Las Vegas Sun

March 28, 2024

Business:

Housing: ‘Problem that won’t go away’

Job losses and the recession will take more of a toll on the area’s housing market, which won’t recover until people start moving here again, a UNLV economist said.

Keith Schwer, director of UNLV’s Center for Business and Economic Research, called housing “the problem that won’t go away” because there is not enough demand for the excess on the market. Schwer spoke June 23 at a midyear economic outlook at the Mirage. He repeated forecasts about Southern Nevada’s economy possibly bottoming late this year or early next and modest growth in 2010.

Schwer said it’s hard to get a fix on the local economy because some indicators have been mixed. It’s clear the economy is weak, and there is little relief ahead for the job market, he said.

“At best we are seeing a slowdown in the rate of descent, which, should these observations hold, gives us the beginning of the end of the most difficult period for the area since the Great Depression,” he said.

Schwer said Southern Nevada has been harder hit than the rest of the nation and the local economy will lag behind any national recovery.

That won’t happen until consumers feel more confident and can make more discretionary purchases such as travel, he said. Any recovery in housing will follow, said Schwer, who predicts that to happen in 2011.

The market has more than 15,000 housing units for sale, which are driving down prices, Schwer said. Demand is strong from investors and first-time homebuyers, but prices are edging closer to a median of $100,000. Schwer maintains price reductions have been inadequate to soak up the excess.

“We overbuilt, overborrowed and overlent,” Schwer said. “It is important to correct that.”

By his calculations, Schwer said the population will need to increase by about 40,000 people before the housing market returns to any type of balance. Since 2008 the region’s population, however, has dropped because more than 4,000 adults have been leaving the valley every month, he said.

Expected gains in population from the opening of CityCenter are gone because the rising number of jobless can fill the increasing demand for workers, Schwer said. The lack of new projects of sufficient size to replace those coming to an end will increase unemployment, reduce incomes, reduce total spending and force others to leave the region, Schwer said.

Some other reasons the Las Vegas housing market should remain weak through 2010 are a large number of foreclosures, the high percentage of underwater mortgages and the bleak prospect for the construction industry over the next 18 months, Schwer said.

“Unemployment acts as a drag on recovery and creates more foreclosures,” Schwer said. “Amid the current financial havoc and the housing overhang, you are hard-pressed to come to a conclusion about the movement of housing prices to stability.”

Schwer said Las Vegas and other housing bubble cities will recover more slowly than the rest of the nation. Las Vegas’ prices have fallen more than other bubble cities, and that may enable the region to get through better than other communities where prices adjust more slowly, Schwer said.

The recession in Nevada will last at least through this year.

Tourism can’t be counted on for a recovery because recent resort openings have fallen short of expectations, Schwer said. CityCenter’s opening, which many thought would add to the visitor count, is likely to be less of a draw, he said.

“This implies that there will be greater competition among properties for visitors, resulting in a better value for the consumer and less revenue for properties unable to fill beds,” Schwer said.

This is likely to spark discussion on whether Las Vegas has the right mix of properties and whether the recent expansion was too much on the high end, Schwer said.

“It is clear that consumer spending habits are likely to be more muted,” Schwer said. “People will be more careful in their spending behavior. As a result, we are likely to see a switch of branding Las Vegas from the current theme of ‘what happens here, stays here,’ to a less edgy theme, including the possibility of multiple themes to reflect the breadth of the destination with more than 150,000 rooms and myriad entertainment options.”

The Las Vegas economy won’t be able to turn to the construction industry for help, he said. With projects stopped and others completed or near completion and few new projects coming on line, the industry faces a gloomy future.

Excess housing and a large increase in hotel capacity leave too big a hole for construction to make up for in a declining economy, Schwer said.

The prospect for commercial real estate is bleak, Schwer said. Because real estate and construction comprise a larger share of the region’s economy, that means more difficulty for a recovery, he said. The need for more commercial space depends on jobs, Schwer said. Space requirements follow job growth by a year.

By his calculations, there won’t be a demand for more commercial property until 2010 or 2011, Schwer said. The existing supply will delay further construction, he said.

That means better leasing opportunities through lower rental rates, but also rising vacancies, Schwer said.

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