Homebuilders appear more bullish on LV

By Buck Wargo

Fri, Sep 25, 2009 (3 a.m.)

As bad as the home construction industry has been in Las Vegas, local builders rate what is happening here as better than other places across the country and are more optimistic about the next six months than their brethren nationwide.

That doesn’t mean builders think Las Vegas has recovered, but it at least provides some positive news in a market that has seen new-home sales pick up slightly and prices starting to rise, according to Las Vegas-based Home Builders Research.

The survey by California-based John Burns Real Estate Consulting says 50 percent of builders rate the Las Vegas sales market as fair, 25 percent called it good and 25 percent called it poor. That contrasts to nationwide results with 52 percent rating the housing market as fair, 40 percent as poor and only 8 percent calling it good.

As for the next six months in Las Vegas, 75 percent of builders say they expect sales to be fair and 25 percent predicted they will be good. In contrast, 59 percent of builders nationwide expect a fair amount of sales while 34 percent expect them to be poor. Only 7 percent say they will be good.

The builders are concerned that the market will fall again if an $8,000 tax credit for first-time homebuyers that has boosted sales is allowed to end Nov. 30.

Senate Majority Leader Harry Reid says he expects Congress will renew the tax credit.

The survey cited only 257 unsold homes within 253 communities in Las Vegas. Half of the builders say cancellation rates were below 15 percent. Only 25 percent say cancellation rates were above 25 percent.

In his monthly report on the Las Vegas housing market, Dennis Smith, president of Home Builders Research, said 426 new homes of all product types sold in August, up from 407 in July. For the year, new-home sales are at 3,167, a 57 percent decline over the same period in 2008.

Smith projects Las Vegas will end the year with 4,800 new-home sales or about 400 a month for the rest of the year. That’s down from more than 10,000 in 2008, and nothing like the roughly 40,000 sales in 2005.

Smith says the sales will surpass 5,000 in 2010 and 6,000 in 2011.

The new-home market is moving forward, but it’s doing so at a slow rate, Smith says. And his definition of moving forward is stabilizing, he says.

“To most in the industry it couldn’t be much worse,” Smith says. “My read from homebuilders is that they feel stuck in a vacuum and can’t find a way out. They have cut overhead further than most ever thought possible.”

The new-home market could be helped by the dwindling supply of well-maintained existing homes that has prompted investors and other buyers to check them out, Smith says

In Burns’ survey, one unnamed Las Vegas builder says the new-home market has bottomed out. Builders have acquired land at lower prices, and communities are reopening with adjusted prices.

“Experts are missing the shift,” the builder says.

Fifty percent of Las Vegas builders say that prices were flat while 25 percent each said prices were either increasing or decreasing.

Smith’s numbers show that the median price of new homes sold in August rose for the third month. That $210,000 price is a 1.7 percent increase or $3,451. Prices for the year, however, are down $46,000 or 18 percent, he says.

The Burns’ survey may hold some hope for Las Vegas builders because California is often seen a barometer of the valley’s housing market. It says the California housing market is stabilizing: More builders are raising prices than dropping them.

This marks the first time since the firm started the survey 15 months ago that more builders reported raising prices than those who said prices were flat or down, Vice President Jody Kahn said.

The survey shows the California market bottomed in the spring and that the federal stimulus package has helped the industry, especially the $8,000 tax credit. Low interest rates and improved affordability has helped as well, she said.

But there is concern that despite the housing market stabilizing, it may dip by the end of this year or early next year, the firm notes.

Like in Las Vegas, builders there say they have concerns about their prospects in the next six months because the homebuyer credit is schedule to end Nov. 30.

With the expiration, the new-home market could slip by late this year and early 2010, but begin to rebound by the spring, Kahn says. If that credit is extended, that will limit the slippage even though sales tend to sag at the end of the year, she says.

Builders are also wary of competition from foreclosures, the inability of their new homes to be appraised at levels that match their asking price, the lack of job creation and a void in financing of future projects. To help sales, builders have been eating the difference between their asking price and what the home appraises for, thus affecting the size of the loan the buyer can get.

Southern California and Northern California are the only regions in the country where pricing is improving and that could be a good sign for Las Vegas and other markets, Kahn says. It may just be a matter of time, she said. Phoenix appears to be slightly ahead of Las Vegas in its rebound, she says.

“I think it shows that some of those terrible locations, the conditions have been improving,” she says. “We can understand what the recovery is going to look like elsewhere in the country even though the timing is off.”

Kahn says that although larger builders have an easier time constructing homes because they have the capital, smaller private builders have problems obtaining financing.

In its housing report, Metrostudy Chief Economist Brad Hunter says he thinks housing starts have reached a bottom or will do so soon.

Many builders have not only reduced excess inventory, but are reporting such low levels of inventory that they need to start more homes to replace those they have sold, Hunter says.

He adds that any recovery will be slowed if the homebuyer tax credit isn’t extended.

Brian Wargo covers real estate and law 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.