‘It’s No Secret’ Las Vegas Is ‘In Transition’
In Business Las Vegas reports on the homebuilders. “In a sign the housing market continues to soften, Las Vegas Valley homebuilders are backing out of land deals as home sales remain sluggish. Centex Homes, which has trimmed its staff by layoffs and voluntary resignations, announced Sept. 14 that it has relinquished various options on land holdings.”
“‘It’s no secret that the housing market is in transition,’ Centex said in a prepared statement. ‘As a result, we’ve adjusted sales volumes to meet current demand and have relinquished various options on certain land holdings, which are projected to no longer meet the demand previously anticipated.’”
“New home closings have fallen four of the last five months as builders turned to swimming pools, washers and dryers and other incentives valued at tens of thousands of dollars to boost sales. Builders have continued to cut back on permits, taking out 40 percent less in August than August 2005.”
“Developer John Ritter said he’s aware of builders, whom he declined to name, who aren’t going forward with existing options or escrows in some cases worth several hundred thousand dollars or more. Ritter called it short-term phenomena triggered by an oversupply of homes, both new and resale.”
“Housing market analyst Steve Bottfeld said he believes the cut back in land holdings is significant. If Centex is cutting back, than virtually everybody is, Bottfeld said.”
“‘We are in the beginning of a market correction, and the builders are leading that market correction,’ Bottfeld said. ‘The market can’t sustain excessive growth, and we have been in excessive growth mode for the past 12 months. The builders are reducing their exposure as the market cools and are pulling back to more realistic levels of inventory for which they can sell.’”
“Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association, said five to six builders, whom she declined to name, have had layoffs over the last several months. That’s not unexpected given that sales are down and customer traffic isn’t there, so builders need fewer employees, mostly in sales, she said.”
The Review Journal. “Las Vegas housing analyst Dennis Smith expects to see some fairly significant price cuts in the resale segment of the market in the next few months to move some of the 20,384 homes listed for sale in the valley.”
“The number of existing home sales dropped in August to 3,641, compared with 5,786 in the same month a year ago.”
“‘In resales, buyers are reluctant to give up the gains they’ve absorbed over the past few years,’ Smith said. ‘What they don’t understand is that’s paper gain. If you’ve got a house that’s been on the market for six months, you’d better adjust the price downward. It’s going to happen. People will have to lower prices.’”
“Look for home builders to take advantage of lower material and labor costs over the next few months and reduce home prices in new subdivisions, Smith said.”
“‘What we’re seeing with new homes is the cost to build is going down because as sales decrease, subcontractors lose work. If subcontractors lose work, they lay off people or they’ll lower their price to get more business. If that’s the case, the builder will offer more space at a lower price per square foot,’ he said.”
“‘New home permits have been falling as the market begins to adjust to shifting economic conditions,’ SalesTraq President Larry Murphy said. ‘The incredible reduction in permit activity over the last four months strongly suggests that builders are responding to a market correction.’”
“‘Speculators are now selling to end users, so that’s helping the apartments,’ broker Christopher Bentley said. ‘We saw the single-family homes and condos as a shadow market because they were competing with us. Now with the resale homes..40 percent are vacant now that speculators are selling houses and no longer renting them.’”
“In a sign the housing market continues to soften, Las Vegas Valley homebuilders are backing out of land deals as home sales remain sluggish. Centex Homes, which has trimmed its staff by layoffs and voluntary resignations, announced Sept. 14 that it has relinquished various options on land holdings.”
Didn’t we see earlier evidence here that LV land prices were off by 50% or so due to BLM auctions? I am guessing this must really svck for builders to have to dump land at 1/2-off sale prices. But never mind — HB stock prices always go up.
They aren’t making any more land…because they already have way too much!
Centex No. 2 on my list for implosion and No. 3 for putting.
Glad to hear that you overpaid for that land. Way to go guys! Keep up the great work!
Posted “Centex No. 2 on my list for implosion and No. 3 for putting.
Glad to hear that you overpaid for that land. Way to go guys! Keep up the great work!
Hey Popper you should see what those Centex crews are doing in Chatsworth Ca. Go to thier Web site. They have given a nice dirt bike hill a baldie (along with them selves) I cannot say what this monster will end-up being but I will take the “tour” once the open house begins….. Months by my reconing, this will be a White Elephant LOL!
Where are those 5000 per month flooding in?
las vegas has been growing for a long time, not doubt. if you look at home prices, they were flat or down for YEARS.
I love this graph of real homes prices in Las Vegas
I’d LOVE to see one for Portland, OR. I’ll bet it looks very similar, with a big dip in 80-81, and another in 90-91.
I bought a Condo in Mar 2003 for $216k and was considering purchasing a second one but after running the numbers to include the HOA and TI that they didn’t make enough financial sense to purchase another. At the peak I could have gotten 400k (now about 350k) and considered selling due to the insaneness of the market. I love Vegas and my Condo so we are keeping it. I have now decided to buy a luxury one on the strip once prices fall like a rock. Check out the coming flood of luxury condos at
http://www.vegastodayandtomorrow.com/construction_stats.htm I have been following inventory which has gone from 252 units for 600k and up to 336 units since June 06!!! Most of theproduct isn’t even on the market yet. I am renting our my place furnished in order to cover the overhead. So far it has paid all the bills but I worry that others will turn to furnished vacation rentals as their only viable option. Unfurnished rent prices are about half of a furnished condo.
Just curious, how do you know you can get $350k for it now?
Last week I had an offer for $380k with furniture. He was wanting to either rent it for 6 months or buy it. He was a Realtor moving to LV. The place wasn’t for sale and so he is renting it for 2400 per month
You may want to consider dumping and renting…as you may not be able toget your $216k out of yours when the market really tanks. I had an old-school realtor straight-up tell me we were already into a bubble (Central Calif.) in 02′-03′.
DOC
I have thought about it but really can’t part with it. It is a vacation home that I rent it out when I am not there and it covers my costs so in essense it is a free vacation home. I never really believed it was worth anything close to the current price and I don’t believe it will tank below the 216k. I go to Vegas a couple times a year and like having the space and being able to get away from Strip! If I were greedy or maybe smart I would cash out but since I like Vegas so much I think I will upgrade after the tanking. Rents should hold or edge up which will put me in good position in 09-10 when the bottom hits in luxury high rise condos.
Housing prices stayed relatively flat because they were always building enough new homes to make up for the influx. Outside of casinos, LV’s economy is built on continuous growth; as RC so aptly put it, there’s no “critical mass”. Now that the construction industry will be essentially shutting down, look forward to 10000 per month flooding out.
The facts just don’t support your viewpoint. Las Vegas is overbuilt, and prices are coming down, and I would like to pile on the bad news, but I was skeptical of all the hype on the way up, and I am wary of beating up on real estate on the way down. I hope we can NOT speculate and deal in facts.
Year Labor Force Employment Unemployment
August 2006 916,112 878,738 37,374 4.1
Aug 2005 865,128 830,865 34,263 4.0
Aug 2004 847,217 218,094 35,123 4.1
Aug 2003 813,900 770,800 43,100 5.3
Aug 2002 794,500 749,300 45,200 5.7
The total number of employed is highest in Clark County history 878,738 and the unemployment rate is 4.1%
The National average for unemployment is 4.7%
Las Vegas is way below the national average, and down from 5.7% just 4 years ago. People with jobs need places to live. If the unemployment rate pops back up to 5%, I will be the first in line to bash Vegas. If the rate holds at 4.1%, I
can see a nice steady return of real estate sales, at a lower price.
David,
Check out the http://www.nevadaworkforce.com for these statistics from the fourth quarter of 2005:
Total Wages / Employees
All Private Industries: $7,894,267,223 / 801,261
#1 Accommodation & Food Services: $1,835,041,152 / 247,724
#2 Construction: $1,280,793,609 / 106,002
IOW, casinos & construction directly account for 40% of Las Vegas wages. Indirectly, virtually all other employment categories not related to casinos are related to real estate or the people employed therein.
tj,
You are right on the money. As construction winding down, there will be less work which will drive those folks to other booming towns if there’s any left. We have basically overbuilt and move up years of supplies. Now, it will take years before the equilibrium is reached. At that point, the price will be bottomed out.
Btw, I have in-laws who owns small biz in LV. They had noticed slower traffic. Dealers at casinos are encouraged to take time off if possible, and some were asked to leave earlier than their shifts. Does anyone else hear of the same?
They must’ve caught a boxcar out of town, along with LV Landlord — fleeing under cover of darkness to escape their creditors.
She is MIA. I wish she would return I have many questions for here and many posts she made her and at the WSJ blog that I would love to ask her about. Maybe I will take my laptop to LV and look for a lady pushing a shopping cart.
no she is on wall str jrnl blog saying she is buying more.
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LOL so the builders are going to cut prices and really F the FB’s.
“Look for home builders to take advantage of lower material and labor costs over the next few months and reduce home prices in new subdivisions, Smith said.”
“‘What we’re seeing with new homes is the cost to build is going down because as sales decrease, subcontractors lose work. If subcontractors lose work, they lay off people or they’ll lower their price to get more business. If that’s the case, the builder will offer more space at a lower price per square foot,’ he said.”
Look for this trend to continue. As builders fight against existing homeowners for available buyers , they will do everything they can to lower the cost of building. Negotiating cheaper land prices, pressing suppliers and contractors for better prices. Everyone involved in building for a living, will have to chip in to lower costs, to keep the machine running or go out of business.
Just like the high demand of the last few years caused costs to increase, the low demand going forward, will cause costs to drop. Throw in a recession, and we could see some eyepopping cost reductions.
August sales in LV were down 37% YOY.
July sales in LV were down 35% YOY.
The trend is getting worse.
It looks like the builders are starting to respond to the new reality. As they clear out existing inventory, and bring new lower cost inventory online, the existing home sellers will will have no choice but to lower their prices, stay put for the next 10 yrs, or wait for foreclosure if they are sinking.
It’s all about price now. The builders are multi billion dollar companies, that will do everything they have to, to stay in business. If that means upsetting their customers from last year, than so be it. Any well run business, responds to the conditions that exist. Those that don’t, go out of business. The market is telling builders that prices are to high. Any builder that is not doing everything possible to lower costs, is poorly run and deserves to go out of business for being ineffecient.
Builders have continued to cut back on permits, taking out 40 percent less in August than August 2005.”
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So much for future job growth!
“Developer John Ritter said he’s aware of builders, whom he declined to name, who aren’t going forward with existing options or escrows in some cases worth several hundred thousand dollars or more. Ritter called it short-term phenomena triggered by an oversupply of homes, both new and resale.”
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Short-term??? Does this make sense? No one backs out of long term deals due to short term market flucuations. They are backing out because over the LONG-TERM these deals no longer make sense and they wont make sense for years to come!
But LV home prices can’t go down because it is locked in a valley and there is only 7 years worth of buildable land left……..
Since the land contracts are being cancelled left and right isn’t the time frame for buildable land increasing? We’ve got to be up to 15 years worth by now. The buy, buy, buy folks were happy to spout the 7-10 year number before. Funny how none of them have bothered to recalculate it now.
From article: “‘What we’re seeing with new homes is the cost to build is going down because as sales decrease, subcontractors lose work. If subcontractors lose work, they lay off people or they’ll lower their price to get more business. If that’s the case, the builder will offer more space at a lower price per square foot,’ he said.”
One of the things I’ll look forward to is rational construction costs. I feel like not only do we have to compete with funny money (option arm) to buy a home, we then have to compete with funny money (HELOC obtained by higher valuations due to option arms) when trying to renovate… and having to compete with new builders to get a reno job done.
I just redid my bathroom last month (it needed it-last redone in probably the 60’s but it was really well done then). Did most of the work myself (I feel very manly). It looks great. Had some tilers out to do the job (tile was the centerpiece of the bathroom, I’m not gonna screw that up). Got a great price for what they did, but still sort of expensive. My final cost for the entire bathroom remodel including tiling: about $6500. The lowest quote I got to have it totally done: Around $23,000 (give take $1K). how so high? I’m sure I am competing with HELOC money and other “creative” financing.
I’ve been rethinking doing the kitchen too. Kitchen last done in 1983, with all the 1983 amenities (except I upgraded the appliances last year). The cabinets are literally falling off the hinges (it was not done so well)
i’ve had the exact thought as the quote above. As housing slows, these subcontractors are going to be hurting. Last year when I inquired, they were all too high and mighty to come to my little old house and do my small project. too many $200,000 kitchen renovations to do.
I’m thinking next year I’ll get a good price on having my kitchen redone.
I’ll find some local contractor to to it (I’m all about local). And I’ll bet it will take 1/2 the time as before (when they had to leave my job to do the $200,000 kitchen) and significantly cheaper (since I won’t be competing with HELOC money).
I’m sure I am competing with HELOC money and other “creative” financing
And people who think that granite countertops means 100K more “equity”. What’s spending 20K for them?
I’m hoping that vacant land, being a very volatile investment, will be practically given away in about 5 years or so. And also that great construction people will be working dirt cheap by then. Combine the two, add some plans by a good-but-desperate architect, and voila, you get an ultra-cheap, high-quality custom home.
In the meantime, I see some sweet rental deals coming down the pike.