Housing forecast: slightly cloudy with a chance of clear skies

Dozens of real estate professionals gathered at the Springs Preserve on Oct. 24, a bright, sunny day, for insight into a topic they hoped wouldn’t be dark and unpleasant: the Las Vegas housing outlook.

Dennis Smith, president of local consultancy Home Builders Research Inc., led the morning with a presentation featuring dual screens filled with economic charts. The not-altogether-encouraging title: “The New ‘Normal.’ ”

In one of his first projected slides, which tracked net sales of new homes in the Las Vegas Valley, Smith set a general tone.

“This is the chart that shows 2014 activity. You can see the trend line on it. The trend line is pretty flat,” Smith said. “Basically that tells us that the first half of the year was pretty good, and the second half of the year was ‘OK.’ I think in 2015 this graph will be identical to the one I’m showing today.”

Moving on to a chart displaying the number of local new home closings, Smith noted a dip in progress.

“Year-to-year through September, closings are down 1,310. Year-to-year our closings are down 23 percent,” Smith said.

He said the current forecast for 2014 was for some 6,250 closings, lower than originally expected.

“We thought we’d hit 7,000. The reason we’re not hitting 7,000 is not because of demand. Primarily it’s the result of some of the delays we’ve seen in processing,” Smith said. “We’ve got closings that are set back into 2015 that should have taken place in 2014 because of the delays in opening new subdivisions.”

To illustrate delays builders are reporting in getting permits and completing building projects, Smith used Clark County as an example.

“According to most builders that I’ve talked to — and I talk to a lot of them — their processing time has been delayed,” Smith said. “It now takes about 10 months to get approved. It used to be six months.”

In countering the argument that local governments might give that layoffs in their offices have delayed permitting, Smith noted that each new completed house accounts for three new local jobs and an increased tax base.

“I would think they would want to close those homes that have sold. Something’s got to be done there,” Smith said.

Smith also addressed the problem of rising land costs in the metropolitan area, which are pushing new-home prices up an average of 4 percent to 6 percent per year. This added cost is slowing homebuilding, especially for entry-level homes.

“A lot of the price increases is certainly not because of the wonderful growth of demand we’ve been seeing, it’s more in terms of the price of land,” Smith said. “Price of land is the basis.”

Increases have led to land costs near $425,000 per acre.

“A lot of builders can’t take that, certainly not a lot of the local builders,” Smith said. “They can’t make that work.”

The increase in property costs has borne out steep increases in the median new home price, too, which is up $10,000 in September over August in 2014 alone.

Smith said that there has been notable growth in new-home sales in the $300,000 range and up, but below there has been a retreat.

Beyond land costs, he attributed some of the housing economy’s lethargy to the long-running problem of empty homes. He said many as 30,000 units may be diluting the market.

“We still have a lot of negative equity. We still have a lot of distressed houses,” Smith said. “How many? That’s a question I’ve been asking for five years. It hasn’t changed.”

However, Smith said defaults are not “going through the roof” as rumored by some, pointing out that through September the number stood at 873. By contrast, year-over-year in September 2013, there were 3,688 notices of defaults. He said the number of houses on auction was dwindling.

“There’s no increase in the number of houses that are being flushed through the system, if you will,” Smith said.

Although the “new ‘normal’” Smith described shows growth overall in the housing market, that growth is nonetheless slowed at the lower end of the economic scale of potential homebuyers.

“The biggest problem I see is getting people qualified, the affordability factor in Las Vegas,” Smith said. “We have a service industry here.”

Smith said that loosening of regulations, such as lowering down payment requirements by Fannie Mae and Freddie Mac as well as lowering credit score requirements for mortgage loans, are needed to quicken the housing market’s pace.

“We’ve got a long way to go. It’s going to be a slow recovery,” Smith said.

Following Smith’s talk, the morning ended with a round-table discussion featuring real estate experts.

Echoing Smith’s focus on land prices, John McLaurey, KB Home’s vice president of sales and marketing, said rising property values are slowing widespread growth, especially in entry-level housing.

“It’s tough, when you’re looking at today’s land costs,” McLaurey said.

Meanwhile, local economist John Restrepo commented on the downward pressure in the housing market because of the recession’s lingering effects: lost jobs and reduced wages for many locals.

“This will affect the rate of the recovery of the economy,” Restrepo said. “The economy is definitely recovering, but at a rate much slower than we would like to see.”