Tuesday, October 05, 2004
Copyright © Las Vegas Review-Journal
REVERSING TREND: Builder cuts prices on new homes
Decline in demand prompts move by Pulte Homes, angering investor
By DAVE BERNS
REVIEW-JOURNAL
The Gonzales family of Phoenix walks into their new rental home in Henderson's Anthem master-planned community. Denver-area real estate investor Ross King bought the home for $498,000 in September, less than two weeks before Pulte Homes lowered the price tag on similar models to $382,990.
Photo by John Gurzinski.
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The region's second largest home builder, Pulte Homes, has cut its new home prices by 5 percent to 25 percent in recent days, reversing a trend of ballooning home prices and leaving at least one Denver-based real estate investor threatening legal action.
Pulte executives announced the cuts to counter a dramatic decline in foot traffic, which was off by as much as 35 percent at some of its 18 Las Vegas Valley subdivisions.
Company executives believe the decline is the result of inflated housing prices that have in part been driven by real estate investors seeking a healthy return on their money.
New home prices in the valley appreciated by 35 percent during the first eight months of this year, according to Home Builders Research. Over the past decade, the median price of a valley home has more than doubled while median household income has increased just 22 percent.
The median price of a new valley home was $259,700 in August; the price for an existing home was $250,000, according to Home Builders Research.
"I think we hit a ceiling at a certain price point, and the buyer just wasn't willing to pay. It is simple economics between supply and demand," said Sheryl Palmer, Nevada area president for Pulte Homes.
Other builders could follow suit. Richmond American homes recently has lowered prices in some subdivisions while raising them in others, noted Dennis Smith, president of Home Builders Research.
Denver-area resident Ross King is furious about the Pulte Homes price cuts, which came less than two weeks after he closed on a 1,900-square-foot home in Henderson's Anthem master-planned community. King paid $498,000 for the house, which he bought as an investment. The same model now lists for $382,990 after costing as much as $516,990 in June.
King, a telecommunications consultant who earns in the mid-six figures annually, said he understands markets rise and fall. But he thinks he was the target of a hard sell by a Pulte Del Webb sales staff he believes was hoping to profit from the higher price tag.
"I was told that if I didn't close (on Sept. 24) I could be jeopardizing my $18,000 down payment and that per Pulte's agreement they would fine me several hundred dollars a day thereafter," said King, who has spoken with a lawyer about the episode.
Pulte's Palmer said she was unfamiliar with King's transaction but was willing to investigate his claims, although she noted that her sales staff did not learn of the price reductions until Saturday.
"I understand his frustration," Palmer said of King, "but we have been monitoring the situation really over the last few weeks, and then over the last few days made the business decision to adjust our pricing."
Executives of Pulte Homes believe the company will build 3,500 houses in the valley this year, trailing only market leader KB Homes. But a major increase in the number of resale homes on the market -- currently about 16,000, up from February's 1,400 -- has prevented Pulte from selling houses at the higher prices, Palmer said. She believes about half of those homes were built this year, suggesting many are being sold by investors.
Meanwhile King, the Colorado investor, has found a family to rent his new three-bedroom house for $1,600-a-month, covering some of his $2,200 monthly mortgage, but he remains angry over the price cut.
"I feel like the biggest idiot. I feel like I was absolutely taken," he said. "I am a smart guy. That's what makes it even worse."
But Smith of Home Builders Research has little sympathy for King's plight.
"That's the risk you're taking. Nobody screwed anybody. This guy took a shot. He was going for the big investment," Smith said. "This just doesn't happen in Vegas. It happens everywhere."
