Real estate bust

As of May, Las Vegas new homes sales were down 43.8 percent from a year ago, according to Home Builders Research. Sales of existing houses were off 34.7 percent.

Median new home prices have declined 4.4 percent, to $308,874. Existing home prices have slipped 3.8 percent, to $278,000.

But with the inventory of homes for sale on the Multiple Listing Service reaching a record 23,642 in June, and about 40 percent of those sitting vacant, prices will have to fall considerably further before equilibrium is restored.

“It’s worse than I thought, considering I wasn’t too optimistic in the first place,” says Debi Averett of Phoenix-based Housingdoom.com. “Typically, June is rush hour for Las Vegas, as busy as you’d expect, and it’s dead.”

Ms. Averett attributes most of the slump to the subprime lending meltdown. Defaults have been rising, especially among mortgages given to buyers with shaky credit. Nevada now joins California, Florida and Ohio as the states with the highest foreclosure filings.

But that’s not quite right. Lending to those who wouldn’t have qualified for a mortgage under the “old rules” doesn’t actually cause the supply of pricey new homes to exceed demand. It merely allows all participants to delude themselves for a while — in essence, setting themselves up to walk a longer plank.

Real estate consultant John Burns warns home prices in Las Vegas must now drop by 33 percent, or about $100,000, before the market returns to normal conditions. The housing cost-to-income ratio in both Las Vegas and Reno is now 50 percent, meaning people are spending half their income on housing, he warns. The national average is around 30 percent.

Periodic corrections are inevitable. But both builders and real estate folks contributed to making this one more severe when they decided to start piling on incentives to lure over-optimistic buyers into signing up for more house than they could really afford.

None of this marks the end of growth for the fastest-growing city in the nation. But as with the dot-com and day-trader booms of decades past, it again turns out there are no magic beans. A return to economic fundamentals was bound to occur.