REAL ESTATE:

Land prices too steep for homebuilders right now

VEGAS INC coverage

The Las Vegas new-home market remains weak and could hit its low during the downturn with fewer than 5,000 homes built.

But with homebuilders controlling 83 percent of the 19,250 finished lots and 10,528 partially finished lots in the valley, some wonder how long it will be before builders go after raw land.

Dennis Smith, president of Home Builders Research, said builders are starting to work through their supply of lots, and a few are slowly turning their attention to undeveloped land.

The problem is that land owners right now aren’t willing to come down on their price and make it work for builders, Smith said. Many of the finished lots and partially finished lots builders obtained from banks and other builders allowed them to construct homes at reduced prices to be more competitive with existing homes, Smith said.

Landowners are waiting for the market to turn around and builders are looking for someone willing to partner with them, Smith said.

Anything priced at $200,000 an acre is too high, Smith said.

The price of finished lots continues to rise because builders have sought them out, he said. Two years ago, it was $30,000 a lot on the low end and $50,000 a lot but that has increased to as much as $75,000 a lot in many places, he said.

“Builders are running out of land to build homes at today’s prices,” Smith said. “If they can’t build a house for $150,000, they aren’t going to buy the land. That’s why the idea of anybody thinking we’re going to overbuild is simply ridiculous.”

Homebuyers don’t want to pay higher prices and even if they did, banks wouldn’t lend them money to buy them, Smith said.

Reducing the inventory of existing homes and improvement in the economy will be key to helping the new-home market recovery and make it possible for prices to increase, Smith he said.

“It’s going to be interesting to see how long the recovery takes because our whole system of supply and demand that we were accustomed to is out of whack,” Smith said.

Colliers International Las Vegas reported that builders have been selective when buying lots of raw land for future development.

The highest sales are $100,000 a lot in Green Valley and Summerlin, Research Director John Stater said.

Raw land and partially improved land runs about $100,000 an acre in North Las Vegas, $150,000 an acre in Mountain’s Edge in the southwest valley and $185,000 per acre in Green Valley and $200,000 an acre in Summerlin South.

Demand remains weak.

In 2010, there were 85 transactions of two acres or more compared with 945 transactions in 2003, Stater said.

The average sale in 2010 consisted of 12.37 acres at an average price of $4.14 per square foot.

“Most builders have a short-term pipeline of lots for 2011-13,” Stater said. “It will be interesting to see what happens in 18 months when builders begin to deplete their inventory of lots and need to buy raw land to develop and sell homes.”

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