In Vegas real estate, the house always wins

IT’S NEARLY IMPOSSIBLE to have a real estate bust in a city of 1.8 million people and in which 60,000 jobs will be created this year.

Yes, homebuilders are glum because they’re sitting on a big pile of inventory in Las Vegas. But many buyers continue to qualify for mortgages despite ever-rising housing prices. Figures compiled by Dennis Smith of Home Builders Research Inc. show the median price of a new, single-family home in September was $321,160, up 7.9% from September 2005. Put another way, if you’ve just sold your house in California, you can still pay cash for a new, bigger home in Las Vegas.

However, the majority of the 7,000 people who move here every month cannot afford to buy a new house.

A few local builders have pressured their subcontractors to cut costs so they can build a single-family home at less than $150 a square-foot. They also have bought up small parcels of land, known as in-fills, on which more homes can be built per acre than was permitted by city and county codes two years ago. These high-density neighborhoods cater to Vegas’ blue-collar workers — dishwashers, waiters, salad chefs, busboys, manicurists, barbers, salesclerks — who often start at minimum wage.

Another affordable market is condo conversions — apartment buildings that were converted to condos when the rental market was slow and the housing market was booming in 2004 and 2005. Unfortunately, these condo units are drying up, leaving entry-level buyers to the resale market. The median price of a resale home in September was $285,000, which means there are homes for sale in the $100,000 range.

Many people who qualified to buy a new home in Las Vegas did so under what the industry calls “creative financing.” It’s anyone’s guess how many holders of adjustable-rate mortgages face a balloon payment beyond their financial reach or a budget-straining fixed-rate mortgage payment schedule. Many of them will probably be forced to sell their homes at a loss or simply walk away from them, which will add to existing inventory and dampen price appreciation.

Currently, mortgage companies in Las Vegas are turning down about one-third of prospective new-home buyers. One sales executive for a homebuilder told me these rejections are hurting his company’s numbers and forcing the sales staff to actually sell houses rather than simply take orders for them.

Many homebuilders here have voided deals for large parcels of land because they’re unwilling to pay for the land and let it sit fallow while the industry is in a downtick. Don’t cry for them, however. Most homebuilders have a commercial construction arm, and such construction is booming in Las Vegas, especially on the Strip, where $21 billion in new projects are underway. As the new hotel casinos come on line, workers leave their jobs in the older resorts for better-paying ones in the newer facilities, which means more will be able to afford homes.

Another segment of the homebuilding industry that has shaken out is the high-rise condominium market. During 2004 and 2005, it seemed as though a new high-rise deal was announced every week, with some superstar attached to it. Several were never built, including one — Ivana (Trump, that is) — that was announced with great fanfare.

By contrast, all the units in Trump Towers, near the Fashion Show Mall just off the Strip, have been sold, and sales have begun in the second tower. Sales at Signature at the MGM Grand have been wildly successful, and the partners, MGM Grand and Turnberry Associates, are contemplating more joint ventures. Off the Strip, One Queensridge Place has lured locals living in the suburbs who want a large, luxurious living space and a more carefree lifestyle.

Tim Sullivan, principal of the Sullivan Group, which analyzes real estate in the Western states, told me that even such high-rise projects as Soho and juhl, near downtown, are doing well because they were properly planned and they targeted the right demographic — young, hip professionals who want to live near the Art District.

“High-rise homes along the Strip also have a sustained level of demand from multinational buyers who are purchasing secondary and tertiary homes,” Sullivan told me. Although he was talking particularly about Trump Towers, the sales professionals at Signature at the MGM Grand have been surprised at the number of locals who have bought units in their building because of its proximity to the Strip.

Steve Bottfeld of Marketing Solutions believes traditional homes as we know them in Las Vegas — new and resale — will be replaced in 10 years by a vertical lifestyle that he calls entertainment villages.

“Once, where the home-entertainment center sold the home, today buyers want their homes to be in the center of entertainment,” Bottfeld said in explaining the popularity of high-rise condos near the Strip.

During the 1980-81 recession, there were boarded-up homes in every Vegas neighborhood. Then Steve Wynn opened the Mirage — the first hotel casino built along the Strip in more than 15 years — and the city began to reinvent itself, a process that continues.

I don’t anticipate a return to boarded-up homes because of the current dip in the Vegas real estate market. As homes go into receivership, investors will snatch them up for rentals. I also expect some of the high-rises that were put on hold to be built.

Las Vegas has the fifth-largest school district in the country and the most active new-business industry in the nation. For the thousands of people who arrive here every month, it’s a place to start or to start over. And they’ll all need a roof over their heads.