Vegas housing: not too hot anymore

In one of America's overheated markets, home sales and prices slide. But builders keep building.

James Dean's house has a finished basement, two full kitchens, and a slab of travertine, polished and exotic-looking, in the foyer. But what's most enticing about the five-bedroom house is his willingness to deal on the price. "It's $950,000, but a serious buyer can have it for $900,000," says Mr. Dean, who built the custom house himself.

Yes, some of the most torrid real estate markets in the country have become much friendlier for buyers. In Las Vegas, Miami, Phoenix, San Diego, and Washington, the housing supply is increasing - and is a key factor in easing these markets to an appreciation rate that's a least a little closer to that seen in the rest of the country.

In cities like Las Vegas, sellers like Dean are now more than willing to negotiate. Real estate developers, when they aren't dropping prices, are offering to help with closing costs or give buyers free upgrades such as large-screen televisions. Despite these plums, sales are slumping.

"Those [cities] that have gone up the fastest are the hardest hit," says Jack McCabe, who runs a real estate research and consulting business in Deerfield Beach, Fla. "And the two hottest markets have been Miami and Las Vegas."

In the case of this neon and desert city region of about 1.7 million residents, a record 20,515 unsold homes and condos are on the market, up from 10,555 last May and 4,553 in 2004.

Despite the glut, however, developers are continuing to build. Almost 500 subdivisions in Las Vegas have active sales offices, according to Larry Murphy, president of Salestraq, a Las Vegas-based housing research company.

One of the most active developers is KB Home. "We still believe Las Vegas is a strong market," says Dawn Christensen, a spokeswoman for the company in Nevada.

For most developers, Las Vegas has been very profitable. But after three years of steadily increasing home prices, developers are shrinking their profit margins by dropping prices, Mr. Murphy says. "Every builder hates to drop their price," he adds.

But they are. At a D.R. Horton development in a suburb of Las Vegas, a salesperson shows off a model home. It's listed at $269,900. But for a "serious" buyer, it can be purchased for $249,900 or less, says the sales representative, who did not want to be quoted by name. The company, based in Fort Worth, Texas, did not return phone calls.

In April, on the basis of the brochure prices, Murphy found that KB Home, one of the largest builders in the city, lowered prices between $8,000 and $34,000 at 16 of its 38 subdivisions with sales offices. Ms. Christensen says the price adjustments the company has made are "pretty close" to those numbers: "We do a weekly analysis of all our competitors, and we're very competitive."

The slower real estate market has hit almost all price levels in Las Vegas. Metropolitan Woodlands is a cozy haven of red terra cotta-roofed middle-class houses. In February, retiree Hank Franz put his home on the market for $275,000. Nearby, another seven homes have also been for sale. Last week, Mr. Franz lowered his price by $25,000. "The market is extremely sluggish," he says in an e-mail.

On the luxury side of the market, sales aren't much better. Dean, the custom home builder, has five homes for sale, at close to $1 million apiece. Many feature exotic polished stone, multiple kitchens, and gigantic closets. Once he sells these houses, he says, his company, Triangle Construction, has the property to build another 18 homes.

Are there that many people who can afford million-dollar properties? "People with two incomes, or someone who sells their house in California for $1.5 million, can pay cash for the house and have $500,000 to live on," answers the sun-tanned builder.

Indeed, even though it's sluggish, many builders are convinced the dynamics of Las Vegas will help the market stabilize. Every month, some 4,000 to 6,000 people move to the city to work in the casinos and restaurants, as well as in the construction trades.

"Previously, Las Vegas was never thought of as a town for headquarters, but that's changing," says Dave Dworkin, a research analyst based in Las Vegas for Grubb & Ellis, a commercial real estate brokerage concern. "When people look at Las Vegas, they can find affordable housing only 10 or 20 minutes from where they work."

The city's fast growth is what helped spur the construction boom in the first place. As the population grew, real estate prices skyrocketed 45 percent between 2004 and 2005, says Murphy of Salestraq. Two years ago, new housing developments sold out six months in advance. Busloads of investors from other parts of the country toured construction sites and snapped up town houses and unfinished homes.

Now, signs are up around town for those who need to sell their homes in a hurry to avoid foreclosure.

Says Murphy: "People speculating in the market, those who came to the party late, are finding that if they bought in 2005, by the time you get through with closing costs and brokerage fees, they are probably losing money."

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