Housing downturn projected

Thursday, July 22, 1999 | 10:54 a.m.

The Las Vegas-area housing industry can expect a downturn in the next six months.

But because the industry has been so strong in the first half of 1999, experts project builders will end the year with near-record sales anyway.

Dennis Smith, founder and president of Home Builders Research, said he expects 20,000 homes will be sold in the Las Vegas area in 1999, just off the record 20,300 sold last year. He said he expects the number to fall to 19,000 in 2000.

Smith was part of a panel giving a midyear economic forecast sponsored Wednesday by Marketing Solutions, a consumer research firm.

Another panelist, Michael Brown, vice president of the national builder division of Countrywide Home Loans, explained the reason for the anticipated downturn: higher interest rates.

Brown said he expects at least two more interest rate increases before the end of the year. The rate on 30-year mortgages had been cruising at or below 7.5 percent since October 1997. This week, Bank of America quoted a 30-year fixed mortgage rate of 7.75 percent.

The Federal Reserve raised interest rates last month as a hedge against inflation.

When interest rates went up, Las Vegas builders were immediately affected.

Smith said cancellation rates soared on home-buying contracts. The hardest hit were the North Las Vegas and northeast markets, which have a high percentage of entry-level homes. Panelists theorized that many first-time home buyers who were attempting to get in when the rates went up either could not qualify or panicked and bailed out of their contracts.

Cancellation rates in June were 21 percent in the southeast market, 23 percent in the northwest, 27 percent in the southwest, 35 percent in the northeast and 49 percent in North Las Vegas. In the previous month the North Las Vegas cancellation rate was 28 percent, Smith said.

Stephen Bottfeld, executive vice president of Marketing Solutions, which produces the Southern Nevada New Home Buyers Survey, said the interest-rate spike also resulted in some unusual jumps in traffic at some subdivisions as buyers attempted to beat the rate increase.

Bottfeld projects a national recession during the next presidential administration based on declining consumer confidence shown in his survey of 500 home-buying prospects at 25 new home communities in June.

But Bottfeld said Las Vegas should be somewhat insulated from the effects of a recession because employment will continue to grow with the opening of new resorts. He said 30,000 new jobs are being created in a one-year span with the openings of the Bellagio, Mandalay Bay, Venetian, the Resort at Summerlin and Paris hotel-casinos.

Other information from the panel:

* Del Webb Corp. of Phoenix, one of the largest builders in Las Vegas, is discontinuing its Coventry line of single-family homes in Nevada. A Del Webb spokesman confirmed the company is no longer marketing its four Coventry neighborhoods, but will complete all backlogs and continue customer service and honor warranty commitments.

Coventry is a line aimed at the low- to middle-income market, a contrast to Del Webb's retirement and country club niches. Coventry homes are selling in two neighborhoods in Anthem and one each in the Silverado Ranch area and North Las Vegas.

The reason for the switch: While the Coventry homes have been profitable for Del Webb, the company's Sun City retirement communities and Anthem country club homes have been even more lucrative. The company opted to devote its resources to those divisions instead, the spokesman said.

* Marketing Solutions' survey indicates Las Vegas has finally grown to the point where it has become its own market. In other words, a higher percentage of buyers are moving up to new homes and the industry isn't just relying on out-of-state residents migrating to the city.

* The survey also identifies the new home buyer demographic as 69.6 percent Caucasian -- the lowest in the history of the survey. That means minorities represent a higher percentage of potential buyers. The survey said 12.4 percent of potential home buyers are black, 9 percent are Hispanic and 6.4 percent are Asian. The percentage of Hispanic potential home buyers has doubled in 1997 and 1998.

* The survey said 59 percent of the home-buying prospects use the Internet and that 37.6 percent of them used it in their home search. Bottfeld said 4.8 percent of the prospects used the Internet as their primary source of information on the home search, up from 1.6 percent the previous quarter. That, Bottfeld said, should convince home builders to develop an Internet presence.

* Smith said there are presently about 365 neighborhoods offering new homes. Net sales were up 3.7 percent in the second quarter, even though traffic was down for the period. Smith said resales were up about 12 percent and the median price of a home climbed to $145,000 in May, up from $139,750 the previous month. Smith explained that price jump isn't necessarily indicative of a trend, since prices tend to fluctuate.

* Bottfeld said higher interest rates could affect home sales in the next six months, but fears of the so-called Y2K computer bug could slow activity to a crawl in December as potential buyers pull back and wait to see what happens when the new millennium unfolds.