Las Vegas Housing Enters New If-You-Build-It Moment of Truth
We were out once again on the Las Vegas area’s 215 loop, heading to the master plan Inspirada to try to gather more insight into what’s going on in the trenches here in Las Vegas new residential real estate market.
We saw several iterations of the vaunted new Open Series product from KB Home, in both attached and detached form. The product flexes here, it fits the lot to bring a bit of the outdoors in there, it strips down complexity, and swaps out expense for function and simpler design.
It seems that Good Enough is more than good enough to keep action going in a market where entry-level in all its policy-backed splendor is about the only scale play in town.
What the Open Series does most, it seems, is act as a magnet for people of a diverse range of household compositions and ages to cross over into homeownership at a moment they believe can not be improved upon. The biggest visible innovation in the homes is right there in the sticker price, which attests to the biggest invisible innovation–the operational process that makes this product pencil.
Repeatedly, we’ve heard that if you can build and sell on Las Vegas’ relatively constricting lots for $100 a sq. ft. or less, you’re in the game here. If not, you’ve got problems.
Here’s what Raymond James’ home building and materials equity analyst Buck Horne has to say about the Las Vegas market right now.
* Las Vegas single-family sales rose 37% y/y in December, which also represented a surprising 10% sequential increase from November. The strong activity levels in Las Vegas reversed typical seasonal patterns, and are particularly noteworthy, in our view, given the demand drop-offs seen in other markets due to the effect of the prior November 30 tax credit deadline. From our perspective, we believe December’s sales trends in Las Vegas are likely being skewed by a higher mix of “foreclosure flipping” from investors, given the high percentage of recent re-sales acquired by investors in this market. Nevertheless, the 3,420 single-family homes sold last month (according to the Las Vegas Association of Realtors) was the highest level of December sales on record dating back to 2003. For reference relative to 2006, December 2009 sales were up 108%. Meanwhile, condo sales also remained strong, rising 77% y/y and 7% sequentially.
* Year-over-year single-family median price declines moderated for the seventh consecutive month as prices fell 22% y/y to $136,000. Condo pricing, however, showed some incremental weakness as y/y median price declines accelerated downward falling 27% y/y to $65,300. The median sales price per square foot ($76) for single family detached homes appears to be holding steady though, albeit down 60% from the 2006 peak, according to Dataquick.
Imagine, the word “strong” being used to describe activity in December in the Las Vegas market. Who’d a thunk it?
Naturally, when you’re doing business in this environment, the gorilla in the room is what happens after HBTC 2.0 (Home Buyer Tax Credit) expires in April for sales and the end of June for closings.
Most of the talk among those who work in the trenches here see a front-half-back-half scenario for 2010.
- The likelihood, right now, that any lobbyist can approach anyone in Congress about a HBTC 3.0 – extension of home buyer credit yet again — is infinitessimal.
- What is likely, is that within weeks of the sunset of the current program, home builders themselves — at least the national ones — will trumpet new promotional programs that will extend the $8000 ”benefit” to home buyers.
- Importantly, many guess that Treasury will extend its MBS purchases beyond presently stated limits in an all-out effort to keep mortgage interest rates favorable. Otherwise, a 250 basis point increase to the mid-7s is likely… with 8 as the number many feel could come as easily as not.
What all this means is that operations are in overdrive now. The land hunt is manic; the starts numbers — down for December – will pick up sharply in January through March, and then go into eerie silence.
If a newly balanced Capital Hill can do anything positive on jobs before mid-year, we might come out of that eerie silence with some genuine traction. Otherwise, the guessing game will focus on trying to estimate how many buyers the tax credit programs pulled forward, and how long it’ll take for time to work out that challenge.
One observation we’d make is that irrespective of the depressing level that home builder sentiment measures out at, we’re seeing determination and resolve offset low confidence levels. Clearly, the larger companies have cut so deep they barely recognize themselves, but they’ve all got action plans and those action plans call for lots of action now.
We’ve entered an If-you-build-it moment where all the disciplines on price, cost management, operational efficiency, etc. that these companies can bring into play are actually at work. So we’ll see if the builders are able to seize their own destinies, and become an economic engine, or whether they’re just another box car on the rails.
Comments
One Response to “Las Vegas Housing Enters New If-You-Build-It Moment of Truth”
Leave a Reply
[...] This post was mentioned on Twitter by Barbara Zucker, Barbara Zucker. Barbara Zucker said: Foreclosure Alert! Las Vegas Housing Enters New If-You-Build-It Moment of Truth … http://bit.ly/8ndY0Q [...]