Nevada ranks No. 1 in U.S. for housing appreciation

Kevin Rademacher

Thursday, June 2, 2005 | 11:16 a.m.

Boosted by big jumps in Las Vegas housing prices, Nevada's soaring housing costs paced the nation with a 31.2 percent appreciation rate from the first quarter of 2004 to the first quarter of 2005, recent government data said.

Behind the state's top spot were results from the state's two biggest metropolitan areas.

Additionally, the Las Vegas metropolitan area was the second hottest city for appreciation in the 12-month period with housing prices up 33.3 percent, the Office of Federal Housing Enterprise Oversight said Wednesday.

The Reno metropolitan area was right behind Las Vegas, third nationally with a 12-month appreciation rate of 31.8 percent.

Over a five-year period, Las Vegas housing prices are up 89.1 percent, the report said. Reno's five-year rate was 85.2 percent.

Of the top 20 metropolitan areas in the 12-month comparison, 14 were in California with Bakersfield leading the nation, edging Las Vegas with a 33.7 percent 12-month appreciation rate.

As a state, Nevada led a country that is experiencing an overall surge in housing costs. Average U.S. home prices jumped 12.5 percent from the first quarter of 2004 to the first quarter of 2005 -- one of the heftiest increases in the past 25 years, the report said.

While economists in Las Vegas have pointed to the influx of cash that home equity loans and refinancings have injected into the economy, they also emphasize that consumers are taking on debt to get that cash.

"The flip side of cheap debt is that you still have to pay it back," Jeremy Aguero, principal with the Las Vegas research firm of Applied Analysis, said recently.

Rising prices also are making it more difficult for new residents or first-time buyers to find a home.

Gail Burks, chief executive with Nevada Fair Houising Center Inc., said government assistance programs to help families meet rising down payment requirements are now largely ineffective.

"Even clients that get the maximum down payment (assistance) of $10,000 from government programs still can't afford to buy a home," she said.

Burks also said that the profile of consumers blocked by affordability issues is expanding.

"The market for people who can afford a half-a-million-dollar home is limited," she said.

Recent statistics from Home Builders Research Inc. showed the median new home price for the Las Vegas Valley was $281,355 in April, up from $233,360 in the same 2004 month. In April 2000, the local median new home price was $148,886, Home Builders Research said.

For the first quarter of 2005, nationwide average home prices increased 2.2 percent, or an annualized rate of 8.8 percent. During the past five years, prices have zoomed 50.5 percent.

Texas, where prices rose 3.8 percent in the past year, had the slowest slowest appreciation rate. Arizona had the most rapid growth in the first quarter of 2005, with prices up 5.2 percent.

The data added to concern that the housing market, expanding at a record pace since the late 1990s, is overheated. Federal Reserve Chairman Alan Greenspan recently noted "froth" in some markets, though discounting a nationwide price bubble. Lenders report an increasing number of borrowers taking out adjustable rate or unconventional loans as they stretch to buy.

"The rise in house prices continues at an extremely strong pace and raises the potential for declines in some areas later on," OFHEO Chief Economist Patrick Lawler said in a statement.

The OFHEO released its data as the Commerce Department said construction spending hit a record in April, rising 0.5 percent to a seasonally adjusted annual rate of $1.07 trillion. It was the 15th month of record activity. There was growth in housing, manufacturing, commercial, retail and other construction.

Also Wednesday, the National Association of Realtors said its index of pending home sales was up, indicating record sales of existing homes are possible when May and June figures are released.

"The index tells us that historic home sales are likely to continue," said NAR Chief Economist David Lereah.

Prices rose less than 5 percent in the past year in Michigan, Mississippi, Kansas, Colorado, Ohio, Oklahoma, Indiana and Texas. North Dakota prices fell 0.4 percent in the first quarter.

"The full report shows no sign of deflating, let alone bursting, bubbles," says Kenneth Simonson, chief economist of the Associated General Contractors of America. "The one state with a first-quarter decline was North Dakota, where I imagine only the desperate would sell a house from January to March."

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