Analyst predicts new-home recovery in 2012

By Buck Wargo

Monday, May 25, 2009 | 2 a.m.

Many analysts have weighed in on a possible recovery of the existing-home market.

Now, a national real estate advisory firm is handing out predictions about when the new single-family home market will recover in Las Vegas: in three years, during the first quarter of 2012.

That’s a little longer than some local analysts project.

Concord Group Principal Richard Gollis said the prediction is based on the latest analysis of unsold inventory and expected changes in employment.

The recovery of the new-home market in Las Vegas will be slower than markets in California such as Ventura, San Jose and Orange County — where recovery is expected by the first half of 2011, Gollis said.

Las Vegas’ recovery, which is defined as one new-home sale per week, per project and low single-digit appreciation, will match the timeline given for Southern California.

The firm projects Southern Nevada will have a quicker recovery than Phoenix, which won’t recover until the fourth quarter of 2012, and Reno, with its new-home market predicted to improve in the fourth quarter of 2014.

The new-home market remains weak in Las Vegas with only 1,463 sales through the first four months of this year, a 61 percent decline from the same period in 2008, according to SalesTraq, a Las Vegas research firm. There were more than 38,000 sales in 2005 at the height of the market and more than 35,000 in 2006.

Gollis said the key components of the projections are demand for housing, job growth, inventory of new homes and finished lots. What’s interesting about Las Vegas, he said, is that its housing market tracks job growth tied to gaming revenue. And the gaming revenue tracks the nation’s gross domestic product, he said.

The new-home market in Las Vegas has been hurt by foreclosures that have brought down the price of existing homes to $125,000 and made it difficult for builders to compete. That price is $101,000 less than the price of a new home, according to SalesTraq.

Gollis said it will take at least 18 months to two years to burn off the inventory of foreclosed homes.

“When we are talking recovery, we are not saying prices will increase dramatically or that there will be any big surge in sales,” Gollis said. “What we are saying that is in two to three years, developers should be delivering new lots in the market to satisfy the demand for single-family (home) sales.”

Based on a two-year entitlement and lot delivery cycle, Gollis said his firm projects an increase in land development nationwide in the third and fourth quarters of this year. There are developers out there now, even in Las Vegas, looking for deals to bring new, lower-cost homes to the market, he said.

“What we are saying is that developers need to start thinking now of how to retool their communities and recharge their products and how they are marketing them in advance,” Gollis said.

Some local analysts said they expect a recovery in the new-home market as defined by the Concord Group study to take place sooner than three years.

Steve Bottfeld, executive vice president of Marketing Solutions, said there is not enough information out there to make a realistic judgment about the timeline of the recovery of the new-home market.

But Bottfeld said his best guess is that any recovery could come by the end of 2010 or beginning of 2011. The reason is that the number of subdivisions is declining, and there could be 150 by the middle of 2010. Having one sale per week per subdivision would net about 600 sales a month.

“I don’t consider that a recovery,” Bottfeld said. “By the time we get to the Concord Group’s timeline, we should be twice that, and I don’t consider that a full recovery.”

Signature Homes founder Richard Plaster said he is more optimistic about a recovery in the new-home market: no later than 2011. Any recovery won’t start until foreclosures drop, Plaster said.

Plaster said Signature took out 12 permits last month but doesn’t expect to take out any the rest of the year because of the slowdown in the new-home market.

Dennis Smith, president of Home Builders Research, said he expects to see the projection of one sale per week per subdivision before 2012.

“I think it is going to be two years from now before there will be that type of demand,” Smith said.