Foreclosures making it difficult for new homebuilders to compete

A carpenter frames a home under construction in Henderson in this 2009 file photo.

VEGAS INC coverage

Las Vegas homebuilders are in for tougher times this year, the president of the Southern Nevada Home Builders Association said Thursday.

Frank Wyatt, president of Pinnacle Homes, said he doesn’t expect home closings to come close to matching the 5,438 in 2010, as calculated by SalesTraq, and wouldn’t be surprised if it failed to reach 4,000. The figure includes single-family homes and condos and town homes.

Wyatt, who appeared Thursday at the Crystal Ball housing conference sponsored in part by SalesTraq at Alexis Park Resort, said the ongoing pipeline of foreclosures continues to make it difficult to compete on prices.

Although the economy is showing signs of improvement, the loss of jobs since the recession began and the slowdown of population growth hurts the demand for new homes, he said.

Wyatt’s comments are similar to statements made at a housing conference last week in which Dennis Smith, president of Home Builders Research, said 2011 might be the bottom for the new home market.

Smith revised his previous projection that Las Vegas would have 4,900 sales of single-family homes in 2011, about 150 more than 2010. He said 2011 is likely to be the weakest sales year for builders since the housing market started its collapse in 2007. He projected between 4,200 and 4,500 single-family home closings. The numbers should increase by 250 to 500 in 2012, which would still be less than 2010, he said.

The industry had more than 35,000 new home closings in 2006, before the housing bust and recession.

Wyatt said 2012 should be better than 2011, but any improvement will be nominal. It will take an increase in home values to make it more profitable to build, he said.

“If home prices don’t go up soon, you don’t want to sell houses,” he said.

The housing collapse has taken its biggest toll on small builders like Pinnacle, which had sold 150 to 200 homes six years ago and sold 15 in 2010.

Wyatt said he expects to sell fewer than 10 homes in 2011.

The company sold one home in the northwest valley in February, has another under construction in the northwest and plans to start construction next week on two homes in Maplewood Springs, near Southern Highlands.

“A lot of people ask why build at all in the current economy, and the answer is simple — we have a lot of migration in this town and a percentage of those people are going to buy a new home,” Wyatt said. “There’s always going to be an appeal to certain people who want customized features.”

The large public builders are dominating the Las Vegas housing market, while many of the smaller private builders are constructing only a handful of homes or remain on the sidelines.

In 2001, the top 10 homebuilders sold 48 percent of homes. By 2010, the domination of that group grew to 72 percent, Wyatt said.

The top 20 builders had 68 percent of the market in 2001 and 90 percent in 2010.

“If you’re not in the top 20, you’re not doing much,” Wyatt said. “But in a market dominated by the big guys, how does a small guy like us do it if they want to stay alive?”

Wyatt said small builders have to take advantage of opportunities. He has found individual lots at depressed prices that make it possible to build a home and make a profit.

“It’s possible to make a profit, but you have to watch every penny,” Wyatt said.

The current strategy requires using cash to purchase the lots and cash to build the homes, because financing isn’t available. It even takes starting construction to lure buyers, but Wyatt said he can’t be too aggressive.

“We have to bypass lots because demand for homes isn’t that strong,” Wyatt said. “You can’t make the mistake and load up.”

Federal tax incentives for first-time homebuyers gave the market an artificial boost last year, Wyatt said. Sales started to slow when the incentive effectively expired April 30.

“I’m glad we are past the point of doing incentives, because it artificially affected the market,” Wyatt said. “We’re now relying on the basics.”

In addition to building a limited number of homes, Pinnacle has worked with banks that have taken back homes through foreclosure. The builder has remodeled homes before they’re resold.

Wyatt said the home-building industry is evolving, and once new codes are in place next summer, the next wave of homes will be 15 percent to 20 percent more energy efficient. That’s going to add cost, but builders are looking for an edge to compete against existing homes and hope to gain an advantage with energy consumption.

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