Thursday, June 28, 2007 | 2:48 a.m.
The price of resale homes fell sharply in May, but a Las Vegas-based analyst said the price drops are needed to reduce the glut of homes on the market.
Meantime, a California-based company predicted there's a 61 percent chance Las Vegas home prices will be lower in two years.
Dennis Smith of Las Vegas-based HomeBuilders Research reported that the median price of resale homes in May dropped $7,000 from April or 2.5 percent to $278,000.
That's $11,000 lower than the price in May 2006, Smith reported.
The price drop comes as the number of single-family-home sales rose 13.5 percent from April while condo and townhome sales rose 26 percent, Smith said. The home prices dropped 1.2 percent and condo and townhome prices dropped 5.9 percent.
"It might be strange to call these price decreases good news. However, given the market conditions, it might indicate that some folks are finally facing reality and pricing their listings so they will sell," Smith said. "This is needed to bring down the resale inventory."
Separately, Walnut Creek, Calif.-based PMI Mortgage Insurance Co. released a study that ranks Las Vegas third in the nation behind the Inland Empire in California and Phoenix in their likelihood of a having a housing-price drop in the next two years. The study looked at the nation's top 50 markets.
What the markets with the greatest risk of decline have in common is a history of price volatility, said Mark Milner, chief risk officer of PMI.
Markets like Las Vegas have rapidly rising rates of appreciation followed by a sharp downturn.
"Markets with a history of volatility are more likely to see price declines in the future," Milner said.
The assessment of the short-term risk of the Las Vegas housing market fits into other predictions that prices still have a way to go before they hit bottom, given the large inventory of existing homes.
Smith reported there were 2,587 resales in May, bringing the yearly total to 6,600, a drop of nearly 35 percent from the first five months of 2006.
Given the pace of nearly 2,500 resales a month, Smith said Las Vegas could finish the year at a total of less than 30,000.
That would mean a drop of 11,900, or 28 percent, from the 2006 number, Smith said. And the 2006 resale number was itself a 28 percent decline from 2005, he said.
New home market: In the new home market, the median price was $308,874 in May, a year-to-year decrease of $14,156 or 4.4 percent, Smith said. When omitting mid-rise and high-rise condos and condo conversions, the median price for new homes was $309,990, a drop of $29,000 or 8.5 percent from last year, he said.
There were 1,751 new home sales in May, which includes 185 high-rise and mid-rise and 215 condo conversions, Smith said. There were 8,253 sales through the first five months, a year-to-year decline of nearly 44 percent, he said.
In an indication of the effects of higher credit requirements by lenders, the average cancellation rate in many parts of the valley was 31 percent, up from 26 percent where it had been most of the year, Smith said. Many buyers have been frozen out of the market because they don't have credit scores of 700 or higher, he said.
"How many young potential buyers have a 650 to 700 credit score, but are being rejected?" Smith asked.
"I don't know the answer to the question, but I assume that's a very large number. This alone will keep sales velocities in many new communities in check."
In May, there were 1,724 new home permits issued for Las Vegas, Clark County, Henderson and North Las Vegas. That's a five-month total of 7,934, a decrease of 34 percent from 2006, Smith said.
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