Analyst revises upward his projection for new homes

The battered new-home segment is coming back slightly in Las Vegas as resale inventory tightens and prospective buyers find themselves competing against multiple offers from cash investors, housing analyst Dennis Smith said Friday.

The president of Home Builders Research revised his projection for new-home sales this year upward to 5,000, an increase of 1,000 from his projection at the beginning of the year.

New-home sales fell to the lowest level on record in 2011, with just 3,894 closings, and Smith previously projected about the same number this year.

"Total sales won't change, but we're seeing a shift from resales to new homes, and builders are taking advantage of that," Smith said at his quarterly Housing Outlook presentation at Springs Preserve.

The median price of a new home rose to $201,040 in March, up 1 percent from a year ago, Home Builders Research reported.

Wayne Laska, president of Las Vegas-based Storybook Homes, said he has been able to bump prices on new homes, primarily because he's getting more owner-occupant buyers who are typically willing to pay more than investors.

However, some contracts are being canceled because appraisals are coming in below the sales price and lenders won't qualify buyers for the full price, he said.

That's because Las Vegas is still classified as a declining market by mortgage underwriters, said Michael Brunson, partner and appraiser at Brunson-Jiu.

There's a "big disconnect" that a willing buyer and willing seller set the market value, he said.

Appraisers have to look at houses that are in direct competition with the home being appraised, and that means foreclosures and short sales in many Las Vegas neighborhoods, he said.

"The system is broken on a number of levels," Brunson admitted. "We're a market of submarkets, so it's case by case. If you look at the whole market, we're still declining; but there are submarkets that are increasing."

Las Vegas real estate agent Bob Reeve suggests changing the appraisal process. He would like to see the government mandate that appraisers base their value on replacement cost with a bump for extra value items.

"That would allow the market to come off this floor we are on," he said. "It is very difficult to get an arms-length transaction because of what might have happened to some neighboring houses."

Ken LoBene, director of Housing and Urban Development in Las Vegas, said one of the factors that defines a declining market is the number of investors. Fifty-four percent of March home sales in Las Vegas were all-cash transactions, indicating heavy investor activity, compared with about 22 percent nationwide, he said.

Las Vegas also has an abnormally high market share of mortgages backed by the Federal Housing Administration, LoBene said. It's about 60 percent, far above the typical share of 8 percent to 13 percent in most cities.

"That cannot continue," the federal housing official said during a panel discussion. "We have a mission to protect neighborhoods and help the economy, but we also have a mission to protect the FHA fund. The pressure to drive down FHA's influence here is going to be very intense."

Smith of Home Builders Research said traffic through new-home models has been strong over the past three weeks, and net sales per subdivision have doubled to 0.9 a week.

He reported 346 new home sales in March, the third consecutive monthly increase. For the year, new home sales are up 14.6 percent to 873 closings.

Demand is so strong in some new-home communities that investors are buying homes "from dirt," before the start of construction, paying cash without a discount, Smith said.

"When was the last time you heard of that? And of course, there are appraisals of financed homes in the same subdivision where the appraiser has still classified Las Vegas as a declining market. Figure that out," Smith said.

Builders are also pulling more permits. Smith counted 514 new home permits in March, double the total from each of the first two months of the year.

That doesn't mean Las Vegas has suddenly transformed into a healthy market, said John Restrepo, principal of RCG Economics.

Job growth remains weak; and, while retail sales have improved, much of consumers' spending is coming from their savings, not income, he said.

"It's still one step forward and two steps back," Restrepo said. "We still have not seen the Holy Grail of job growth. We need to see at least six months of steady job growth, at least 3,000 to 4,000 jobs a month."

Frank Nason of Residential Resources said the rate of home price declines in Las Vegas is decelerating, probably due to seasonal factors. Northern Nevada is still seeing year-over-year price declines of 12 percent, he said.

"All the numbers seem to be going in the right direction," Nason said. "Listing prices have gone up in the last two months, and part of that is the (declining) percentage of REOs and short sales in the inventory. Normal listings are increasing, and that's pushing prices."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.