It's not a bubble: Las Vegas real estate rebound is solid

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The numbers tantalize leery minds: Housing prices, population growth and job creation in Southern Nevada all rebounded from the Great Recession over the past few years.

The same cannot be said for the battered psyche of a state staggered by the worst economic knockout punch in modern American history. A New York Times analysis showed the recession's impact on Nevada caused the second-largest blow to a local or national economy of any crisis worldwide in the past four decades.

Southern Nevada housing cratered to a $118,000 median resale price in January 2012, while Nevada led the nation in delinquent mortgages and foreclosures for 62 consecutive months, from 2007 to 2012. As the economy righted, so did the local housing market. Both the median resale and new-home prices soared in the past two years, reaching their highest peaks since 2007 — just before forces beyond the control of most wrecked the American dream of owning a home.

"So many people are relatively new to the community, just based on pace of population growth, that they experienced the greatest economic prosperity in at least a generation, followed by the greatest economic decline," said Jeremy Aguero, principal for research and consulting firm Applied Analysis. "It's difficult for residents, for businesses, for employees to conceptualize."

Fear of skydiving without a parachute again grips those struggling to believe in this housing surge, but local experts roundly agree that stronger economic fundamentals and refined lending practices will prevent another bubble.

"I don't see any signal of that," said Stephen Miller, UNLV economics professor and director of the university's Center for Business and Economic Research. "The signals I'm seeing both locally and nationally are that the economy should continue its growth. If anything, the national economy is going to grow a little bit faster, at least through the end of next year."

An unusual sustained shortage of new and resale houses on the market accounts for part of the sharp increase in prices, and few expect a significant upturn in supply through the slower winter buying season. Caution remains prudent and emotionally necessary.

Some lenders have gently eased requirements in the past three years, allowing down payments as small as 3% and permitting debt-to-income ratios up to 50% for qualified borrowers. Yet the subprime heyday of minimum-wage workers being lured or coerced into mortgages on $500,000 homes and neighbors owning four rental properties ended after the recession.

"Lenders have stricter guidelines; underwriters are really strict; appraisers are really careful in how they appraise," said Scott Beaudry, owner/broker of Better Homes and Gardens Real Estate, which has offices in the District of Columbia and 36 states, including Nevada. "We're still seeing properties underappraised. That's just the way it is. The appraisal value has not yet met demand."

That strong demand follows the region's population and job growth, part of the compelling evidence Aguero lays out for trusting that Southern Nevada's rebuilt foundation can withstand the next economic downturn.

He first points to steadily low unemployment, which has not exceeded 5% in 2017. Nevada led the country with 13.7% of its workers unemployed in November 2010. Statewide, 185,800 people in the workforce lost jobs from May 2007 to September 2010.

The state still relies heavily on tourism and construction but achieved recovery without adding back the bulk of the 110,000 jobs lost in those industries.

The Legislature created the Governor's Office of Economic Development in 2011 with a goal of diversification to lessen Nevada's vulnerability to fluctuations in the national economy. During the state's subsequent upward bounce, the trade/transportation/utilities sector added 36,600 jobs, professional and business services increased by 34,100, and health care grew by 25,000.

"The employment base is much more diverse than it was before," Aguero said.

When homebuilders retreated and Strip projects were mothballed during the downturn, Nevada lost 80,000 jobs in construction alone — the most of any industry in that period. By 2016, the state recovered to pre-recession employment levels, with only 30,000 of those jobs returning, though more could come online with the Raiders stadium set to break ground this month and Resorts World resuming construction. Aguero noted $15 billion worth of upcoming projects in the planning or execution stages.

Homebuilders still remain cautious, with about 9,000 new housing permits pulled this year in Southern Nevada compared with an annual peak closer to 40,000 in the boom years from 2004 to 2006. That more reasonable pace heartens economists.

"We really don't want to go back to where we were in 2006, because we still have some empty buildings around that are our legacy for that period of time," Miller said.

That legacy includes an unprecedented underwater housing market, but the steady decline in distressed sales involving foreclosures and short sales provides another encouraging sign for today's environment. Nearly 73% of sales in Las Vegas involved distressed properties in 2011; by this year, that figure fell to just more than 8%.

With median resale prices bottoming out in 2012, investors snapped up undervalued homes before those buyers could get back into the market. Prices fell so low that the recent surge contained not only a reflection of today's healthier market, but also a correction to that unsustainable depth.

"Even as a function of incomes, that (2012 price) is ridiculously low," Aguero said.

The flipside: As the flood of cheap bank-owned homes dried up, housing supply shrunk just as people burned by short sales and foreclosures restored their credit and savings.

Some Realtors said they felt like the clock turned back a decade as the local housing market turned competitive over the past year before slowing slightly last month.

"I see multiple offers starting to slow down a little bit, which gives the regular homeowner a little bit better chance," Beaudry said. "I just continue to see a very tight housing market. I don't see inventory going up any time over the winter months. I hope to see it go up next year."

David J. Tina, owner/broker of Urban Nest Realty and president of the Greater Las Vegas Association of Realtors, anticipates this seller's market persisting. Investors might see how high prices go, keeping resales off the rolls. New homebuilders are likely to proceed slowly as they finish building out lots bought on the cheap during the recession while land prices go up.

"This is a correction that we're dealing with now. Regardless of what happens in the economy in the next five years, we're still not going to have enough houses," Tina said.

At the end of September, fewer than 5,000 single-family homes without offers were available for purchase in the valley — a 33% drop from the same time last year. Such an ongoing shortage likely will keep local housing prices inflated until more supply appears, as demand shows little sign of easing with the positive economic indicators in job and population growth.

"That appreciation honestly may slow down slightly during winter months, which is normal, which I'm OK with," Beaudry said. "I would like to see it go down a little bit because if it goes up too high, too fast, it creates a bubble."

Tina is confident enough to buy a new home in Pulte's Reverence development in Summerlin. He is readying to lower the selling price on his current house, which has sat on the market for two months — a rarity for a market in which 83% of homes sold inside of 60 days in September.

"Would I sleep with one eye open and be cautious and watch for the indicators? Absolutely," Tina said. "It would be foolish not to. On the other hand, we're not even close to the $315,000 median price of a few years ago. I believe we still have five, seven, 10 years (of growth)."

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