Wednesday, March 16, 2005

Boom and bust in Las Vegas

KELLY ZITO (San Francisco Chronicle)

Las Vegas' lucky number last year was 52 , as in 52 percent. That's how much real estate prices jumped in the nation's fastest-growing city in one year, as a housing shortage set off a wave of speculation by investors.

But as any gambler knows, Lady Luck eventually turns a cold shoulder. Las Vegans wanted to cash in, too, and so many put their houses up for sale that they flooded the market. By the end of the year, some homebuilders were slashing prices.

For investors from states like California where prices seem to move in only one direction _ up _ it was a stark example of a deflating bubble.

"When you lose money in real estate, you really feel it," said Igor Doncov, a software engineer who lives near San Francisco and bought two new houses in Las Vegas early in 2004 but sold them at a loss after his builder, Pulte Homes, cut prices on its new models by $180,000.

"I thought I couldn't lose," he said in a telephone interview. "But it turned into a total disaster."

Housing analysts don't think Las Vegas' slowdown is a sign that prices will soften soon in other fast-appreciating regions. But they say it is a warning of what could happen in the Bay Area as interest rates go up _ particularly for people trying to "flip" houses for a quick profit.

"Everyone is watching Las Vegas with its price appreciation and flipping, " said John Karevoll, an analyst at DataQuick, a real estate research firm. "If something weird happens, it'll happen there first."

For years, Las Vegas real estate was cheap. Myrna Kingham, president of the Greater Las Vegas Association of Realtors, remembers not-so-distant days of driving around in a pickup wearing high heels and showing clients dusty 5-acre parcels listed for $20,000.

But as the population of Las Vegas and surrounding Clark County grew 81 percent in the 1990s, adding 621,160 people, housing prices caught up, matching the national median of $145,000 in 2001.

Then last year, the market caught fire, boosted by healthy job gains, a growing stream of retirees, Californians drawn to lower home prices and an influx of investor money.

Builders, faced with a shortage of workers, had trouble keeping up. Add rock-bottom interest rates, and the scene resembled the go-go days of the San Francisco Bay area's tech boom. Hundreds of would-be buyers descended on open houses, and home prices seemed to increase as quickly as the progressive jackpots in the slot machines on the Strip.

In the spring of 2004, the median price for a single-family house was $269,000, 52 percent higher than the year before _ a national record for appreciation, according to the National Association of Realtors.

"The market was hotter than blazes," Kingham said. "People were looking for affordability _ they wanted a nice home in an area with nice weather that they could buy for $200,000."

Californians, who pay some of the highest home prices in the nation, took notice. Golden State residents have snapped up nearly 27,000 Las Vegas properties since 2000, according to DataQuick. In 2004 alone, California residents bought 11,600 homes _ 12 percent of the transactions in Clark County for the year.

But in less time than it takes to build a single house, the market changed.

Egged on by the stratospheric prices their neighbors were asking _ and getting _ homeowners in Las Vegas flooded the market with "for sale" signs. The number of existing houses posted for sale on the Multiple Listing Service ballooned from about 1,400 in February to more than 16,000 by October.

Among them were never-lived-in homes offered by investors who had bought them only months before from national homebuilders _ who were selling their own brand-new houses literally across the street.

In early fall one of those builders, Pulte Homes, took the extraordinary step of slashing prices by $25,000 to $180,000 on more than 20 of its Las Vegas-area developments.

By December, it was clear the peak of the frenzy had passed.

Residential building permits that month were 34 percent below the previous December's, as measured by the Center for Business and Economic Research. And 15 percent fewer people were moving to Las Vegas _ some undoubtedly spooked by the region's steep jump in home prices.

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