Cooling Las Vegas Housing Market Creates Unique Offers

Foreclosures have tripled in Nevada in the past year. More than 2,000 homes went into foreclosure in August -- setting a new record.

Experts say Nevada is outpacing the national rate as homeowners succumb to rising adjustable interest rates. Some homeowners who didn't put up down payments now owe more than their homes are worth.

The cooling housing market has made it tougher for sellers and as a result those sellers are offering some unique incentives to try to make a sale.

Homeowner Denny Segler is what most would call a motivated seller. His 1,298 square foot house has been on the market for two months, leading this real estate agent to up the ante in order to get it sold.

"I'm offering a new car in the driveway if somebody wants to buy this house. Rather than spend the money and give it to another agent, I'd just as soon give it to the people buying the house," Segler said.

He is proud of the two-story house purchased for one of his children, but never lived in. "We still have the starter packet that came with the house when it was purchased brand new."

Segler realizes that the current glut of homes for sale in the Las Vegas valley, means buyers can be more demanding than in years past.

"As soon as I get someone that's interested in this house, I'm willing to negotiate with them," he said.

Real estate agent Myrna Kingham calls it creative home buying. She says more sellers are offering incentives.
Carol Wilkinson, Reporter
Oct 15, 2006 10:48 PM EDT

While she says most sellers are honest, she cautions the buyer to beware. "Sometimes when something looks really good, it's too good to be true. I would say, if you see an ad, make the phone call, ask a lot of questions, and find out for sure what type of incentive you're getting," said Kingham, Tower Realty Group.

As further proof of a housing market slowdown, builders are also seeking price cuts from contractors to make new homes more affordable for potential buyers.

Real Estate and Development

Home sales, sweet home sales: Builders plot strategies
By Brian Wargo / Staff Writer

What does the future hold for new housing development in the Las Vegas Valley?

A San Diego real estate advisory group said it believes it has some answers.

While major homebuilders relinquish options and pull out of escrow on properties because of a soft new housing market, builders are already plotting strategies for where the market is heading next, according to Sullivan Real Estate Advisors, which recently gave a presentation at the Four Seasons to members of the housing and real estate industry.

For the local market that will mean a push for more affordable housing, said Ken Perlman, the Sullivan Group's vice president.

"Builders are looking for any strategy to keep their prices to what the public wants to generate home sales," Perlman said.

Because of the high cost of land, builders have shied away from making major purchases knowing that prices are already a factor in keeping people out of the new housing market, Perlman said. Builders are looking for land that helps keep their costs in check, he said.

That means looking for land closer to developed areas of the valley where infrastructure is in place and opting to build townhomes where there can be anywhere from 12 to 25 units per acre, Perlman said.

It's difficult to build a three-story condo with a parking garage for less than $350 a square foot, he said. Townhomes can be built for $200 to $225 a square foot. That enables a buyer to get 1,500 square feet at a lower cost than a 1,000 square-foot condo, he said.

"Las Vegas skipped that product and went from single-family homes to the urban boom," Perlman said.

Real estate research consultant John Restrepo places his bets on the next alternative to single-family homes being mid-rise projects that have five to nine or 10 stories and built over parking facilities.

They are the future of high-density residential development in the valley because they are more compatible with the Las Vegas lifestyle, household incomes and how the market is evolving, he said.

Las Vegas lacks the ocean and water views to make it a prominent high-rise condo market such as cities like Miami, Seattle, Chicago and Vancouver, he said.

"Mid-rise projects are the next evolutionary step in our move from a low-rise dominated residential market to a vertical market," Restrepo said. "It's a more organic step than to leap frog to high-rise from low-rise land-use patterns. If we look at the evolution of the world's major cities, there has always been a progression from a low-rise dominated to mid-rise then to high-rise land-use patterns."

Restrepo noted that the Southern Nevada luxury condo market has 4,288 existing and prospective units in 14 projects that have gone vertical, which amounts to 6.5 percent of the 66,075 units in 119 projects that are under construction and planned.

Restrepo said there should be sufficient demand to absorb the 4,288 units in the projects that have gone vertical. That's in addition to the 12,300 to 15,500 units or 20 percent to 25 percent of the 61,787 units among the 105 projects that have broken ground or are planned through 2011.

Some 38 percent of the projects that have gone vertical are located in the resort corridor, and 85 percent have been purchased by second-home buyers, investors and speculators, he said.

Because of the incredibly high cost of entry into the market, most mid- and high-rise luxury condo projects will be part of mixed-use developments initiated by Las Vegas' resort community, he said.

While there has been a slowdown in traffic for new homes, high-density projects continue to sell at a more measured and sustainable pace because of their scale and amenities, he said.

Housing market researcher Dennis Smith of Home Builders Research continues to say he expects a home price decline in the valley, possibly 10 percent. Smith said there will be some "fairly significant price cuts" in the existing home market in order to move some inventory; he said new home prices will fall as well.

"Some had enough equity gain due to the huge price increases to keep the property unoccupied for the 12-month period. Now as the market continues to cool and find the bottom, many of the owners of homes listed for sale have been unwilling to cut their prices, causing some vacant homes to sit on the market for months," Smith said.

As for new homes, Smith thinks many Las Vegas homebuilders will take advantage of lower material and labor costs to reduce new home prices in new communities.

Real estate tracker Steve Bottfeld takes aim at those who believe housing prices in the Las Vegas Valley are severely overpriced, calling such claims of national experts "poppycock and balderdash." He argued that the median price of an existing home at $329,897 is nearly 13 percent ahead of August 2005 at a time of all-time inventory and cooling demand.

"Under ordinary circumstances, rising prices in the face of those two factors would not make economic sense, but this is Las Vegas and there is always more than meets the eye," Bottfeld said.

Bottfeld argues that 12 percent to 15 percent of the market that would have purchased new and resale homes are now purchasing vertical housing instead — that's 15,000 sales from traditional markets.

Prices will remain stable because builders are rapidly reducing the number of new homes. But he added that he's not saying prices won't dip or that inventory will be reduced any time soon.

"There are sound reasons why prices will be stable, if not rising over the next few months," Bottfeld said. "The argument that current prices are the result of psychological euphoria similar to the one preceding the stock market crash of 2000 is balderdash as well."

National analysts focus too much on inventory and not enough on demand, he said.