Economists predict more struggles for Las Vegas housing market

By Buck Wargo

Wednesday, Jan. 20, 2010 | 2:05 a.m.

The Las Vegas housing market will continue to struggle in 2010 as it faces more price declines and a growing number of foreclosures, economists said Tuesday.

In kicking off its International Builders’ Show, the National Association of Home Builders also released its forecast that showed new-home production in Las Vegas will be below 70 percent of normal production by the end of 2011.

“It will be continued suffering,” NAHB Chief Economist David Crowe said of the Las Vegas economy and housing market in 2010. “That is the simplest way to say that.”

Inventory remains at a high level because of the foreclosures and shows no sign of slowing, Crowe said. The demand doesn’t exist in Las Vegas to absorb the supply of homes on the market through this year and most of 2011, he said.

Crowe said that the country as a whole, however, has seen the worst of the housing price declines.

David Berson, a chief economist and strategist with California-based PMI Group, said he expects prices to continue to decline in Las Vegas, though not steeply.

Existing home prices have fallen more than 50 percent from the height of the market in June 2006. It’s going to take at least three years before prices rebound to the historical average increase in value of 4 percent a year, Berson said.

The return of investors to the market has helped eat up some of the inventory and that’s been positive — unlike their entry into the market during the boom that drove up prices, Berson said.

“If they can take those properties off the market in the short run and put them on later when the economy gets better, there is job growth and people moving here, that is a good trade-off,” Berson said.

The good news relayed Tuesday is the recession ended in the third and fourth quarters of 2009, but the problem for the U.S. economy is that the recovery won’t be a strong one, Crowe said.

The economists said the problem facing housing markets like Las Vegas is no longer adjustable rate mortgages that triggered a wave of foreclosures but steep job losses.

Frank Nothaft, chief economist and vice president of Freddie Mac, said foreclosures typically don’t peak for six months or longer when jobs start to be created.

“We are not going to add jobs for at least several more months,” Crowe said. “The return of employment will be the first indication of the return of the housing market.”

Berson said this will be different from other recessions.

“If you look back historically, economic declines are followed by strong economic recovery. But the consensus is this time it won’t,” Berson said.

Berson said it’s been fortunate for the economy that lenders have been slow to put foreclosed upon homes on the market, otherwise prices would have fallen much further. That is why they aren’t putting them all out there at once, he said.

Crowe said it’s been tough for builders facing the greatest downturn in the housing market since the Great Depression.

Even for builders who have orders, the credit crunch has kept many from obtaining the loans they need to construct projects, Crowe said. That continues to hamper the recovery of the new-home market, he said.

The positive news about a slow recovery is that it holds inflation low, which means prices for building materials and labor remains low to build homes, he said.

The tax credit for first-time homebuyers has helped spur demand and after a slight dip, should do so again this year, Crowe said. It expires June 30.