The recent decision by Meritage to close its sales center that opened May 18 reflects the stiff competition in the Las Vegas market that has seen builders such as KB Home continue to cut prices to lure buyers.

New-home prices are down 11 percent from their high in April 2006, and new-home closings are down 48 percent during the first six months of 2007, according to SalesTraq.

Market analysts suggest prices will continue to fall through the end of the year and the downturn could shut down some private builders or chase others out of the market. Building permits are down 43 percent for the year.

"There has been a big turn for the worse in the last 30 days," said John Burns, a California-based housing market analyst who lists Las Vegas as one of his favorite long-term markets. "The homebuilders in Las Vegas have catered to entry-level buyers, and rising interest rates and tightening credit has hurt the Las Vegas market pretty substantially more so than other markets.

"I have heard from several clients that Las Vegas is one of the worst markets and that was not the case before."

Burns, a consultant to homebuilders, said Las Vegas has a larger percentage of people with lower incomes and poor credit than many other markets. Lenders have tightened mortgage standards because of fallout from the subprime lending market in which many firms went out of business by making loans to those with poor credit histories. By some accounts buyers need a credit score of 700 or more to qualify.

"My clients tell me they are getting plenty of traffic," Burns said. "A lot of people want to buy a home but with poor credit and low incomes they don't qualify. I think what has happened in the last 30 days is that mortgage lending has gotten more stringent. They are finding buyers, but if you are making $30,000 a year, you are not going to get a $300,000 loan. You could have before."

Earlier this year in Las Vegas, Burns told builders and others in the real estate and housing industry that he thought the new-home market would rebound by the end of the year. He made that assessment, however, before the fallout in the subprime lending market.

Burn's depiction of a worsening new-home market isn't shared by the Southern Nevada Home Builders Association. Spokeswoman Monica Caruso said "we are pretty much where we have been" in coming down from an investor-driven boom and that the market will recover from the subprime lending woes.

"I have no concerns it is getting worse," Caruso said.

Metrostudy, a housing analyst firm, released a study last week that said the home-building industry "remains in the middle of a storm of conflicting issues" with the high level of inventory pressuring home prices. The demand for housing remains strong, but the number of those who can qualify has been reduced by tightening credit standards resulting from the ripple effects of the subprime mortgage meltdown.

"The Las Vegas housing market continues to contract in terms of production, as builders attempt to sell existing inventory," Metrostudy said in its report. "The contraction is in all price segments and product types within the market. Yet both new and resale housing inventories continue to make the overall housing market competitive."

Metrostudy is bullish about the long-term prospects of Las Vegas, but said a highly competitive housing market and pricing pressure will continue well into 2008. The firm said it holds a "cautionary view of the Las Vegas market for the foreseeable future."

Meritage owns 3.5 percent of Inspirada, where it plans to build 370 homes of the 13,500 proposed in the master plan. But when it didn't record any sales in Inspirada, it decided to retool its models, which will be reintroduced next spring. Meritage is still offering its estate homes on an appointment basis only.

"It is very disappointing, but you take your medicine and move on," said Robb Beville, Meritage's division president. "You can drop prices and try to force product down buyer's throats, but that is not our intention for that community. "We are listening to what the buyers are telling us to provide product they want and not product we think they want."

John Ritter, the head of Focus Property Group, the master developer of Inspirada, said in an e-mail that it's not uncommon for a builder to retool its homes, especially when it is working in a cutting-edge community. Inspirada is characterized by its alley-loaded homes and connectability to neighborhoods.

"Inspirada is already nearing 100 gross sales, and it is still very early in its development," Ritter said. "We anticipate that sales will increase as we have our grand opening this fall and as the neighborhoods and parks continue to take shape."

Meritage said its changes will appeal to a broader range of buyers but also provide a better price.

For example, its town homes, which started at 1,400 square feet and priced at more than $300,000 will now start at 1,300 square feet with a starting price of less than $200,000, Beville said.

Meritage's village homes of 1,900 to 2,600 square feet that started in the high $300,000s will go to 2,400 to 3,000 square feet and start in the low $300,000s. The estate homes of 2,700 to 2,900 square feet that were priced in the low $500,000s will be 2,900 to 3,300 square feet and start in the mid $400,000s.

Meritage will also introduce a garden home of 1,600 to 2,000 square feet that will be priced in the mid $200,000s.

Beville said buyers want more open space than the Meritage models, which divided the kitchen from the family room with a wall. They also wanted a master bedroom downstairs and want the option of sizing the rooms upstairs and adding an extra bedroom or larger garage.

"Instead of building a four-bedroom house, we can build a three-bedroom and a loft to break up the row of bedrooms," Beville said. "Some people like a family rooms upstairs."

The elimination of walls in the design and other engineering changes and improvements will hold down costs and allow Meritage to substantially cut its prices, Beville said.

Meritage based its design on market studies done two years ago but the market has changed dramatically since then, Beville said. Builders aren't order takers any longer because buyers have more options, he added.

Ken Perlman, an analyst with Sullivan Group Real Estate Advisors in San Diego, said what Meritage did at Inspirada worked when the market was hot in 2004 and 2005 and people "would buy any product put out there." Now builders need to be sensitive to both their product lines and pricing, Perlman said.

People want interconnectivity within their homes. That means getting rid of walls and increasing the flow within the home, he said.

In Las Vegas, Meritage has been hurt by the subprime fallout, Burns said. The builder tends to build homes that cater to move-up buyers and when they are unable to sell their homes to first-time buyers who can't get financing, that has a chain-reaction effect on the market, Burns said.

KB Home, which owns nearly half of Inspirada, has been especially affected by the subprime woes because it caters to first-time buyers, Burns said. It's in a better position than most builders because it recently closed the sale of its French operation that generated $800 million in cash. That has given KB a competitive advantage in the American market because it can afford to drop its prices. That will hurt private builders who don't have as much cash to deal with the price cutting.

Builders can't close their doors when sales are going poorly as they need to sell homes even if they are not profitable, which may be the case with KB and its latest price cuts in the valley, Burns said.

"You have interest on loans to pay back and people you have to pay and you have expenses," Burns said. "They will bring in revenue. Whether they are making money or not, they have already sunk in a lot of dollars and have to recoup as much as they can to pay down their debt so they can be in great shape to buy land."

Perlman said he thought 2008 would be the start of the recovery of the Las Vegas housing market but said it's more realistic to expect a recovery in 2009 instead. Builders are competing with the record level of inventory homes, many which have never been lived in, Perlman said.

"Prices are getting back to the level where they need to be," Perlman said. "Nobody likes to see prices depreciate, but sometimes that's what it takes to stimulate market activity."

The fear is that if prices drop too much, investors will come back into the market and buy up homes, Perlman said.