Nevada’s housing market remains red hot due to a steady migration of new residents attracted to the state’s low taxes and steady employment growth. Nevada grew to a population of 2.37 million last year, adding 76,255 people, and it’s expected to swell to nearly 3.6 million residents by 2024, predicts state Demographer Jeff Hardcastle. At the same time, unemployment dropped to a low 3.8 percent in December, a 0.9 percent improvement from a year ago, while creating 53,700 new jobs, reports the Nevada Department of Employment, Training and Rehabilitation. Much of this activity has been taking place in Clark County, which now accounts for 71.2 percent of the state’s total population.
Southern Nevada: The Challenge of Growth
Southern Nevada homebuilders recorded yet another banner sales year in 2004, with 76,255 new residents moving to the area. A record 29,248 new home closings took place, a 15.9 percent increase over 2003, reports Home Builders Research Inc., a Las Vegas-based residential research firm. Builders secured a record 32,879 residential building permits in 2004, a year-to-year increase of 7,666 permits.
The city of Las Vegas, for example, permitted 6,196 new homes in 2004, valued at a combined $896.7 million. It also permitted 326 multiplex developments totaling 1,592 units, valued at $146.7 million. But the extreme volume of activity has played a heavy toll on municipalities, overburdening their resources and slowing the permitting process, according to some developers.
“The jurisdictions were over-extended last year due to the tremendous growth,” said Bill Hoover, Nevada president of Pageantry Communities. “Going through the entitlement process was much slower. The system was simply overloaded on all fronts.”
Although Pageantry sold 320 homes in four communities, it spent much of last year retooling its depleted inventory from 2003. The firm has since ramped up activities and expects to record 450 home sales in 2005 with prices ranging from $130,000 to $300,000.
The Las Vegas Valley’s median new home price reached $290,287 in December, a year-to-year increase of $80,676, while the median resale prices hit $250,000, or 38.9 percent more than in 2003. In addition, a record 64,168 homes were resold last year, or 14,376 more than in 2003, which marks yet another milestone.
“We’re very bullish on the market,” said Sheryl Palmer, Nevada area president of Pulte Homes and Del Webb, a subsidiary of Pulte Homes. “Demand is high, prices are stabilizing and resale inventory is diminishing, which is very good for the market.”
Del Webb Communities and Pulte Homes sold a combined 3,491 new homes in the Las Vegas Valley in 2004, ranking them third and fifth, respectively, among local area builders. “We’re very excited about new starts-ups in 2005,” Palmer says. “We’re representing all consumer price points, from entry-level to second move-up to active seniors.”
The Las Vegas housing market had a nearly 50 percent appreciation during the last nine months of 2004, according to the National Association of Realtors. But with success comes problems. Valley land prices nearly doubled during 2004, averaging $402,500 per acre or $9.24 per square foot (excluding outlying areas), reported Applied Analysis, a Las Vegas-based economic research firm. Residential lots are consequently shrinking as homebuilders squeeze more units into an acre in order to balance their cost-to-profit ratio. Land availability and high pricing have made entry-level housing increasingly elusive, resulting in more attached residential products such duplexes, triplexes, town homes and condominiums.
“We anticipate continued growth with the attached products because it’s getting harder to acquire land,” said Jim Widner, president of KB Home of Nevada Inc. “We expect to see more high-density attached product. Las Vegas is not a large geographic area for its population, and a lot of communities and product exist in a relatively confined area.”
KB Home Inc. led all Southern Nevada builders last year, recording 3,759 new home sales. And while the firm expects to duplicate those figures in 2005, its future, like those of many homebuilders, relies on finding developable land at an attractive price. The problem in Southern Nevada lies in the federal government’s vast land holdings, totaling 27,000 acres. The Southern Nevada Public Lands Management Act of 1998 now requires the Bureau of Land Management to auction off all its property in Clark County. The agency holds two auctions annually that result in roughly 2,000 acres of federal land being passed into private hands.
Focus Property Group, a Las Vegas area developer, organizes homebuilders to invest in land sales together. It recently joined forces with KB Home, Kimball Hill Homes, Lennar/US Home, Meritage Homes, Pulte Homes/Del Webb, Toll Brothers Homes, Woodside Homes and Ryland Homes to acquire 1,712 acres of land in the northwest Las Vegas Valley at the gateway to Kyle Canyon. The group paid $510 million, or $298,245 an acre, for land during the BLM auction held on February 2, 2005. The joint venture arrangement enables each builder to pay for only a portion of the overall cost, while vastly improving chances to obtain cost-effective property.
The market’s robustness prompted Celebrate Homes to sell about 25 percent of its North Las Vegas land holdings, roughly 1,225 residential lots from 3,000 square feet to 6,000 square feet in size, to an entity managed by Lennar Corp. in February 2005. Lennar, a publicly traded national builder, entered the Las Vegas market about two years ago by acquiring Greystone and US Homes and is expanding its Southern Nevada presence. Last year, it had 663 home sales in Las Vegas and US Homes had 556. Celebrate built and sold 235 homes in five North Las Vegas subdivisions last year, and plans to deliver about the same number in 2005, while processing maps on its additional land holdings.
“Our company has changed direction a little bit because of the increased cost of land,” explained Harry Shull, a principal with Celebrate Homes. “We are looking to build larger homes from 2,000 to 3,000 square feet in size. But in order to still create affordable entry-level housing, we are looking at low- and mid-rise homes.”
Northern Nevada Hits Construction Milestone
Meanwhile, Northern Nevada faces triumphs and challenges similar to its southern counterpart. Construction hit a record $1.6 billion in the Truckee Meadows in 2004, including 5,631 new homes and apartment units, according to local building officials. California businesses fleeing the Golden State due to its lingering budget problems and high living expenses are now relocating to Reno, Sparks and Tahoe. A total of 32,600 housing permits are approved but unbuilt in the Truckee Meadows, including 16,100 in Reno. The city issued 2,825 single-family homes permits in 2004 and 1,794 in 2003.
Sacramento-based R & K Homes is building 700 homes in nearby Fernley, plus residences in Hidden Valley and Golden Valley. It’s additionally planning to build in the Verdi area. The increased growth of new residential developments along the periphery of the Reno/Sparks area, belies the growing problem of rising land costs.
“Land prices have increased by roughly 42 percent over the last year,” said Ted Stoever Jr., a land specialist with Colliers International’s Reno office. “A year ago, a finished lot was 27 percent of the dwelling unit base price, but due to continued price increases, we’ve now reached the 32 percent level.”
Median home prices rose to $275,000 in Washoe County in 2004, a 31 percent increase over the previous year. The combination of rising land and material costs and overwhelming demand, compounded by short supply, continues to push the median new home price upward. Houses around Lake Tahoe are now selling for an average $87,000 more than a year ago. The median home price climbed 17 percent to $617,475 last year, according to Multiple Listing Service data compiled by Chase International.
Concurrently, the Lyon County median home price rose to $175,000 and Douglas County witnessed the median price reach $330,000. Yet even with these price increases, absorption remained strong, averaging near seven sales per month.
“The biggest is challenge is finding land, and getting it at an affordable price,” said Michael Adams, vice president of sales and marketing for Silver Star Communities in Reno. “And there are a lot of large production builders coming to town, which is making it a much more competitive environment.”
Northern Nevada, like its southern sibling, traditionally has been dominated by local builders until recently, when large, national, publicly traded firms such as KB Home, DR Horton, Lennar Corp., and Richmond America have entered the market. Just over 35 homebuilders were active in the Truckee Meadows in 2004, down from the previous year, continuing a trend driven by diminishing land supply, mergers and inventory buy-outs.
Despite this, Silver Star has flourished by finding in-fill niche opportunities that enabled it to close on 68 units last year. The firm expects to build 100 homes in 2005, ranging from entry-level condominiums to luxury detached residences, priced from the high $200,000s up to $1 million-plus.
“We are looking to do higher-density projects, and there is going to be some demand for that type of product as high prices push many people out of the market,” Adams said. “More people are now seeking a low-maintenance lifestyle or second home, if you can bring it at the right price. As a result, we expect to close on more homes this year.”