Excess housing threatens economic recovery in LV

By Buck Wargo

Friday, June 25, 2010 | 3 a.m.

The Nevada housing market faces more challenges, and prices should stay at their existing level for about three more years, according to UNLV economists.

In its analysis of the Las Vegas housing market, the Center for Business and Economic Research maintains any recovery is threatened because there’s an excess supply of housing units compared with the demand.

Although foreclosures are trending downward for now, there is concern the problem could worsen, said Mary Riddel, the center’s interim director.

One bright spot in the Las Vegas housing market is that prices have stabilized. But people shouldn’t get too comfortable with what that means, she said.

“This could be a sign that housing prices have finally reached their bottom and that a recovery in the housing market is around the corner,” Riddel said. “A closer inspection of some fundamentals of the housing market may suggest otherwise.”

The center estimates an excess of 9,000 vacant housing units over the normal local housing inventory. That is about two-thirds apartments and one-third single-family homes, economists said.

The excess supply has fallen by nearly 40 percent in the past year as lower prices have allowed new buyers to purchase homes, but the existing supply remains an impediment to an imminent recovery in the housing market, she said.

With 9,000 more homes and apartment units than needed, that means the population has to increase by 22,500 before there is a balance between supply and demand, Riddel said. That doesn’t count in any homes that are being built, she said.

Because of the excess supply of homes and threat of foreclosures, home prices are likely to stay at their current low levels for the next three years even if the population starts to increase, Riddel said.

That excess supply of housing units prevents homes from being built. Because of that excess supply, the value of home construction fell from $600 million in 2008 to $400 million in 2009, Riddel said.

National housing analyst Gary Shilling said he expects prices to fall 10 to 20 percent in many markets because of an excess of supply.

Another factor threatening any recovery of the housing market is the potential for strategic mortgage defaults from homeowners who are underwater — those who owe more on their mortgages than their homes are worth, Riddel said.

Las Vegas leads with the nation with about 75 percent of its homes underwater compared with 24 percent for the nation as a whole, she said. That suggests more foreclosures are on the horizon for Las Vegas, she said.

The problem will only get worse with high unemployment and falling wages, Riddel said.

“This phenomenon is likely to lead to more foreclosures in the near term unless housing values begin to rise again and give homeowners confidence that they can recover their mortgage payments,” Riddel said.

She said another threat to the housing market is the resetting of mortgages over the next two years that will lead to higher interest rates and therefore payments. That will create even more underwater mortgages.

“Unless a quick turnaround in the local economy occurs, which is not very likely, this scenario will ultimately produce a new wave of foreclosures in Southern Nevada,” Riddel said.

In other news

• Wells Fargo has renewed its lease at the Hughes Center. The 10-year lease represents the largest office lease signed in Las Vegas and one of the largest leases in recent years. The space measures 60,200 square feet. CB Richard Ellis represented Wells Fargo, and Colliers International represented Crescent Real Estate Equities, owner of the Hughes Center.

• KB Home is giving away four tickets and sound check passes for a July 24 Justin Bieber concert. People can register at one of KB Home’s communities through July 5. For more information, call 888-KB-HOMES or go to kbhome.com.

• Dean Kaufman and Bret Davis have joined Jones Lang LaSalle as senior vice presidents. Both specialize in the office market. Davis worked for CB Richard Ellis and Kaufman worked for Colliers International.

• The Jensen Group of RE/MAX Central is touting a 9,600-square-foot home it is listing in the Ridges of Summerlin. The home is diamond certified green by the Environments for Living Program, which means it comes with a guarantee that the total utility bills for heating and cooling will not exceed $366 a month for a three-year period. The three-story, five-bedroom, seven-bathroom home was built by Tyler Construction. The home has insulation in the roofline, specialized heating and cooling equipment and sensors and thermostats in every room, including the attic.

• The third American Coin Express store has opened in Las Vegas, the latest at 9010 W. Sahara Ave.

• Colliers International has finalized a 60-month lease with Clear Wireless for a 27,000-square-foot office building at 8645 S. Eastern Ave. The transaction was worth $2.4 million. It has also finalized a 240-month lease with Sonoran BBQ for 6,600 square feet at Mall Ring Circle. The transaction is valued at $4.4 million.

• Arizona-based Children’s Learning Adventure said it is accelerating its expansion into Las Vegas after opening two centers and will open a third July 24 at 1183 S. Eastern Ave.

• Walmart stores are undergoing a redesign that is intended to give them a more open and brighter look with wider aisles, low-profile shelving, brighter interior paints and lighting and easier-to-read signs. The remodels are being done at 2310 E. Serene Ave. and 5200 S. Fort Apache Road. The two stores hired about 150 associates to help with the remodels.

• Las Vegas Pilates has signed a 60-month lease at The District at Green Valley Ranch. It is moving moved from the west side to the east side of the District and has increased square footage.

• Jiffy Lube has invested more than $800,000 in reimaging and customer service training for its 18 area locations as part of grand reopenings. Jiffy Lube is donating money for oil changes to the Humane Society.