Congress approved legislation that allows homeowners to avoid foreclosure by refinancing mortgages into fixed-rate loans insured by the Federal Housing Administration.

That's welcome news for Nevada, which for more than a year has led the nation in the number of foreclosure filings per household. More than 11,100 homes have been repossessed in the first six months of this year, bringing home prices down to their lowest level since the housing boom started.

The Standard & Poor/Case-Shiller index released this week shows Las Vegas recorded its worst drop in prices in May with a decline of 28.4 percent compared with May 2007. That's slightly higher than the roughly 20 percent drop reported by local housing analysts.

The price drops have been sparked by foreclosure sales and short sales in which homeowners seek approval from banks to sell a home for less than is owed on the loan. About 60 percent of the 2,979 existing-home sales in June were banked-owned homes with a median closing price of $203,000 - $22,000 less than nonbank-owned homes.

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Not only will the legislation help stem the tide of foreclosures, but builders are applauding a tax credit provision that would provide as much as $7,500 to those purchasing their first home.

The bailout will reduce the number of foreclosures and short sales and further reduce the already declining inventory of existing homes, said Tom McCormick, president of Astoria Homes. With fewer homes for people to choose from and a $7,500 credit that will help them cover their down payment, it provides a welcome boost to the new-home market, he said.

"It is going to create some urgency in the market," McCormick said. "I think it does everything that Las Vegas needed. I am not saying it does that for the rest of the country. I feel like the market is getting better and that will only help make that happen."

Although existing-home sales increased in the second quarter compared with 2007's second quarter, the new-home market has remained stagnant. In June, 922 sales, for example, were 50 percent of June 2007's total.

McCormick said sales picked up in July as buyers said they were tired of losing out in the foreclosure bidding process. Second, the quality of the foreclosure properties available has lessened as well, he said.

Las Vegas housing analyst Steve Bottfeld, executive vice president of Marketing Solutions, also applauded the housing recovery bill as a measure that will improve the Las Vegas market. It could be as early as this fall when new-home sales exceed foreclosures and help that market recover in 2009, he said.

The existing-home market is already recovering because sales have increased for four consecutive months, he said.

Not everyone, however, shares that optimistic view.

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Bad news from financial markets, uncertainty about the strength of the economy and the effect of higher energy prices on consumer budgets cast doubt in the timing and strength of the housing market recovery, said Mike Inselmann, president of Metrostudy, a national housing tracking firm.

Cutbacks by builders and price cuts have reduced home inventories, but the tightening credit standards have removed many qualified buyers from the market, he said.

John Restrepo, principal of Restrepo Consulting Group, predicted it will be another 18 to 24 months before a sustained recovery occurs because of the weakness in the economy, slowdown in job growth and slowdown in population growth.

"I think the housing recession is going to get a little worse before it gets better," Restrepo said. "It will be in line with the economic recovery."

Even when the housing market recovers, Restrepo predicted there will be a shift in demand. About 60 percent of those living in all homes in the valley will be renters because affordability will remain a problem. About 40 percent are rentals today, he said.

Analyst Larry Murphy, president of SalesTraq, which charts the Las Vegas housing market, said it has yet to hit its bottom despite the increase in sales of existing homes and decrease in inventory from 20 months to nine months.

Until median prices of existing homes quit falling and new-home sales pick up, Murphy said the market can't be classified as hitting bottom.

"If all three of those conditions are met, then we know where the bottom is," Murphy said. "I would say the bottom is in front of us."

New-home construction remains weak as builders have requested 3,063 permits for the first six months of 2008. That is less than one third of the 12,836 pulled by builders in all of 2007, Murphy said.

He predicted the home construction market may not rebound until 2010 because builders overbuilt during the boom to provide homes to speculators rather than meet true demand.

As for prices, Murphy said, the $215,000 median price in June is in line with where prices would have been if there had been only a 5 percent increase a year. Instead, prices jumped 40 percent in 2004 to spark the housing boom, he said.

The second quarter of 2008 marked the first time since 2003 that prices and sales moved in opposite directions, Murphy said.

Brian Wargo covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at wargo@lasvegassun.com.