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Nov. 25, 2007
Copyright © Las Vegas Review-Journal

REAL ESTATE: Everything must go

To help move inventory in struggling market, home builders try price cuts

By JENNIFER ROBISON
REVIEW-JOURNAL
Housing
Housing in Las Vegas
More Information

From left, Astoria Homes workers Jason Derer, Mary Featherston, Stephen Gargann and Nikki Davis discuss home models offered at The Avenues at Tapestry. Recent sales seem to have helped increase customer traffic and clear unsold inventory, home building officials say.
Photo by John Gurzinski.

Builders are sparing little expense in a bid to entice hesitant buyers into a soft housing market.

Virtually every major builder in the Las Vegas Valley has pushed big sales this fall, and the price breaks have been steep.

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    • Pulte Homes marked down prices 15 percent on certain models, with discounts of up to $80,000 on some completed new homes during one October weekend. The builder's Del Webb subsidiary sliced $55,000 from some of its asking prices. Rhodes Homes has offered as much as $100,000 off on finished houses. Lennar Corp. has slashed prices on some models by about a third; Lennar cut the cost of a 5,000-square-foot home in its Earlstone community from $911,490 to $662,490, and a 4,498-square-foot home in its Silver Creek subdivision went from $807,290 to $612,290. Centex Homes has clipped $25,000 to $100,000 off the prices of some of its existing homes, and is ponying up as much as $21,000 in closing costs on some models. American West Homes' valleywide "liquidation sale" on Nov. 10 and Nov. 11 featured savings of up to $143,000.

    So are the sales boosting traffic and clearing inventory?

    Builders say yes.

    After Astoria Homes dropped prices on standing inventory by as much as $200,000, or 27 percent, Oct. 12-14, traffic at least doubled across the board at Astoria communities, and even tripled in some cases, said Tom McCormick, the company's president.

    The sale helped make October Astoria's best sales month since 2005. The builder averaged about four sales per neighborhood during its discount weekend, compared with an average of half a sale to a sale per week before the price cuts.

    Astoria's available inventory dropped from eight weeks or 10 weeks of supply to around four weeks or six weeks. The sales are "sticking," too, McCormick said, with a cancellation rate of 10 percent, down from about 30 percent before the sale.

    Astoria hedged its bets by accepting only buyers who didn't need to sell existing homes to close the deal.

    Pulte Homes had an "exceptional" weekend during its "Monster Sale" Oct. 19-21, said Nick Parks, the builder's local director of marketing. Sales doubled when compared with the four prior weekends.

    "It's a new market, and you need to provide the consumer with new value propositions to be successful today," Parks said.

    "There are people out there who need homes and want to buy homes, and I think our success with the Monster Sale demonstrates that there is consumer confidence in the market if they're provided the right value proposition.

    "Generally, it's a positive indicator that the market isn't as depressed as some want us to believe."

    Numbers from tracking and consulting firm Home Builders Research show steady increases in new-home sales in the fall, as builders intensified their cost cutting.

    The local market moved nearly twice the number of homes during the week ended Nov. 11 as it sold the week ended Aug. 12, an increase Home Builders Research President Dennis Smith attributed to widespread, continuing sales.

    Companies that haven't held or advertised sales are not reporting significant increases in purchases.

    D.R. Horton, which hasn't publicized any sale-price reductions, has 42 local new-home subdivisions and posted net sales of just four homes in the week ended Nov. 11 and two homes in the week ended Oct. 14, Home Builders Research found. And despite total traffic through models of between 500 and 600 people weekly, Toll Bros., a luxury builder that also hasn't marketed any discounts, had zero net sales in the week ended Nov. 11 and a negative net-sales rate of two homes in the week ended Oct. 14.

    That means the company, whose homes are priced from $345,975 to more than $1 million, had two more cancellations in Las Vegas that it had sales.

    Toll officials declined to discuss local sales volume, noting that they release regional data only quarterly. Spokeswoman Kira McCarron said sales of new homes and standing inventory "are consistent with current marketing conditions."

    D.R. Horton didn't respond to an e-mail seeking comment on its low sales volume and whether it's planning special pricing events.

    Ken Perlman, vice president of Sullivan Group Real Estate Advisors, said builders might skip sales for various reasons.

    The cost of land might prohibit lower price, or perhaps a builder has met sales quotas for the year and doesn't need to push for additional closings.

    Also, national companies could find that strong sales in some markets allow for more-sluggish sales in other cities.

    For most local builders, though, lower prices were the last frontier in ginning up home sales, and Smith said builders are telling him the discounts are drawing out reluctant buyers.

    "They tried incentives and they tried financing," Smith said. "Now, they've gotten to the price, with sales to get rid of inventory, and it's working."

    Sales generate traffic and closings more effectively than incentives do, so builders are wise to drop prices, even temporarily, Perlman said. The consumer who can't qualify for a $350,000 house won't have an easier time getting a mortgage just because the builder tosses in a free swimming pool and a trip to Hawaii. The buyer still can't afford the home. The only solution: a lower price, Perlman said.

    While those price breaks help buyers afford homes, they don't add to a company's bottom line.

    McCormick declined to discuss his private company's profits. He acknowledged, though, that construction and land costs mean Astoria couldn't replace the discounted homes for the low prices they commanded during the builder's sale. He added that builders across Southern Nevada are experiencing a similar disconnect between sale prices and building costs. Yet, the earnings sacrifice is essential to keeping the doors open.

    "As much as we may be selling homes below replacement cost, we're in the business of building and selling homes," McCormick said.

    "We aren't like the homeowner who can decide to wait six months or a year to sell. It's hard to justify keeping everyone employed when you're not selling and building homes. Like everyone else, we've been through layoffs. We want to minimize that as much as we can."

    Builders' drive to survive could translate into more price drops.

    Most local builders no longer have several months of standing inventory, Smith said, so gains in available homes are coming mostly from cancellations, as jittery consumers back out of the market or stricter lenders tighten loan-qualifying criteria.

    Smith believes sales will "pop up continually, off and on" over the next 12 months to 18 months, as cancellations wax and wane along with the performance of the market or changes in bank guidelines.

    At least one local builder is already considering another sale.

    Pulte is contemplating an event near the beginning of December with price breaks and incentives similar to the October reductions.

    "It's important to provide the consumer with confidence, and when we offer them these limited buying opportunities, it gives them confidence to make a decision," Parks said. "If you give the customer an exceptional opportunity, it helps them feel good about their purchase and make wise decisions about their home."

    Contact reporter Jennifer Robison at jrobison@reviewjournal.com or (702) 380-4512.

    CHARTING THEIR PROGRESS
    Numbers from Home Builders Research show that weekend sales events with dramatic price breaks have helped local builders attract more potential buyers and close on more homes.
    Builder Sale details Traffic,
    sale weekend    		 Traffic,
    a month earlier    		 Net sales*,
    sale weekend    		 Net sales
    a month earlier
    Astoria Price breaks of up to $200,000 or 27 percent, Oct. 12-14 604 218 28 4
    Pulte Up to 15 percent, or $80,000 off, Oct. 19-21 260 225 88 41
    Del Webb Up to $55,000 off, Oct. 19-21 560 576 73 42
    Lennar Up to 20 percent, Oct. 19-20 787 563 52 4
    *Net sales equal total sales minus cancellations
    Source: Home Builders Research

    COMING THROUGH
    Traffic and sales among all builders reporting numbers show that while traffic has declined, sales are up compared with the summer since the sale season began in October:
    Marketwide traffic
    Week ended Nov. 11 Week ended Oct. 14 Week ended Aug. 12
    6,803 7,261 7,856
    Marketwide net sales
    Week ended Nov. 11 Week ended Oct. 14 Week ended Aug. 12
    206 194 139
    Source: Home Builders Research
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    SHERRY wrote on March 08, 2009 07:51 PM: LENNAR IS THE WORST HOME BUILDER OUT THERE .me and my husband bought at skyridge at grand teton and tee pee and deeply regret this home purchase.Also the area has gotten so GHETTO I know longer feel safe here.Dont let Arnold push you into this sale .You will also regret the purchase...


    DarthVader wrote on December 07, 2007 09:33 AM: What the Hell, did "Already Improving" wake up from some crack induced stupor to write this blog entry? Baby, honey, Bro, take a look around! Except for the international Euro Dollar and Arab Petro bucks flowing into the Strip Developments, there is Nada, bupkis, zilch happening in the real estate home building arena, except meltdown!. Traffic up, you bet, when builders have been droppingtheir base prices up to 27%, Holy Bat shit Robin get a grip. Most recent Moody's Economic forecast shows declines until 2010!


    Already Improving wrote on December 03, 2007 03:26 PM: Told you so.....told you so!!!

    A few local builders will go out of business (reducing supply). A national will pull out of the market (reducing supply). Demand for homes is still pent-up because of these poppycock fears. The Fed is taking steps this week to reduce forclosures. There are a lot of jobs coming to Vegas in the coming years..... and contrary to some comments below, Casino Jobs do bring in professional jobs as well. Casino workers need attorneys, doctors, gas, twinkies, automobiles, and big macs.

    ALL OF THESE are positive things.... And the numbers in this article are starting to show it.

    And do you really think the builders are making money right now? Not one.

    Ohhhh....and blame your County Commissioner for not allowing zoning to build affordable housing.....not the homebuilding industry. Builders will build what is in demand, but the Commissioners don't want high density, the burden of having to build the infrastucture in their districts, and the decline in average home price this would bring to their own back yards.


    betty hesketh wrote on December 01, 2007 07:34 PM: EXTREMELY INFORMATIVE REGARDING THE CURRENT HOUSING MARKET WITH THE POSSIBLE FUTURE FOR THE COMMING MONTHS.


    Joe Friday wrote on November 26, 2007 08:14 PM: Looks like the developers are finally sobering up.

    Thanks for the great article and data Jennifer!


    NV Inactive Realtor wrote on November 26, 2007 02:51 PM: Until the buyers,sellers and builders realize that only 1% of the Us population can afford anything priced above 500k the Las Vegas over inflated housing market will always be on the bubble for everyone other than speculating investors or second home buyers.

    The average income in Las Vegas does not allow the average person relocating to Vegas the opportunity to purchase a home that meets their families living needs.

    A family of 4 making 80k a year can not afford to purchase presently in Las Vegas a 2500 sq ft home for 350k plus. Unless you want your family to live in Las Vegas in a cookie cutter 1500 sq ft home when this same family can go to the south and for that same 350k purchase a 3000 to 4000 sq ft home with a huge yard and earning the same amount of income.

    Las Vegas housing market is only open to the professionals who earn an income of more than 140k per year. Those who make less are renting and people who dont rent and make less are only months away from foreclosure.

    What does it say about Las Vegas when a city that is in desperate need of teachers, nurses and other professionals that become the lifelines of thriving cities that cant afford housing.

    Cities of this type unless the issues are resolved usually dry up and blow away OR become get aways for the rich and famous where no social growth infrastructure is required.


    maybenaive wrote on November 26, 2007 01:52 PM: In my opinion, i don't think the fact that the majority of people can afford the 400k and up prices, more along the thought that the majority of stable long term residents will not leave the state, maybe they will move up with their equity from 10-20 years of payment and appreciation. The higher prices and loan requirements, will force the future transient people to rent instead of buying a 150k home(as in the 90's) and defaulting. In the long run the prices will be commanded at 400k up (in decent areas) because the low level of supply vs. the buying power of the few people who do have the savings and income to allow. Of course, I should say that certain areas of Vegas should be in the 150k price range for SFR in old, less desirable areas. Until these areas become acceptable to the middle class person making 40-60k combined household income. Nice areas with good amenities are going to be in short supply. That is the key to my logic. I think the nature of the market is very hard to base on past performance because it's becoming a mature market vs. a growing one.


    WiseOldOwl wrote on November 26, 2007 09:35 AM: Please take the time to inform yourself. The Clark County Assessor's office has maintained excellant records going back to the 70's. Go down and take a look. The historic appreciation rates have been as I have stated. Sure, developers in the 90's over paid for land that was available, but the prices were not based upon "value" but rather speculation over future growth. Herein lies the dliemia. There is plenty of land, but not enough infrastructure to support it(ie. water, sewer,etc).The job growth that may occur via the one Industry in Clark County (Gambling) will not attract the salry levels for workers to afford these $400K,$500K,$600K,$700K homes! Take a look at the salry structure and you will see. Finally, sad to say, Clarrk county is a one horse town when it comes to any major industry, its gaming.( The Federal Govt Nuclear program was the only other to attract executive salaried folks) No other manufacturer, or large corporate entites really exist in the area large enough to generate the salaries needed for these "Macmansions"! Prices must adust to the mean level before the vast majority of buyers will be able to come back into the SFR market


    maybenaive wrote on November 25, 2007 08:29 PM: I know these builders can't be producing a profitable product much under $300k, the price of land, holding cost, improvements, labor, material, etc. just are too high. Unless developers and builders that paid the high price for land default and are purchased at a very low price(maybe 200k/acre) then costs for new homes could come down. Until then they will just take a loss. As a reply to Wiseoldowl, i don't see why the valley should go back to the historic appreciation patterns? The amount of land avalable is a fraction of the past.
    Job growth and pay are going to be at record levels. I just don't agree with your "old" views. History is not a very good prediction of future events. For now, it's best that prices drop as fast as possible, and allow some real owners to gain appreciation instead of speculators and big builders.


    AlliBabba wrote on November 25, 2007 05:24 PM: Allah Be Praised! The infidals and non believers are reaping what that have sown. They rape the middle class and move on to the next "market" to exploit! Fools all of you! We at least have oil in our deserts! You have snakes and sand! You donnot even have enough water to sustain you. While we have wide oceans to desaltinize and get unending supplies! Allah Ackbar! Las Vegas will return to the sands and wild soon enough! Then, with our Petro Euros we will buy the rest of the crap that is left and hire Jessica as Mayor, Brittany Head of your County Commission and Paris Chief Justice Center!


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