Builders banking on D.C. boost

By Buck Wargo

Saturday, Aug. 29, 2009 | midnight

The turnaround in sales in existing homes has spurred hope that Las Vegas’ housing market is recovering, but local homebuilders remain on the outside looking in and are calling on the federal government for help.

The group, represented by the Southern Nevada Home Builders Association and the National Association of Home Builders, is urging Congress to extend the tax credit for first-time homebuyers that expires Dec. 1, pass legislation that will help them recoup taxes, support their efforts to get financing and help streamline the appraisal process.

July’s 409 sales were 309 fewer than July 2008’s, according to SalesTraq, whose numbers show Las Vegas is on track to build fewer than 5,000 homes this year. In 2008, 9,965 homes were sold, far fewer the 38,075 in 2005 at the peak of the market.

One reason for that is the big discrepancy in the price of new homes and foreclosures, which helped push existing-home sales above 4,600 in June and July.

The gap between new and existing homes was $81,549 in July, said Dennis Smith, president of Home Builders Research. Before 2003, the gap was $20,000 to $30,000, he said.

That has many builders waiting for the market to turn around. Some are even turning to rehabilitating houses to generate income.

None of this is lost on homebuilders who want congressional action to boost the housing market and the economy, said Bill Hoover, president of Pageantry Cos. and the 2009 president of the Southern Nevada Home Builders Association.

To paint how bad the housing market is, Hoover pointed out that 561,000 homes are expected to be built nationwide this year compared with 603,000 built in 1940 when the country’s population was half of what it is now.

David Crowe, National Association of Home Builders’ chief economist, said Southern Nevada is being hurt by the large number of foreclosures and falling home prices.

“The recovery will be fragile for that reason,” Crowe said. “We dug ourselves such a big hole.”

Housing accounts for more than 15 percent of the nation’s gross domestic product and it historically has been a leader in reviving a lackluster economy and creating jobs, builders said. Crowe added that it affects other industries from drywall to lumber to plumbing to furniture to landscaping.

“Housing is an amazing stimulus to the entire economy,” Crowe said. “Housing is all over the country. It is not just in one location.”

But several problems are undermining the housing industry’s ability to stimulate the economy, Hoover said.

One is the expiration of the $8,000 tax credit for first-time homebuyers. Hoover would like to see it extended for another year and be made available to all buyers. That would result in 80,000 housing starts and create more than 350,000 jobs, he said.

“We do need this credit to keep the fragile recovery from falling backward,” Crowe said. “The first-time credit has been helpful in stopping the damage and given some light at the end of the tunnel. But that tunnel is so long, and it’s dark and deep and will take a while to get out of this.”

Mick Galatio, owner and president of Desert Wind Homes in Las Vegas, said the tax credit has provided some momentum for builders, but the fear is that it will end, making buyers reluctant to get a new home since they won’t be completed by the Dec. 1 deadline.

“There are a lot of people sitting on the fence, and we need to get the next wave of people wanting to buy new homes,” Galatio said.

It’s important to extend the credit to other buyers because it allows repeat buyers to trade up and keep the momentum going, Crowe said.

Senate Majority Leader Harry Reid told In Business Las Vegas this month that the tax credit will be extended, but it isn’t likely to include other buyers.

Smith said it’s vital the credit be extended for another year to help the local housing market. Congress needs to do more to help the industry, he said.

“They have been spending enough time and money on the Cash for Clunkers program, and we need to keep those rascals focused on housing,” Smith said.

The second big issue is that lowball appraisals are hurting sales of new homes, Hoover said. One large builder said it is losing as much as 30 percent of its sales because appraisals are as much as 25 percent under contracted values. That kills the deal because the buyer has to come up with a bigger down payment, he said.

Some builders have cited cases where two appraisers have had values vary by 28 percent, Hoover said. That makes builders reluctant to put options in homes, he said.

Galatio said it’s unfair because appraisers are comparing foreclosures to new homes and aren’t counting many improvements to the home that add to its value.

The builders aren’t calling for legislation to deal with the problem, but asking the federal government to influence the appraisal industry, Crowe said.

Builders are also complaining about tight credit and are calling on Congress to force lenders to loosen up. Regulators say they are encouraging banks to lend, but lenders complain regulators are restricting them, Crowe said.

Builders depend on banks to get loans to purchase property and build homes, but banks aren’t willing to lend money even if there is a willing buyer in some cases, Crowe said.

“That will be a serious problem in sustaining a recovery,” Crowe said.

The result would be a limited supply of homes that would drive up prices when there is a recovery, he said.