Feature Stories - November 2005

Home Means Nevada

Questions and Answers with Nevada’s Home Builders

by Jennifer Rachel Baumer

Nevada is the one of the fastest growing states in the nation. It’s a great place to be a home builder – or is it? Stories abound about the housing industry: The market is in a bubble. We’re over-building. We’re under-building. People are standing in long lines to buy homes. Affordable housing is a thing of the past. Lots are getting smaller, raw material costs are getting larger.

The Players

David McEntire is president of Amstar Homes, Inc., licensed in Nevada, California, Colorado and Utah and operating in Nevada primarily at the southern end of the state. Amstar’s Rosemont Community in North Las Vegas is single-family housing starting in the $220,000s, designed for that community to fill attainable housing needs and provide large spaces for future growth. The company’s high-end community is Mira Bella in the Lake Las Vegas Resort, award-winning single-family 4,000-square-foot homes averaging $2.8 million.

Steve Haley is president-elect of the Reno/Sparks Association of Realtors. Wayne Laska is a principal of StoryBook Homes LLC, a two-year-old Southern Nevada company that just completed its first three projects, with 115 homes. Current projects include Toyland, a new subdivision near El Capitan, and two other single-family home subdivisions. Bob Peterson is vice president of operations for Landmark Homes and Development LLC, working in Northern Nevada with two single-family home projects in Dayton and a zero lot-line project in Carson City.

Harry Shull is president of Celebrate Homes, Inc., active in Texas, California and Southern Nevada. Celebrate Homes has three current projects including Madison Estates, single-family homes in the $300,000-$400,000 range, and Lone Casa Grande on Lake Mead and Lone Mountain Estates, a 48-home community on half-acre lots in the $400,000-$600,000 range.

Dennis Smith is president of Homebuilders Research in Southern Nevada. Rob Winkel is division president of Barker-Coleman Communities, Lennar Homes Division, which has projects at both ends of the state. In Northern Nevada, Barker-Coleman is currently working on six communities in South Meadows, three in Curti Ranch, three in Damonte Ranch, four in Northern Sparks, two in Spanish Springs and five more in northwest Reno.

Are people still lining up to buy new homes?

Shull: No. I think what created the buying frenzy last year was speculators in the real estate marketplace. Speculators bought up property and created a void in the market and there was a slight downturn in prices, but they went right back to where they were. Prices continue to escalate, but not at the same rapid rate as last year.

Laska: No. The market has corrected itself from last year’s feeding frenzy, which was due to escalating demand, pretty low prices and a very good supply. In the last six months of last year and into this year, more product has come into the marketplace and it’s not as affordable now, so you’ll only sporadically hear of somebody waiting in line. Is there a housing bubble in Nevada? If so, when is it likely to burst, or has it already done so?

Smith: Housing demand goes in cycles. All this talk of a housing bubble just means a change in the cycle. Does that mean prices are going to collapse? No. This is a very strong housing market with a lot of underlying strengths other markets don’t have, although it is precariously positioned in terms of an economic base [largely dependent on one industry.]

McEntire: The building industry has eliminated that "housing bubble" situation by applying for and obtaining far fewer building permits, after becoming aware of the obstacles in the marketplace and the growing resistance to price. I’d say we have not sought to build believing that "they would come," but rather to ensure the market is there before we build product and end up with standing inventory.

 Laska: In my opinion, the housing bubble is a myth. The reason I say that is, unlike the stock market, people live in their homes. They don’t need to own stock, but they do need a place to live. With in-migration and job creation in Las Vegas, I firmly believe the "Las Vegas housing bubble" is a myth. Winkel: I don’t think we had a housing bubble and I don’t think there’s any bubble to burst.

Peterson: I don’t personally believe we have a housing bubble in Reno. I think the supply and demand is pretty much in balance. For awhile, it was a supply shortage with more demand than properties available, which drove prices up, and it balanced out as more projects were entitled and finished, supplying the demand that existed.

What’s the median price for a home? How does it compare to last year?

McEntire: In Southern Nevada, the most current price is about $325,000 for a new home. That compares to the upper $200,000s last year, as I recall. There’s been a market adjustment of just under 20 percent from a year ago. Shull: It’s up substantially from last year in Southern Nevada. We were in the $270,000 to $280,000 range and it’s gone up $50,000, probably a 20 percent jump in value.

Haley: In 2004, Northern Nevada saw 28 percent appreciation in the secondary home market, depending on price range. This year it’s dropped to 15 percent, and I think you’ll see 8 percent to 12 percent appreciation over the next one to two years. What types of homes are the most in demand? What price range are buyers looking for?

Shull: It’s economics. Everybody wants the single-family home, but not everybody can afford it. So attached products are the development community’s way of keeping pricing down so more people can afford to buy. Condo conversions are in demand.

Winkel: There’s a varying demand. Our entry-level homes are in high demand, also first-, second- and third-time move-up homes have significant demand. Our longest waiting lists are in south Reno. Peterson: There are still buyers for each market segment. We have homes starting in the high $200,000s and up to nearly $1 million, and demand is fairly steady for the whole range. I think we need to be very cautious or very aware that as prices go up, we’re starting to price a segment of the population out of the market. I’m looking at how I can make product available for those buyers as we go forward over the next few years. Otherwise there’s a part of the working population in Reno who will be priced out of the market, and we don’t want that to happen.

What do you consider an affordable home, and what’s the market like for these types of homes?

Shull: The average price of a home in Las Vegas is in the $330,000 range, and I believe the average household income is only $47,000. That income will not support a $330,000 mortgage.

Laska: If you can get anything below the median price, it’s going to be considered an affordable home; $230,000 to $260,000 is affordable. If you’re a busboy and your wife has a job and you make $35,000 a year between the two of you, what’s affordable to you? Not $230,000 – that’s for sure. While I don’t think there’s a housing bubble, I think affordability is a very serious problem in Las Vegas. What effect has the rising cost of materials had on your company?

McEntire: It’s been substantial. We’ve seen as much as a 20 percent increase over the last 12 months, and even higher in the last 18 to 24. We’re hopeful that it subsides, because it is adding a tremendous amount of pressure on builders.

 Winkel: We’ve experienced increased costs for concrete and lumber and now we’re experiencing increased costs for petroleum-based products as a result of higher gasoline prices. Prices across the board have gone up substantially due to increased demand. Sub-contractors and professionals are very busy and in high demand right now, so they also want higher fees.

Peterson: With demand all over the world for construction, steel and cement and other products have driven up local markets in other states. We’ve seen a double-digit percentage rise in costs over the last 24 months. In the past we tried to anticipate a maximum 3 percent overall inflationary cost per year, but the costs of materials have far exceeded that amount in the last two years.

Has your company had problems getting permits and entitlements from local governments? Are you experiencing delays in getting projects approved or getting approvals from inspectors?

McEntire: Absolutely. Delays and fees continue to increase. The toughest scenario to deal with is that of delays – they have been three, four and five times more that what we experienced in the past. Delays add a huge cost to each and every home. If we were able to alleviate or eliminate that in future, we could deliver more affordable homes, but it has been tough.

Shull: Not in this state. I hope it continues in that vein, because I think one of the reasons housing is so expensive in California is that impact fees and other fees can add upwards of $50,000 to $70,000 just to pull a permit and build a house. It’s one reason the state of California is in a financial train wreck. Laska: We’ve had some entitlement issues. That’s probably why we’re not going to make our goal this year. But we can’t pin it totally on the county for holding us up. They’ve had some engineering issues and there’s a need to make sure engineering is correct before a plan goes to the county. Yes, the county is backlogged and has delayed us, but sometimes it’s because what they’re given isn’t quality stuff.

Winkel: Everybody is strained right now as a result of high demand for permits and inspections. There’s an added strain on our governmental and administrative officials and professionals involved, so everything is taking a bit longer right now.

Is land still available for large tracts or master-planned communities? If so, where?

Shull: It is, but in Southern Nevada there’s not much left within city limits. There’s land in Lincoln County and good chunks of BLM land that will be released for sale, but the large parcels are mostly diminished, for sure.

Winkel: (In the north) land is far more expensive than it used to be. I don’t know of any large tracts available right now, and that’s why developers are moving to Dayton and Fernley where it’s a little easier to find large tracts of land.

Will homes be built on smaller and smaller lots as land prices rise?

Shull: You’re going to see more dense projects than in the past. We’re working on a project with 30 units to an acre. That’s to help keep building costs down so we can build housing the average person can afford to buy.

Winkel: We’re definitely already seeing that. We’ve seen average lot sizes decrease from 10,000 to 12,000 square feet to 6,000 to 7,000 square feet, to where they are now at 3,000 to 4,000 square feet. And just a year ago, there was only one high-rise condominium project in downtown Reno; now eight or nine are underway.

Peterson: Zero lot-line projects are configured so that instead of the five-foot side yard on one side of the house, the home abuts the property line. The higher density developments get more products along those lines. What do you think of the trend toward high-rise building? Is it a fad, or is it here to stay?

McEntire: I hope it’s here to stay. I love the fact that it lends itself to redevelopment in the urban areas. Some incredible architecture and landscape has been rejuvenated and built anew.

 Peterson: Looking at other parts of the country, I think it’s here to stay. It certainly is a better use of the land, and gets more units per acre, one of the critical elements in keeping costs down.

Overall, do you think Nevada’s housing market is healthy?

Winkel: People are concerned about a housing bubble, but Reno is really a stable market. You’ve got a land-constrained market and continued demand. It’s a great place to live. A housing bubble is marked by significant speculation, and most builders in Nevada have not been willing to sell to speculators. Demand is filled by families and people wanting to buy homes in which they’ll live. There’s no crystal ball, but what we are anticipating is a flattening more toward equilibrium, which is good. You can’t sustain a level of growth like we’ve had in the last year and a half. Overall, this is an excellent market.