Sunday, June 4, 2006 | 7:33 a.m.
I pulled my hand back from the hot griddle that has been Las Vegas residential real estate and found to my surprise for the first time in a couple of years, my hand was not scorched.
What a difference two years makes. In 2004 the market was as hot as could be imagined. Last year condo towers were the talk of the day. Even those have now fallen by the wayside, closed down or in court, victims of the greatest of Las Vegas truisms: No place makes people's eyes bigger than their stomachs more than Las Vegas does.
But now we find that the residential market has been turned upside down. Once scarcity was the watchword; now we have a glut of properties, more than 15,000 at last glance, and the beginning of the employment sector's softening. Everyone is talking about unemployed real estate agents, mortgage brokers and appraisers. Twelve months ago people flocked to these occupations in search of easy riches.
Since the residential market shot up in 2003, many homes here have been out of reach for local buyers. Simply put, the average local income did not allow the purchase of the average house, even with all the bells and whistles that characterize residential lending in Las Vegas. So who is buying all these houses and why are they all of a sudden less interested?
The Las Vegas residential market has been driven by transfer-payment dollars, money earned elsewhere and brought here, presumably because it bought more here than wherever it was made. Outside dollars set prices here. The local wage scale had little to do with the cost of housing.
This is more than a tortured explanation for California colonialism. For a long time, such a pattern was the clearest feature of the Las Vegas Valley. Blue collar Californians could find considerably better value for their dollar here; many cashed out a 1,200-square-foot home in California for $400,000 and came here and bought twice the house at half the price. But that was before the boom.
Since then, we have been caught in a conundrum. Las Vegas was an ideal destination when our housing prices were less than 80 percent of the cost in Southern California. During the last two years, we have pushed that line, making a move to Southern Nevada more personal choice than mandatory economic decision. For blue collar workers and retirees, Las Vegas is much less of an option than ever before. Pahrump and the other new hinterland communities are more to their economic liking, if they are going to move at all.
So who is coming? Clearly, it is a more affluent group. A quick look at housing prices proves that. With new homes in tony suburbs beginning in the $500,000 range, there are very few first-time owners rushing to buy. Instead, we have grafted an upper-middle class onto the valley, older than the average and looking for the amenities we provide.
All their money is not earned here, but it spends very well. The houses get bigger and more luxurious and the roads are clogged with more and more high-end vehicles. It is a salesman's paradise: affluent consumers everywhere.
So despite the cooling of the market, do not expect real estate prices to return to the halcyon days of the late 1990s. Too much outside money is lined up, seeking to move here and often retire here. These dollars will hold up the market, allowing softness but keeping prices relatively stable.
This is good if you are already a homeowner. You will very likely get to keep a good portion of the paper profit of recent years. That makes the home equity loan you took out to buy that boat a pretty good bet.
If you are looking to get into home ownership for the first time, the news is not as good. The bottom of the market is going to remain pretty high, maybe even out of reach. The days of a 3 to 1 ratio between the average home price and the average wage are gone forever.
For a long time, Las Vegas had coastal amenities and Midwestern prices. That was an important part of our allure. Now we have coastal amenities and prices that are darn close to the coast. It did not take an earthquake to give Las Vegas beachfront property - at least in cost.
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