Las Vegas Housing-Market Conditions

Transcription

1 Las Vegas Housing-Market Conditions The Center for Business and Economic Research Space Available Volume 50, 1st Quarter, 2009 A windshield survey, the simplest one to take, shows that Las Vegas offers an abundant supply of property for immediate occupancy. Signs abound. The most frequent wording for residential property is For Sale. Nonresidential property was about equally divided between Space Available and For Lease, or at least in the neighborhood through which I was driving. Nevada, along with California, Arizona, and Florida, continue to see a substantial excess supply of housing units, a reflection of excessive overbuilding. Construction cycles on average have longer swings than business cycles, longer periods from peaks to troughs. Regional Differences in Housing Price Index (HPI) Changes The three southwestern states, Arizona, California, and Nevada, keep garnering the press headlines, places where foreclosures and underwater mortgages abound if you wish, ground zero for the bursting housing bubble. One can see the variation in housing-market conditions in the West by looking at the percentage change in housing prices for three groups of states: (1) severely affected states (Arizona, California, and Nevada), (2) moderately affected states (Colorado, New Mexico, and Utah), and (3) unaffected states (North Dakota, Montana, and Wyoming). In Table 1 we show the percentage in the Federal Housing Finance Authority Housing Price Index (FHFA) from the previous period for quarters in (FHFA was previously referred to as the Office of Federal Housing Enterprise Oversight [OFHEO] Housing Price Index and referred to as HPI below). Table 1 HPI Percentage Change from the Previous Period for Selected Western States: Q1 to Q4 State 4 th Quarter 3 rd Quarter 2 nd Quarter 1 st Quarter Severely Affected States t Arizona California Nevada Moderately Affected States Colorado New Mexico Utah Unaffected States North Dakota Montana Wyoming The severely affected states experienced declines for each quarter, with California and Nevada showing double-digit declines for each quarter. But, the moderately affected states experienced declines for only two quarters and the percentage declines were all less than 2 percent. The unaffected states, the only

2 Housing-Market Overview Las Vegas Housing-Market Conditions Cont d three of the fifty states with state budget surpluses, showed price rises. These states did not experience the excess housing price escalation. The takeaway is that the housing bubble affected states differently; Nevada residents got caught and now bear a greater burden from the excesses. Excess Supply of Housing Units in Southern Nevada The sharp acceleration in housing prices that started in 2003 brought more housing units based on the irrational assumption that build it and they will come. For builders able to place products on the market a nice profit was made, however, supply got out in front of the demographic fundamentals. To be sure, Las Vegas consistently generated jobs at a faster rate than all other regions of the U.S. from 1985 through 2005, by far and away the region with the highest-ranking annual growth rates. As the region saw a slowdown in visitor spending, work stoppage at many construction sites, and evaporating access to credit, economic fortunes turned and the demand for housing units went away, leaving vacant housing units over and above the normal inventory level. These vacant units represent an excess supply in the vocabulary of economists and give a clear signal for price declines to get rid of the excess. Excesses of single-family detached housing units have pushed prices down for three years. Other housing markets, for example, the rental multifamily market, have also been affected. The current estimates, as of April 2009, are shown in Table 2. Table 2 Estimated Excess Housing Supply in the Greater Las Vegas Area by Housing Unit Type: April 2009 Type of Housing Unit 1 Vacant Units Estimated Units in the Greater LV Area Assumed Percent Normal Vacancy Rate (%) Estimated Normal Vacancy Inventory Estimated Excess Supply 2 Single-family detached 14, , ,401 7,678 Condominium 2,962 67, , Townhouse 1, , Multifamily 3 16, , ,521 6,664 Total 34, , ,924 15,465 1 Excludes mobile homes 2 Estimated excess supply = estimated units less estimated normal vacancy inventory 3 Includes apartments and multiplex units We estimate that there are 34,389 vacant housing units in the greater Las Vegas area for all types of units, up from 34,124 units in the fourth quarter of. In short, we see no appreciable change in the excess supply condition. But, we see a changing mix of excesses by housing type. Mainly, the vacancy rate for multifamily has lost ground relative to the other housing unit types, making up all the change seen between the current and the preceding quarter. Some of the recent weakness is likely to be a result of a loss of people. With a sharp drop in construction jobs, it would be reasonable to assume that some of those with lost jobs have migrated to find work. Perhaps workers in other jobs have done so also. The Clark County Comprehensive Planning reported a small population loss between midyear 2007 and midyear ; the Clark County School District also has reported fewer students. The change in economic fortunes has slowed migration into Clark County and Page 2

3 Housing-Market Overview Las Vegas Housing-Market Conditions Cont d raised migration out. This stagnation in population cuts out the primary way to correct the estimated excess of housing units. Indeed, a population gain of more than 38,000 would be needed to soak up the estimated 15,465 excess units with 2.5 persons in each household. You need more than 25,000 jobs if there are 1.5 jobs for each household. A labor force of near 1 million and unemployment jumping from near 5 to near 10 percent in one year, you also need more than 50, jobs to get the job picture back in line for locals. Improvement in the job picture goes a long way to helping solve the excess of housing. Housing Price Deflation Continues Housing affordability continues to improve as housing prices decline. Indeed, the S&P/ Case-Shiller Home Price Index (see Figure 1) has broken through the trend line computed from , a period of relative stability. The index for February stood at and this comes close to the ending value for 2002 (122.01). The index peaked din April of 2006 at Figure 1 The chart comes as close to a cliff-diving chart as one might get, suggesting the near freefall we have seen. One anomaly was the slight bend, ever so slight, that we noticed about a year ago. We held out hope that perhaps we might see a soft landing in housing prices back to the trend line, but this has not occurred. We are still looking for a bottom to the price decline. The excess-supply situation has not improved and we have seen prices continue on a downward slide. Housing-price improvement is likely to Page 3

4 Housing-Market Overview Las Vegas Housing-Market Conditions Cont d come when unemployment has peaked and there is a clear sign of economic recovery. Indeed, economic recovery regularly comes before we see an end to the upward movement in the unemployment rate. So, we continue to look for favorable signs. Falling house prices leave more households upside down on their mortgages, owing more than what the property would bring on the market. This acts as a drag on a people s willingness to move to other locations. They also have less wealth than they had before, resulting in less consumer spending, other things equal. The expectation of further housing-price declines keeps one holding back on buying a home if one expects to buy it for less in the future. Not all effects are bad a big benefit of the return of housing prices to trend is that more can now afford to buy a home. In looking ahead, a more favorable market will appear when those who otherwise would not have bought a home now find good opportunities to do so. Negative Equity Price increases in the 50 percent range, strong in-migration, and the lure of quick money (with many buyers coming from outside Nevada) created the right mix for many Southern Nevada households to find themselves upside down in their mortgages. The boom/bust of the Silver State s economy shows clearly in Figure 2. Not all states are included. The bars in the figure measure the percent of households with Figure 2 Page 4

5 Housing-Market Overview Las Vegas Housing-Market Conditions Cont d mortgages greater than the market price of the home and the percent with less than 5 percent equity. About 60 percent of Nevadans with a home mortgage have negative equity. The other high percentage states include the other boom/bust states of California, Florida, and Arizona. A continuation of the house cycle, highly likely given the history and the finance difficulties we have run into, will most likely see other states percent underwater rise toward the levels of the four boom/bust states. We draw two conclusions of note. First, consumers who must sell in the current environment will incur a capital loss. Such losses will come at the expense of other spending opportunities. Second, this brings an incentive for those who are substantially underwater to walk out leaving the keys on the kitchen counter, creating further difficulties for those holding the mortgage. Resets and Recasts: Making It Through 2012 Reset refers to a rate change; recast refers to a payment change. The nuance aside, adjustable rate mortgages (ARM) come in many flavors with differing rate and payment changes. These mortgages proved difficult for many borrowers. That is, rate and payment changes correlate with rises in foreclosures. Most of the subprime ARMs have already reset and recast. More knowledgeable borrowers with more assets fared better than first-time homebuyers with few resources. The accompanying Figure 3 shows that resetting and recasting will remain with us until So long as rates remain low, however, the problems should remain less than with high rates. The critical factor will be whether the Federal Reserve (FED) keeps rates down to help distressed mortgage holders. This might prove difficult should inflation pressures appear and the Fed has to shift its policy position. Figure 3 Option ARM and Alt-A mortgage resets become a much bigger issue in mid-2009 as the trouble shifts away from subprime Page 5

6 Housing-Market Overview Las Vegas Housing-Market Conditions Cont d Apartment Market Vacancies Continue to Rise Apartment vacancies moved above the 10 percent threshold, reaching 10.2 percent for the 1st quarter. The excess supply of single-family detached units offers many who might have otherwise lived in an apartment to rent a house. This weakness in the apartment market is likely to continue as the excess supply of housing units will require substantial job growth to soak up the excess supply. R. Keith Schwer, PhD Director Page 6

7 Housing-Market Overview Permits Issued in Clark County by Type of Unit 1 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, st Quarter, Total: 2,761 2nd Quarter, Total: 4,516 3rd Quarter, Total: 4,021 4th Quarter, Total: 1,801 1st Quarter, 2009 Total: 1,189 Commercial Units Multifamily Units 1,401 2,124 2, Single-Family Units 1,177 2,201 1, Residential-Building Permits All Types of Unit Permits Issued by Issuing Authority 1 2,500 2,000 1,500 1, st Quarter, Total: 2,578 2nd Quarter, Total: 4,325 3rd Quarter, Total: 3,817 4th Quarter, Total: 1,674 1st Quarter, 2009 Total: 1,117 Uninc. Clark County 538 1,538 2,372 1, City of Las Vegas 990 1, City of North Las Vegas 730 1, Henderson Boulder City Mesquite Page 7

8 Local Growth 80,000 Clark County Redeemed Drivers' Licenses 2 70,000 60,000 50,000 40,000 30,000 20,000 10, st Quarter, nd Quarter, rd Quarter, th Quarter, st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Quarterly 18,957 18,681 19,925 17,114 16,397 16,101 17,461 14,715 14,168 Year-to-Date 18,957 37,638 57,563 74,677 16,397 32,498 49,959 64,674 14,168 Unemployment 6 Las Vegas Q1 5.3% Q2 5.7% Q3 7.2% Q4 8.1% Q % U.S. Q1 4.9% Q2 5.4% Q3 6.1% Q4 6.9% Q % 40% 35% 30% 25% 20% 15% 10% 5% 0% Clark County Redeemed Drivers' Licenses: Major Categories 2 1st Quarter, nd Quarter, rd Quarter, th Quarter, st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, Percent from Outside the 50 States and DC 0.4% 0.2% 0.4% 0.4% 0.2% 0.2% 0.1% 0.1% 0.2% 1st Quarter, 2009 Percent from California 33.9% 32.7% 30.7% 31.6% 31.8% 31.4% 31.1% 32.0% 31.7% Percent Senior: Age 60 or Older 10.4% 10.0% 10.6% 12.2% 10.5% 12.6% 11.4% 12.8% 10.5% Page 8

9 Substitute Market: Apartments ZIP CODE Apartment Rental and Vacancy Rates by Zip Code Area 2 UNIT RATES Studio 1 Bed 2 Bed/1 Bath 2 Bed/2 Bath 3 Bed AVERAGE RATES Furnished Unfurnished Furnished Unfurnished Furnished Unfurnished Furnished Unfurnished Furnished Unfurnished Rent Vacancy * * * * * * * * * * * * * * * * * * * * * * * * * * * 954 * * * 1132 * % * * * 843 * * * 1041 * % * * * 776 * 819 * 957 * % * * * 672 * 731 * 824 * % * * * 610 * 607 * 754 * % * * * * * * * 926 * % * * * 777 * * * 940 * % * * * 930 * 1086 * 1106 * % * * * 830 * * * 980 * % * * * 857 * * * 1047 * % 1% * * * * * * * * * * * * * * * 816 * * * 1011 * % * 697 * 796 * % * 622 * 666 * 729 * 803 * % * 621 * 728 * 810 * 901 * % * 579 * 622 * 708 * 789 * % * * * 608 * 669 * 763 * % * 566 * 673 * 768 * 826 * * % * 584 * 691 * 728 * 843 * % * 511 * 605 * 659 * 792 * % * * * 653 * 686 * 802 * % * * * 874 * * * 1087 * * % * 565 * 633 * 657 * 765 * % * * * 840 * * * 1002 * % * * * 818 * 834 * 988 * % * 719 * 862 * % * * * 751 * 774 * 904 * % * 588 * 692 * 715 * 813 * % * * * 739 * 814 * 887 * % * * * 783 * * * 953 * % * * * 737 * * * 858 * % * * * 788 * * * 962 * % * * * 736 * * * 858 * % * * * * * * * * * * * * * * * * * * * * * * * * * * * 962 * * * 1180 * * % * * * 970 * * * 1220 * % * * * * * * * * * * * * * * * 715 * * * 860 * % * * * 959 * * * 1142 * % * * * 909 * * * 1065 * % * * * 747 * 728 * 896 * % * * * 872 * * * 1034 * % * * * 934 * * * 1024 * % * * * 1186 * * * 1521 * % * * * 775 * * * 915 * % * * * * * * * * * 0 * * * * 710 * 789 * % * * * 829 * * * 969 * % METRO LV * 919 * % * Number of observations insufficient for statistical purposes. Page 9

10 Substitute Market: Apartments Apartment Rental and Vacancy Rates by Zip Code Area Rent Q Rent Q Data Suppressed Vacancy Q Data Suppressed Page 10

11 Single-Family Housing-Market Details 6,000 Distribution of House Size in Square Feet 3 5,000 5,079 4,892 4,921 4,892 4,867 4,000 3,000 2,464 2,464 2,443 2,449 2,442 2,000 1,935 1,924 1,876 1,878 1,880 1,558 1,557 1,516 1,521 1,526 1, ,024 1,000 1,031 1, st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Note: The boxplots can be interpreted as Half the houses have a [square footage, price, price per square foot, or mortgage] between [value at bottom of box] and [value at top of box], with the median being [value in middle of box]. The other half of the houses is evenly split between values that are higher and values that are lower. To show this, lines extend out of the box upward and downward, with 98 percent of houses between [value at top of line] and [value at bottom of line]. The extremely high 1 percent and the extremely low 1 percent are not shown in order to avoid the detrimental effects of outliers, data entry errors, or other anomalies of the market. $1,600,000 Distribution of Sales Price 3 $1,400,000 $1,200,000 $1,190,250 $1,000,000 $985,350 $800,000 $825,420 $746,200 $725,000 $600,000 $400,000 $200,000 $0 $330,000 $315,000 $289,714 $260,000 $255,000 $245,000 $240,695 $220,000 $210,000 $197,000 $195,000 $175,150 $125,000 $172,000 $110,000 $150,000 $133,875 $89, $71,919 $55,000 1st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Page 11

12 Single-Family Housing-Market Details $400 Distribution of Price per Square Foot 3 $350 $300 $301 $275 $250 $237 $229 $219 $200 $150 $100 $50 $157 $147 $135 $134 $125 $120 $118 $115 $110 $108 $103 $80 $99 $93 $88 $72 $77 $64 $52 1st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Note: The boxplots can be interpreted as Half the houses have a [square footage, price, price per square foot, or mortgage] between [value at bottom of box] and [value at top of box], with the median being [value in middle of box]. The other half of the houses is evenly split between values that are higher and values that are lower. To show this, lines extend out of the box upward and downward, with 98 percent of houses between [value at top of line] and [value at bottom of line]. The extremely high 1 percent and the extremely low 1 percent are not shown in order to avoid the detrimental effects of outliers, data entry errors, or other anomalies of the market. $1,200,000 Distribution of Total Mortgage Value 3 $1,000,000 $800,000 $742,074 $600,000 $637,657 $502,680 $400,000 $417,000 $417,000 $200,000 $0 $270,000 $260,000 $240,620 $210,000 $210,000 $197,894 $188,522 $180,000 $152,605 $153,598 $143,010 $130,591 $127,578 $89, $0 $0 $0 $0 $34,967 $0 1st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Page 12

13 Housing-Market Comparisons $700,000 Median Home Prices in Selected Western Counties 4 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 1st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Clark County, NV $251,158 $239,990 $223,000 $203,358 $179,000 Maricopa County, AZ $235,000 $225,000 $204,900 $190,000 $165,000 Salt Lake County, UT $263,340 $243,000 $233,750 $231,267 $230,570 Los Angeles County, CA $463,000 $437,500 $388,000 $355,000 $318,000 Orange County, CA $578,000 $540,000 $500,000 $460,000 $437, % Quarterly Increase in Median Home Price 4-2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% 1st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter, 1st Quarter, 2009 Clark County, NV -8.2% -4.4% -7.1% -8.8% -12.0% Maricopa County, AZ -7.8% -4.3% -8.9% -7.3% -13.2% Salt Lake County, UT -6.1% -7.7% -3.8% -1.1% -0.3% Los Angeles County, CA -9.2% -5.5% -11.3% -8.5% -10.4% Orange County, CA -12.2% -6.6% -7.4% -8.0% -5.0% Page 13

14 Single-Family Housing-Market Details Number Available and Median List Price of Existing Single-Family Residential Units 5 24,500 $240,000 22,500 $230,000 $220,000 20,500 $210,000 18,500 $200,000 16,500 $190,000 $180,000 14,500 $170,000 12,500 July August September October November December January 2009 February 2009 March 2009 Available units (left axis) 23,423 22,710 22,784 22,929 22,770 22,144 21,935 22,142 22,812 Median list price (right axis) $234,990 $225,000 $219,000 $205,000 $199,500 $189,500 $179,900 $174,900 $167,500 $160,000 Percent Existing Single-Family Residential Units Sold by Time on Market 5 100% 90% 16.9% 15.2% 13.2% 15.0% 13.8% 14.0% 14.1% 17.0% 19.1% 80% 70% 60% 50% 7.7% 7.3% 7.4% 8.2% 7.2% 8.9% 7.5% 10.9% 11.5% 10.9% 11.8% 10.6% 11.7% 14.1% 16.4% 19.0% 19.0% 18.1% 17.8% 20.7% 20.5% 10.2% 14.1% 19.3% 10.3% 14.9% 17.9% 40% 30% 20% 48.6% 47.6% 48.6% 47.3% 49.8% 46.3% 42.4% 39.4% 37.8% 10% 0% July August September October November December January 2009 February 2009 March days days days days 120+ days Page 14

15 Single-Family Housing-Market Details Number of Single-Family Home Sales 1 st Quarter, Number of Sales Q Page 15

16 Clark County Foreclosures Page 16

17 National Housing Market Conditions 7 Latest quarter Previous quarter Same quarter previous year %change from previous quarter % change from last year HOUSING PRODUCTION Permits Starts Under construction Completions Manufactured (mobile) home shipments HOUSING MARKETING New homes sold New homes for sale Month's supply of new homes Existing homes sold Existing homes for sale Month's supply of existing homes Median new home price Average new home price Constant house quality new home price Median existing home price Average existing home price Composite housing affordability index Fixed-rate housing affordability index Adjustable-rate housing affordability index Apartments completed Percentage of apartments rented in 3 months Median asking rent Manufactured (mobile) home placements Average manufactured (mobile) home sales price (in dollars) Housing market index Current sales activity Future sales expectations Prospective buyer traffic HOUSING FINANCE Conventional fixed-rate 30 year Conventional ARMs Conventional fixed-rate 15 year FHA applications received FHA total endorsements FHA purchase endorsements VA certificates PMI certificates Total past due, all loans Total past due, conventional subprime loans Total past due, conventional subprime ARMs days past due, all loans days past due, conventional subprime loans days past due, conventional subprime ARMs Foreclosures started, all loans Foreclosures started, conventional subprime loans Foreclosures started, conventional subprime ARMs HOUSING INVESTMENT GDP (in billions of dollars) Residential Fixed Investment (in billions of dollars) RFI percent of GDP HOUSING INVENTORY All housing units Occupied units Owner occupied Rental vacancy rate Page 17

18 Housing-Market Overview Sources: 1 Local building permitting agencies. 2 CBER. 3 CBER calculations using First American Real Estate Solutions RealQuest, data based on new and existing recorded home sales. 4 Metroscan, First American Real Estate Solutions data based on recorded home sales. These statistics may differ from CBER calculations based on the same data (reported on page 7) because Metroscan uses raw estimates. 5 Greater Las Vegas Association of Realtors data based on MLS records, which do not necessarily account for newly constructed homes sold by local builders. 6 Bureau of Labor Statistics and Nevada Department of Training and Rehabilitation. 7 U.S. Housing Market Conditions 4th Quarter, Note: As of the 1st Quarter, 2005 report, statistics in the Single-Family Housing-Market Details section have been revised to reflect only single-family housing. Copyright 2009 Conditions Las Vegas Metropolitan Housing-Market Conditions is intended for subscribers. Subscribers may reproduce the publication s items if they cite the publication name and date, and note the copyright of the Center for Business and Economic Research. Send address changes to: The Center for Business and Economic Research, UNLV, Box , 4505 S. Maryland Parkway, Las Vegas, NV, Phone: (702) Fax: (702) cber@unlv.nevada.edu. Web page: Page 18