DR Horton takes on formidable foe: foreclosed homes

By Buck Wargo

Friday, July 31, 2009 | 3 a.m.

Although new home sales remain weak in Las Vegas, DR Horton has eclipsed the traditional front-runners in the market when it comes to sales through the first six months of 2009.

DR Horton recorded 425 sales through the first six months, easily surpassing the 282 of Pulte-Del Webb and the 249 of KB Home, according to SalesTraq.

Housing analyst Dennis Smith, president of Home Builders Research, credits the builder for not being afraid to compete with foreclosures and for its terrific marketing.

In a sale last weekend that DR Horton called its “Repo Myth Sale,” the Texas-based builder tried to show how foreclosed homes cost more than they appear because if they are in poor condition, they require refurbishing that makes them more expensive than a new home. New homes also come with a warranty and improvements that make them worthwhile, the builder touted.

In a market where many first-time buyers have been frustrated by losing to investors who are plunking down cash and outbidding them for foreclosed homes, appealing to those buyers is important.

“It is a great marketing move to bring this issue to consumers’ attention,” says Smith, who adds that other builders have tried similar strategies.

DR Horton has benefited from its low prices to lure buyers to its subdivisions, Smith says. Overall, however, five other builders in the top 10 had lower average prices than the $224,027 of DR Horton.

Richmond American, which ranked fifth in sales in the first half of the year, had an average price of $202,581. Pardee, ranked No. 7, had the highest average price at $309,759.

Low appraisals continue to be a major factor in holding down prices, especially with new homes, Smith says. The reason is many appraisers continue to use beat-up, older, abandoned properties on comparable sales, which doesn’t make sense, Smith says.

Homebuilders have continued to fight the issue because they are not getting credit for upgrades in the home, Smith says.

The low-ball appraisals mean that buyers have to come up with more cash because banks will only loan up to the appraisal amount, he says.

“How many people can do that today?” Smith says. “That is the No. 1 issue with homebuilders today and a very serious problem.”

The average price per square foot of existing homes sold in June was $76, compared with $107 per square foot for new homes, Smith says.

By Smith’s calculations, there were 476 sales of new homes in June, including 11 apartment conversions and 17 midrise and high-rise condominiums. That is the second-highest monthly sales number this year after 491 in March, Smith says. There were 378 sales in May. The median price was $205,490 in June.

Smith says he’s cautious about the new-home market even though sales have edged up. Nationally, the Commerce Department reported this week that new home sales in June posted their fastest increase in more than eight years because of bargain prices, low interest rates and an $8,000 federal tax credit.

Smith says any increase in a single month isn’t enough to get excited; a better gauge will be in the fall because high unemployment and difficulty in obtaining financing continue to be problems for buyers.

The best news for new home sales is that the existing home market continues to heat up, Smith says. Inventory of existing homes has decreased for now, and homebuilders are already gearing up for a shortage down the line by buying finished and near-finished lots from banks, Smith says.

Pardee has even sold all of its remaining lots in the Providence master-planned community in northwest Las Vegas, and Lennar is selling remaining lots in many of its subdivisions, Smith says.

The market for finished lots that have been foreclosed upon ranges from $10,000 to $45,000, depending on location, Smith says. Some of those lots had been going for more than $100,000 during the boom, he said.

The increase in lot-buying is a big change over the last two to three months, Smith says.

“We all knew there was going to be a shortage of lots eventually, and if you wanted to build, you would have to go buy them,” Smith says.

Many are looking to build on these lots in the next two to three years as demand picks up, Smith says. Builders have been slow to build, with 368 new home permits pulled in June, bringing the yearly total to 1,573, 54 percent below where it was a year ago. The good news is that the monthly permit tally has gradually increased since January, he says.

Buying hundreds of lots today at bargain-basement prices allows builders to better compete against existing homes, Smith says.

More housing information

DataQuick reports that 70 percent of Las Vegas homes sold in June were foreclosure resales, up from 59 percent in June 2008. Foreclosure sales peaked at 73.7 percent in April.

The firm suggests that the time of year is adding pressure to the median price of homes because this is when most home buying occurs, before school starts in late summer.

The firm reports that Las Vegas still has many foreclosures to burn off and that inventory will continue to weigh on home prices. In June, lender repossessions spiked with more than 3,600 homes and condos lost to foreclosure in Clark County, according to DataQuick. That’s up 54 percent from May.

In other real estate news:

• The state attorney general’s office says packets were mailed to 3,467 Countywide Financial borrowers with information on how they can claim a share of $3.04 million the company is paying to Nevadans who lost their homes. Those who are eligible must have had a loan for an owner-occupied property made by Countrywide. The first payment of the loan would have been due between Jan. 1, 2004 and Dec. 31, 2007. Borrowers must have lost their property through foreclosure, short sale or deed in lieu.

• The Greater Las Vegas Association of Realtors has elected new board members and officers for 2010. Rick Shelton of Re/Max Associates is president, while Paul Bell of Prudential American Group is president-elect; Min Melvin of Keller Williams Market Place is vice president, and the treasurer is Paul Smith of Realty ONE Group. The terms start Jan. 1.

Brian Wargo covers real estate and law for In Business Las Vegas and the Las Vegas Sun. He can be reached at 259-4011 or at [email protected].