Sunday, Jan. 23, 2000 | 8:55 a.m.
The Martin Luther King Day holiday brought a steady stream of potential buyers through the model homes at a Summerlin home-finding center.
The would-be buyers were looking for all that you would expect: a good home, well built, in a good neighborhood.
But many of the buyers, such as engaged couple Shannon Wade and Todd Garwood, were on the hunt because of fears that in the not-to-distant future, home prices might be creeping out of reach.
"Do it now and not later," said Garwood, who has been watching home prices inch upward in the Las Vegas Valley.
Another couple looking for a new house, Fred and Charlie Sowerby, said they also are anticipating a rise in home prices. The main reason the newlyweds are looking for a house is to get out of paying rent -- but they are happy to see prices slide up.
They believe that buying now will be a good investment in the future.
And they might be right.
Las Vegas Valley home prices, relatively stable despite a booming job market and surging population growth throughout the 1990s, have begun to rise much faster than inflation, say analysts who track local and national real estate trends.
The trend began in earnest last year, with home prices going up an average of more than 6 percent -- and this year that trend is expected to continue. That means that new and resold homes will be more dear -- and it also means that people who now own homes have a better investment than in previous years.
The Southern Nevada Home Builders Association, an organization representing builders and developers in the region, expects at least another 6 percent jump this year. But other analysts believe the hike could be larger.
A study by DRI/McGraw Hill for Kiplinger's Personal Finance Magazine projected a 9.1 percent increase for the coming 12 months. And for the next decade, the DRI/McGraw Hill analysts projected a whopping 89.7 percent increase in median home prices, Kiplinger's reported in its January issue.
The Kiplinger's forecast differs from other predictions because the DRI/McGraw Hill analysts factored in data on population and employment changes over the decade, said Elizabeth Razzi, who wrote the Kiplinger's story.
Monica Caruso, a spokeswoman for the homebuilders association, said her organization expects prices to go up -- but doesn't know for sure.
"We'd like to know, but we don't know yet," she said.
"Obviously, there's no reason to expect home prices won't go up," said Dennis Smith, owner of Home Builders Research Inc., a Las Vegas company that provides the association with statistics on home prices, mortgage rates and other information.
Smith said he doesn't think the prices will go up as fast as the Kiplinger's forecast. But he is quick to add that the surging population -- which has doubled since 1980, to more than 1.3 million in the valley -- will keep demand high.
"We're thinking that they're going to increase year to year in the range of 5 to 7 percent minimum," Smith said. He said that will be true for both new and older homes.
In November the latest data from his company found that the median price for a new home in the valley was about $144,000, or $124,100 for a resale. That's up more than 6 percent from a year ago.
The rising prices haven't caused a slump in home sales. Last year was another record year for the volume of sales, and analysts with the Southern Nevada Home Builders Association believe another record will be set this year.
There are several factors that are driving up prices in the valley.
Chief among them is that vacant land is harder to find and more expensive to build on. The Las Vegas Valley is fringed by inhospitable terrain and federal land -- the valley is, in the language of developers and public planners, landlocked, and the available property for development is quickly being used up.
The 2,000- and 3,000-acre "master-planned communities" that helped house a population that doubled since 1980 are getting harder to build.
The Bureau of Land Management has signaled that it opposes selling or trading large, new tracts for master-planned communities. Instead the agency is focused on selling 27,000 acres it owns inside the urban perimeter.
While much of that land is destined to go to homes, the bureau's policy will make simultaneous construction of thousands of homes difficult or impossible; construction of houses one-at-a-time is more expensive, and those costs are likely to be passed on to buyers.
"I think there's room for two more master-planned communities, maybe three," said Adam Frankel, a valley real estate agent. Still, "We are running out of land."
Another factor leading to the price hikes are increases in permit fees for many builders.
Henderson and unincorporated Clark County both raised permit fees this month. The total fees for a 2,100-square-foot house in unincorporated Clark County in December jumped from $702 to $804. But the homebuilders association and county staffers are quick to point out that the fee hike was the first in five years.
In Henderson, fees will go up by a similar amount. In both situations, the increased fees are designed to expedite the development review process, offsetting the increased use of city and county services by builders and developers.
Other fees loom. County and regional agencies are developing a valleywide program to deal with fine dust, particularly focusing on vacant land being prepared for construction. New rules are likely to make it more expensive to grade and prepare land for construction; those costs are likely to be passed on to consumers.
The rising prices could have two significant negative effects: One is that the prices will ultimately drive away buyers, Smith said.
Another problem, said Rich Preising, president of Hearthstone Homebuilders Inc. and of the Southern Nevada Home Builders Association, is that it will be harder to provide affordable housing for people without fat bank accounts.
A year ago, Preising said, potential buyers could find homes for sale for under $100,000. Today, "There are no more new homes under $100,000."
He said it isn't just an issue of price. The increasing scarcity of affordable housing also is the result of people not wanting high-density housing in their neighborhoods, and the elected officials who make up zoning boards are responding to those concerns.
So instead of building several $120,000 homes, builders are more likely to construct a single $250,000 home. It also means that a lot of people will soon start seeking affordable housing outside the valley, in places like Sandy Valley to the south or Pahrump to the north, Preising said.
Another effect of rising construction costs is that it puts pressure on construction companies.
Smith said home construction costs are going up faster than new home prices. That's putting pressure on the construction companies, he said -- but companies can't absorb the higher costs forever.
"Why should a home builder eat the cost? That's just economics," Smith said. "It's a very tough time for home builders in Las Vegas. ... I think the supply (of new homes) is going to be affected by builders' profitability."
He said the number of subdivisions for sale now is roughly 340, down from nearly 400 two years ago. That trend will likely continue, Smith believes.
A dwindling number of builders in the valley may be another reason why prices will continue to go up, said Keith Schwer, director of UNLV's Center for Business and Economic Research.
Before the upturn in prices of the last several years, Las Vegas had avoided the fate of other growing cities in the West such as Denver, Salt Lake City and Seattle, which experienced double-digit price increases throughout the 1990s.
To some degree, cities such at Portland, Ore., or Los Angeles might have had earlier steep price increases because of a lack of available land for building, Schwer said.
Portland, for example, put in place in the late 1970s strict development controls that severely restricted the amount of land available for development.
But Schwer believes a larger factor is that fewer builders controlled a larger share of the market, and therefore were able to command higher prices. Las Vegas has heretofore had a highly competitive market among home builders, he said.
"I think there was so much competition in the market that builders had to take it out in their margin," agreed Debra March, director of the Lied Institute for Real Estate Studies at UNLV. She said she's seen a steady decline in the number of companies building in the valley; many of the smaller companies, March said, haven't been able to compete.
"Consumers stand to gain in a more competitive market," Schwer said.
But is it the right time to invest in a house? Observers agree that it could be -- if you need a new home.
Frankel, for example, "wouldn't recommend housing for investment purposes, but I certainly would recommend it to a person who wants a home."
He's cautiously skeptical about home prices going up as much as predicted.
But Todd Hahn, a real estate seller for Pulte Homes at Summerlin, said he sees homes becoming a much better -- and more stable -- investment.
People who bought a home a few years ago are in a much better position to move up in the market now, Hahn said.
"People are kicking themselves for not buying two or three years ago, they're kicking themselves for not buying a year ago," he said. "That's going to be happening, I think, more and more."
He sees prices continuing to escalate, not just for new homes, but on the resale market as well. Less than a decade ago, "new homes were killing resales," Hahn said.
Now, "People in resale are able to get a lot more out of their houses. ... It can be a very good investment."
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