Quick rebound for housing

By Phoebe Sweet (contact)

Monday, Jan. 8, 2007 | 7:26 a.m.

Southern Nevada's slumping residential real estate market will start recovering by year's end even as other markets nationwide continue to struggle, a local economist predicts.

Our quick rebound will be stoked by continued population and job growth, says Keith Schwer, director of the Center for Business and Economic Research at UNLV. The region will fare better than, for instance, California, where prices are even higher than in Nevada, and Michigan, which has lost hundreds of thousands of jobs since 2000, he said.

"The population growth rate is slowing down for Las Vegas, but it still remains above the national level. People are still moving from Michigan to Las Vegas. There are job openings," Schwer said. "The growth may slow, but generally speaking the tide is coming in, and growth creates demand."

Schwer said Nevada's housing market downturn, which mirrored a national slowdown in residential real estate sales and housing starts, was caused by oversupply rather than a poor economy or rising interest rates.

Recovery could take longer than a year if developers start churning out houses at rapid rates before an excess six-month supply of housing is absorbed.

"It looks like it will take a year to burn off the excess at the current rates," Schwer said. "It could go longer than a year if permitting (for new home construction) picks back up."

Residential developers built almost 35,000 homes annually from 2003 to 2005, which were 5,000 units per year more than demand.

Exacerbating the situation, new and resale home sales slowed in the second half of 2006 because of a glut of overpriced homes combined with slower population growth. On average, resale homes were on the market for 55 days.

Builders responded by slowing the pace of construction, but Schwer expects them to return to pre-2005 production levels in 2008, after the existing inventory dries up.

Schwer said the expected housing rebound faces some risks.

The lack of affordable housing could stifle the local economy by discouraging business and worker relocation to the area.

"As housing prices go up, it will choke off the advantages we have to businesses who want to locate here," he said, adding that Las Vegas housing prices hovered close to the national average until 2000.

In the last six years, price increases here have outstripped those of competing cities such as Phoenix because of land shortages and high demand.

High prices could be a drag on the local economy, slowing growth in Las Vegas, and will mean that development of multifamily units and rental housing will be key to keeping Las Vegas a desirable destination for new businesses and workers in the years to come.

And Schwer said factors beyond local control could also affect Las Vegas.

"Two airplanes did fly into the World Trade Center, and if you'd asked me the day before if that would happen I would have said you were crazy," said Schwer - who was attending a seminar in New York City at the time of the attacks. "The probability is low, but in looking at all of the risk factors it's important to keep in mind our economy is dominated by people coming here, and any issues with safety, security, transportation, or discretionary income could impact it."