Fewer in LV can afford to buy home

Jennifer Shubinski

Thursday, Nov. 11, 2004 | 11:06 a.m.

Teachers, nurses and hotel workers are being left out in the cold as the ability to buy a home becomes more out of reach for many in the Las Vegas Valley.

The percentage of Las Vegans who could afford a new home dropped by almost half this year, according to a study by research group Hanley Wood Market Intelligence.

In 2004, 24 percent of people in the Las Vegas Valley could afford a new home as of the second quarter, the most recent statistics available. That's down from 40 percent in 2003, according to research by the Southern California-based group, which has a Las Vegas office.

Las Vegans' ability to buy a resale home also dipped to almost 41 percent in the second quarter from almost 55 percent in 2003, the group reported.

That means to afford the median-priced new home in Las Vegas at the end of the first six months of the year, based on a fixed 6.29 percent mortgage, the minimum annual income needed is $79,727. For a median-priced resale home, based on the same variables, Las Vegans will need to bring home $56,950, according to the study.

Clark County's median household income in 2003, the most recent data available, was $45,605, according to the Census Bureau 2003 American Community Survey.

"That is not great news," said Tim Sullivan, the group's principal in charge of real estate consulting.

The ratio is based on a complex formula using the area's median household income, current interest rates, property taxes, insurance and down payment.

Sullivan, who was speaking at Hanley Wood's quarterly roundup of the Las Vegas market, said the median new home price in the third quarter -- $312,740 -- has increased faster than personal incomes. The median price of an existing home was $237,000, the group reported. He also said the valley's "classically" low incomes have contributed to the affordability problem.

A survey he did of 12 area homebuilders showed that in one year nine of those builders increased their prices 75 percent to 110 percent, while the overall market saw a 50 percent increase in new home prices.

At the same time incomes have only increased 4 percent to 5 percent over the past three years, Sullivan said.

"What it means is prices need to flatten out," he said.

What it does not mean is that what many think of as the Las Vegas pricing bubble is about to burst, Sullivan said.

"There are going to be price corrections in a couple markets. That's OK. You're going to have price corrections," he said. "Are we in a bubble? No."

He said Las Vegas' strong job growth and immigration will continue to supply the market with buyers.

But even if prices continue to flatten out -- and despite recent price drops from some area homebuilders -- many Las Vegans will continue to be unable to buy a home.

When Krista Blaisdell's lease was due to expire on her apartment about a month ago, she thought it would be the perfect opportunity to move out and purchase a home.

But what the 30-year-old found was even the basic new home models, ranging from $210,000 to $230,000, were out of her price range.

"Even though I was looking to buy an entry-level town home, by the time the features were added that I wanted that pushed me out of the market," said Blaisdell, a public relations specialist.

What Blaisdell was looking for was a backdoor so she could let her Dachshund out into a tiny backyard -- an extra that would have tacked on costs.

Blaisdell turned to the resale market, and homes she could afford she didn't want to live in. A two-bedroom house she looked at cost $300,000.

"It's so disheartening for people like me," she said. "I can't imagine having kids and trying to buy your first home."

Ken Perlman, senior consultant with Hanley Wood said it is possible the local affordability ratio could go up, but not because actual prices will go down, but rather because of a wider variety of product such as apartment-to-condo conversions and smaller new homes.

Perlman said affordability can also increase with creative financing and lower interest rates.

"We may see the affordability ratio fluctuate, but it's not that simple," he said.

It is obvious what the end result will be when prices of homes rise too fast -- people won't be able to afford the homes, said Stephen Miller, professor and chair of the department of Economics in the College of Business at UNLV who attended Tuesday's presentation.

"The percentage is going to go down dramatically, which it did," he said. "He (Sullivan) did say that it was a negative, and it is."

Miller said now that home price increases have moderated a bit from the heated days earlier this year, the question is how long will they stay down before they start its upward climb once again.

"It's something that bears watching," Miller said. "I say that like we can do anything about it."

While the home affordability ratio is down, 66 percent of people in the Las Vegas Valley owned a home in 2003, the Center for Business and Economic Research, UNLV has reported. That's up from 59 percent of people who reported owning a home during the 2000 Census.

"There is absolutely an imbalance," said Jeremy Aguero, a principal at economics research firm Applied Analysis. "When we're talking about the fundamentals, incomes and wages and salaries have not increased at the rates of home prices."

Aguero said area homebuilders have become more dependent on buyers from out of state, where the price of housing might be even higher. He said people with lots of equity, either from out of state or those people within Nevada who have reaped the benefit of escalating prices are also the new home buyers.

"That person who came here with relatively little, hoping to capture their piece of the American dream in Southern Nevada that dream is less attainable than it was 24 months ago," Aguero said.