Las Vegas plummets in housing appreciation for second quarter

Jennifer Shubinski

Friday, Sept. 2, 2005 | 11:01 a.m.

From beauty queen to wallflower.

After five consecutive quarters in which Las Vegas ranked among the nation's top 20 metro areas with the highest housing appreciation, the city dropped off the federal government's list.

The Las Vegas metropolitan area plummeted from a national ranking of No. 2 during the first quarter of this year to No. 21 in the second quarter, according to a report released Thursday by the Office of Federal Housing Enterprise Oversight (OFHEO). The rankings are based on annual percentage change.

Even though Las Vegas dropped down the list, Nevada still ranked No. 1 in terms of housing appreciation year-over-year with a 28 percent increase. Since 1980, statewide housing prices have risen 267 percent, according to government data.

One reason Nevada remained at the top of the heap is because of the Reno-Sparks area.

Those cities were ranked No. 4 during the second quarter, with housing appreciation rates at more than 32 percent. During the first quarter Reno-Sparks ranked No. 3, according to the report.

During the second quarter, Naples-Marco Island, Fla.; Bakersfield, Calif.; and Merced, Calif. were the metropolitan areas that have experienced the highest rates of housing price appreciation, according to the report.

Another reason is that despite it's drop -- Las Vegas continued to have very strong appreciation rates, local and national economists said.

"All I can say is that Las Vegas' (year-over-year)growth rate is incredible at 26.9 percent," said Andrew Leventis, OFHEO economist.

During the first quarter, when the Las Vegas metro area was ranked No. 2, it had an appreciation rate of 33 percent, according to government data.

"With general price inflation and wage growth fairly low, it's (Las Vegas) still a pretty unaffordable area in the long term if these sort of price appreciation rates keep going on," Leventis said.

Keith Schwer, director of the UNLV Center for Business and Economic Research, said Las Vegas' ranking remains high, and that the percentage differentials between its own ranking last quarter and Reno's ranking really aren't that great.

"It's not significant given the magnitude of the numbers," he said. "Just because we're not on the list, 26.9 percent price increases is substantial."

Dennis Smith, president of local research firm Home Builders Research Inc., said it's good news Las Vegas has fallen of the top 20 list.

"Our annual percentage comparisons will start to decline because our prices have leveled off, which is what they should do and what we hope they do because they can't keep going at 50 percent a year," Smith said.

The National Association of Home Builders' Chief Economist David Seiders said that housing price appreciation nationwide was, and in some cases continues to be, unsustainable.

"The most rapid increases in home prices have been occurring in markets where demand is particularly strong and supply constraints are especially difficult because of a shortage of land and excessive growth controls or moratoria," Seiders said.

So does Las Vegas' drop from housing high-flier to just-another-city mean the much feared housing bubble has burst?

Smith and others interviewed said no.

"Pricing bubble, I don't know what that means," Smith said. "There is no definition and it is different for every market. It is good prices have leveled off and let the market take a breath."

He said prices for both new and resale homes in the Las Vegas Valley continue to rise, just not at the astronomical levels seen last year.

Schwer said it looks like the valley will achieve double-digit appreciation again this year, although the rate of appreciation is slowing down.

"It may not be slowing down as much as we would like to avoid future problems," he said.

Those in the local real estate trenches said the change documented by the government report aren't as evident in the field.

"We haven't seen any evidence of a slowdown, let alone a major slowdown," said Jason Delk, a real estate agent with Rossum Realty Unlimited.

Delk said he's seen a major slowdown in the number of investors interested and buying in the market.

"Investors artificially create conditions that are not good for anybody," he said.

While a bubble may not be bursting in Las Vegas, what may be at risk of deflating is the city's ego after long being ranked at the top of almost every list in terms of growth and appreciation.

The most notable thing about Las Vegas in the OFHEO report is that it's not really in the report.

"Except for what is noted in the press release, nothing of note stood out about Las Vegas," Leventis said.