Everything must go

Builders are sparing little expense in a bid to entice hesitant buyers into a soft housing market.

Virtually every major builder in the Las Vegas Valley has pushed big sales this fall, and the price breaks have been steep.

Pulte Homes marked down prices 15 percent on certain models, with discounts of up to $80,000 on some completed new homes during one October weekend. The builder's Del Webb subsidiary sliced $55,000 from some of its asking prices. Rhodes Homes has offered as much as $100,000 off on finished houses. Lennar Corp. has slashed prices on some models by about a third; Lennar cut the cost of a 5,000-square-foot home in its Earlstone community from $911,490 to $662,490, and a 4,498-square-foot home in its Silver Creek subdivision went from $807,290 to $612,290. Centex Homes has clipped $25,000 to $100,000 off the prices of some of its existing homes, and is ponying up as much as $21,000 in closing costs on some models. American West Homes' valleywide "liquidation sale" on Nov. 10 and Nov. 11 featured savings of up to $143,000.

So are the sales boosting traffic and clearing inventory?

Builders say yes.

After Astoria Homes dropped prices on standing inventory by as much as $200,000, or 27 percent, Oct. 12-14, traffic at least doubled across the board at Astoria communities, and even tripled in some cases, said Tom McCormick, the company's president.

The sale helped make October Astoria's best sales month since 2005. The builder averaged about four sales per neighborhood during its discount weekend, compared with an average of half a sale to a sale per week before the price cuts.

Astoria's available inventory dropped from eight weeks or 10 weeks of supply to around four weeks or six weeks. The sales are "sticking," too, McCormick said, with a cancellation rate of 10 percent, down from about 30 percent before the sale.

Astoria hedged its bets by accepting only buyers who didn't need to sell existing homes to close the deal.

Pulte Homes had an "exceptional" weekend during its "Monster Sale" Oct. 19-21, said Nick Parks, the builder's local director of marketing. Sales doubled when compared with the four prior weekends.

"It's a new market, and you need to provide the consumer with new value propositions to be successful today," Parks said.

"There are people out there who need homes and want to buy homes, and I think our success with the Monster Sale demonstrates that there is consumer confidence in the market if they're provided the right value proposition.

"Generally, it's a positive indicator that the market isn't as depressed as some want us to believe."

Numbers from tracking and consulting firm Home Builders Research show steady increases in new-home sales in the fall, as builders intensified their cost cutting.

The local market moved nearly twice the number of homes during the week ended Nov. 11 as it sold the week ended Aug. 12, an increase Home Builders Research President Dennis Smith attributed to widespread, continuing sales.

Companies that haven't held or advertised sales are not reporting significant increases in purchases.

D.R. Horton, which hasn't publicized any sale-price reductions, has 42 local new-home subdivisions and posted net sales of just four homes in the week ended Nov. 11 and two homes in the week ended Oct. 14, Home Builders Research found. And despite total traffic through models of between 500 and 600 people weekly, Toll Bros., a luxury builder that also hasn't marketed any discounts, had zero net sales in the week ended Nov. 11 and a negative net-sales rate of two homes in the week ended Oct. 14.

That means the company, whose homes are priced from $345,975 to more than $1 million, had two more cancellations in Las Vegas that it had sales.

Toll officials declined to discuss local sales volume, noting that they release regional data only quarterly. Spokeswoman Kira McCarron said sales of new homes and standing inventory "are consistent with current marketing conditions."

D.R. Horton didn't respond to an e-mail seeking comment on its low sales volume and whether it's planning special pricing events.

Ken Perlman, vice president of Sullivan Group Real Estate Advisors, said builders might skip sales for various reasons.

The cost of land might prohibit lower price, or perhaps a builder has met sales quotas for the year and doesn't need to push for additional closings.

Also, national companies could find that strong sales in some markets allow for more-sluggish sales in other cities.

For most local builders, though, lower prices were the last frontier in ginning up home sales, and Smith said builders are telling him the discounts are drawing out reluctant buyers.

"They tried incentives and they tried financing," Smith said. "Now, they've gotten to the price, with sales to get rid of inventory, and it's working."

Sales generate traffic and closings more effectively than incentives do, so builders are wise to drop prices, even temporarily, Perlman said. The consumer who can't qualify for a $350,000 house won't have an easier time getting a mortgage just because the builder tosses in a free swimming pool and a trip to Hawaii. The buyer still can't afford the home. The only solution: a lower price, Perlman said.

While those price breaks help buyers afford homes, they don't add to a company's bottom line.

McCormick declined to discuss his private company's profits. He acknowledged, though, that construction and land costs mean Astoria couldn't replace the discounted homes for the low prices they commanded during the builder's sale. He added that builders across Southern Nevada are experiencing a similar disconnect between sale prices and building costs. Yet, the earnings sacrifice is essential to keeping the doors open.

"As much as we may be selling homes below replacement cost, we're in the business of building and selling homes," McCormick said.

"We aren't like the homeowner who can decide to wait six months or a year to sell. It's hard to justify keeping everyone employed when you're not selling and building homes. Like everyone else, we've been through layoffs. We want to minimize that as much as we can."

Builders' drive to survive could translate into more price drops.

Most local builders no longer have several months of standing inventory, Smith said, so gains in available homes are coming mostly from cancellations, as jittery consumers back out of the market or stricter lenders tighten loan-qualifying criteria.

Smith believes sales will "pop up continually, off and on" over the next 12 months to 18 months, as cancellations wax and wane along with the performance of the market or changes in bank guidelines.

At least one local builder is already considering another sale.

Pulte is contemplating an event near the beginning of December with price breaks and incentives similar to the October reductions.

"It's important to provide the consumer with confidence, and when we offer them these limited buying opportunities, it gives them confidence to make a decision," Parks said. "If you give the customer an exceptional opportunity, it helps them feel good about their purchase and make wise decisions about their home."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or (702) 380-4512.

Numbers from Home Builders Research show that weekend sales events with dramatic price breaks have helped local builders attract more potential buyers and close on more homes.
BuilderSale detailsTraffic,
sale weekend
a month earlier
Net sales*,
sale weekend
Net sales
a month earlier
AstoriaPrice breaks of up to $200,000 or 27 percent, Oct. 12-14604218284
PulteUp to 15 percent, or $80,000 off, Oct. 19-212602258841
Del WebbUp to $55,000 off, Oct. 19-215605767342
LennarUp to 20 percent, Oct. 19-20787563524
*Net sales equal total sales minus cancellations
Source: Home Builders Research

Traffic and sales among all builders reporting numbers show that while traffic has declined, sales are up compared with the summer since the sale season began in October:
Marketwide traffic
Week ended Nov. 11Week ended Oct. 14Week ended Aug. 12
Marketwide net sales
Week ended Nov. 11Week ended Oct. 14Week ended Aug. 12
Source: Home Builders Research