," Ponder said. "It's quiet at night. I hear a rooster in the morning."

The average time a home is on the market in the Las Vegas Valley is about 27 days. But in some parts of town, houses put up for sale receive multiple offers, many above list price, and are sold within days.

Real estate agents, recent buyers and would-be buyers all have stories to tell -- of homes sold in hours, selling prices at thousands of dollars above list price and multiple offers on houses.

"It is very frustrating for the average young married couple who are trying to buy their first home," Murray said. "To go through that rejection process over and over is very disheartening."

As with the new home market, supply is limited in the existing home market.

While the number of homes and condos listed for sale by the Realtors' Multiple Listing Service actually increased at the end of March -- there were 4,432 single family homes for sale, 26 percent more than at the same time last year, and 859 condos for sale, 37 percent more than a year ago -- those increases mean little when compared to the in-migration and to the more than 10,700 real estate agents all looking for the next listing, experts said.

"The inventory is just not out there," said Pete Slater, a real estate agent with Realty Executives of Nevada.

And for those looking to buy a home, especially in price ranges that fall below the median existing-home price of $208,500, the search can be tough.

Restaurant manager Juan Maqueda has been looking for almost four months for a home and has looked at dozens of properties.

Maqueda, who already owns a home in northwest Las Vegas (45 minutes from his job in Henderson) was looking to buy a home for his brother.

"This is my third real estate agent," Maqueda said. "We can't find anything that is in our price range. It's amazing how the market has been changing."

Maqueda, who finally found a house for his brother for about $150,000, was told the day before they were to sign the contract that the sellers changed their mind. They wanted more money. "They said Las Vegas was the big land of opportunity, it is for me," said Maqueda, a native of Mexico. "And I do understand the property market is changing because of opportunity. And it's growing, but it's going to be very hard (to find a house) in that price range."

Since bidding on that first house about a month ago, Maqueda has bid on about 25 more, losing out to higher bidders every time.

Real estate agents said that while not all homes have seen double-digit appreciation increases, demand is strongest for homes in planned communities such as Summerlin, Green Valley, Green Valley Ranch, Southern Highlands, Anthem and The Lakes in west Las Vegas.

Real estate agents said homes priced under $500,000 and in high-demand areas generally receive multiple offers within days. Homes under $400,000 not only receive multiple offers, but those offers are well above list price. Houses priced around $250,000 and located in the most popular areas are almost nonexistent, agents said.

"At one time if you had $250,000, that was a lot of money and it would buy you a nice home in a nice area," Murray said. "Now $250,000 is almost not enough to buy a condo. It's very discouraging."

But even in older, unplanned areas of town, homes that have been kept up demand higher-than-expected prices.

"There may be a longer market time (number of days before a house is sold), but it depends on the house," Joan Kuptz, president and co-owner of RE/MAX Advantage said. "Older parts of town probably aren't keeping up with the appreciation, but there is still virtually no inventory. At Tropicana and Eastern (avenues), even there some homes are in the $400,000 range."

Sellers

The pressure on prices, while not good for some buyers, is a boon to sellers.

"For sellers, it's a great opportunity, which doesn't come along too often in anyone's life," Murray said.

Instone and his family are moving to Salt Lake City this summer. Worried about being able to sell their home before the end of the school year, Instone and his wife, Nancy Hofmann, put their 1,700-square-foot Henderson home on the market in March.

"It went up for sale (on a) Friday, and we started receiving calls to show the home at 8 a.m. Saturday," Instone said. "That Saturday we had eight Realtors come through to look at the property and an equal amount on Sunday."

On Monday the couple had at least six offers on the home, all above the asking price of $319,900. They bought their home six years ago for $148,000.

"It's totally caught us off guard, what people are willing to pay in this area," he said.

Some people who expected to sell their home to trade up or to downsize are rethinking their plans, keeping their homes off the market and further contributing to the low supply.

"What can I buy for the same price?" Kuptz said. "I won't get the same home and I won't get as much."

Appraisals

Bids coming in thousands of dollars above list price have created another problem. In many cases, appraisals are not penciling out to the final price, often leaving a gap of thousands of dollars that the buyer must make up in cash.

"Lots of buyers in our market have extra cash and can pay the difference between the appraisal price and the sales price," Kuptz said.

But those low appraisals can serve to push more people out of the market who otherwise would be able to afford a home, but don't have the cash to make up the difference.

"I was writing an offer for one client, and there were 26 offers, some $40,000 above the list price," said Steffani Bjelke, an agent with Century 21 MoneyWorld. "Most locals can't afford to pay a lot over appraisals, and more people cannot afford to buy a home here."

How to buy

All hope should not be lost, real estate agents said, though people who are thinking of buying a house need to act now.

"Basically the tip I have is to buy something," Kuptz said. "Get some appreciation and maybe you can look for something down the road. But every day you sit out of the market, you're losing money."

David Tyree, a window manufacturer, looked at 75 houses during a three-month period before closing escrow on a home at the end of March.

He was looking for a home in North Las Vegas and could only spend between $120,000 to $125,000.

Tyree drove up and down streets and through neighborhoods looking for homes that were for sale.

"It was hard in that range, especially with the fact that I wanted a certain area of town," he said. "A lot of them were just trashed." Many of the for-sale homes he drove by without even venturing inside. But then one day he saw a house that was a bit rough around the edges. On a lark, he stopped to talk with someone working outside.

"The guy told me I was the first to look at it. It needed paint, it had no landscaping and it was a little grungy," Tyree said. "Inside it was really nice, and you'd never be able to tell from the outside. I found a house no one else found appealing at first glance."

Crystal ball

Most local analysts said that the current rate of appreciation can't continue indefinitely, and many said that when mortgage rates increase, demand will taper off.

"I say it cannot go a whole lot longer because when prices go up that much with no corresponding increase in the wages of the homebuyers, certain segments of the population will not be able to afford homes, and that will change the demand equation," Murphy said.

Analysts said they don't expect a housing crash or a burst bubble, despite comparisons some have made to the dot-com stocks of the late 1990s, when people would pay any price for a stock, regardless of value.

"I don't think we will have a disaster or that it will stop like a faucet has been turned off," Murphy said. "I don't see that happening because I think what we are going to see is the prices are going to plateau this summer and I think it will stabilize." Murphy said he has tracked, for the first time in three years, more new-home permits than new-home closings.

"That tells me the builders have stepped up to the plate and are bringing product online to meet the demand," he said. "So I expect it to start to be balanced a little by the middle of this year."

But, Murphy said: "I could be wrong."

Smith said he expects the numbers to slow down a bit, which will start to weed investors out of the marketplace. But because of the low supply of houses and high demand, it won't be a huge slowdown.

"California provides 38 (percent) to 40 percent of our buyers," he said. "We're still a bargain. So how long can it go on? A long time if we're selling to people from out of state."

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