Analyst: Housing recovery three-four years away

With an overhang of 65,000 vacant homes in the Las Vegas Valley and stagnant new-home formation, the local housing market won’t recover for three to four more years, a UNLV economic analyst said Thursday.

That’s a conservative estimate, said Bob Potts, assistant director for the University of Nevada, Las Vegas’ Center for Business and Economic Research.

Potts revised the number of vacant homes downward from a recent U.S. Census report that showed some 125,000 vacant houses in the valley, or about one out of seven.

Clark County assessor’s office records show 814,868 residential units, with 749,269 of them occupied, leaving 8.1 percent vacant, or about one in 12.

Potts excluded U.S. Census tracts with abnormally high vacancy rates such as the Strip area, where thousands of condominiums and condominium-hotel units sit empty, a majority of them unsold and others that may be second or third homes for part-time Las Vegas residents. Nellis Air Force Base, Lake Las Vegas and Mount Charleston were also taken out, as were areas with concentrations of weekly and monthly rentals.

That brought the number down to 95,000. Another 30,000 houses are “structural” vacancies, or part of the normal cycle of people moving in and out of them, he said. That leaves an excess of 65,000 houses, or more than 40 months of supply at average absorption of 1,500 vacant homes a month.

“This is probably somewhere in the neighborhood. A lot of people say it could be seven years of overhang,” Potts said at a housing outlook at Springs Preserve.

Many vacant homes are foreclosures and will eventually make their way onto the market, said Dennis Smith, president of Home Builders Research and the outlook’s organizer.

“Some will sell and some will never sell,” he said. “It’s not all negative, but it is what it is. No models were ever created that we can look at and say, ‘It’s going to take this long.’ Nobody knows. You read one thing and then you read another and we just don’t know what the banks are going to do to get rid of this excess inventory.”

Everybody talks about the “shadow inventory” of foreclosures being held back by banks. What’s largely ignored, Frank Nason of Residential Resources said, are “shadow investors” who will be releasing homes on the market. They typically have a holding period of two to three years, he said.

Also, people who have wanted to sell their homes because of divorce, job loss or other reasons will feel more comfortable when they see prices stabilize and start to increase, Nason said.

“We’re going to bump along the bottom because the core component of real estate owners are holding on until the market recovers,” the Realtor said.

Las Vegas will continue to see an influx of homes that were purchased by investors, rehabilitated and put back on the market for sale, Smith said. Beazer Homes started buying up homes in Phoenix for rehabilitation as rentals and is looking at doing the same in Las Vegas, he said.

About 12,500 vacant homes on the Multiple Listing Service are under purchase contract and another 4,650 rental properties are vacant, Greater Las Vegas Association of Realtors President Paul Bell said. Add about 2,500 foreclosures and the total comes to about 20,000.

Realtors sold about 2,000 vacant homes in March, he said.

“I can see why builders are limited to 4,000 units for this year and next and possibly in 2013 they’ll start increasing permits by a few hundred,” Bell said. “However, things could change.”

Housing analyst Smith said traffic through model homes at new subdivisions increased significantly in the first quarter and net sales per subdivision has been running 0.4 to 0.5 a week.

Builders have mostly done a good job of balancing building permits with net sales, keeping standing inventory under 100, he said. D.R. Horton pulled 246 permits in the last six months and closed 299 sales; Lennar pulled 206 permits versus 129 net sales; and KB Home pulled 157 permits versus 234 net sales.

Builders opened 21 new subdivisions since January, but with 12 to 15 finished lots, not 50 to 100 as in the past, Smith said. Competition is intense with KB Home selling 162 homes in the first quarter at an average price of $155,000, or $82 a square foot.

Las Vegas ranked No. 9 in the nation among metropolitan areas with more than 1 million population in terms of housing permits per 1,000 population for the 12-month period through February, Reed Construction Data reported. The permit total for Las Vegas was 6,285, or 3.3 for every 1,000 people.

Smith wanted to know if that number included permits for pools and fences. His number for last year was substantially lower at 4,550. Permits have been “chugging” along at 250 to 350 a month, averaging 269 a month in the first quarter, and are expected to increase during the summer months, he said.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.