Homebuilders in northern Nevada have hit the brakes so hard that the inventory of unsold homes on the market is declining by several hundred units a month.
And folks who watch the market closely say that means the new-home market may begin recovering as soon as the middle of this year.
Mark Krueger, a principal in the real estate brokerage firm of Lee & Associates, told members of the Builders Association of Northern Nevada last week that unsold inventories peaked at about 1,000 homes in the third quarter of 2006.
But those inventories are clearing as buyers are drawn by lower prices and incentives such as free upgrades.
And the inventory of homes will tighten even more, Krueger said, as homebuilders start far fewer homes than they sell this year.
He projected that about 3,000 new homes will be sold in the Reno-Sparks area this year. But builders are likely to pull permits on only about 2,500 units.
The sales pace of 3,000 homes, Krueger noted, would mark an improvement over the 2,701 sales of new homes recorded in 2006.
That figure was a 40 percent decline from 2005, when 4,425 new homes were sold in the market and builders pulled permits to build 5,300.
Prices of residential land, which fell more than 46 percent last year compared with year-earlier figures, are likely to slip another 3 percent before stabilizing, Krueger projected.
Adding strength to the new-home market, he said, is the stabilization of the market for the sale of existing homes.
If current homeowners are able to sell their houses, they're far less likely to cancel an order for a new home.
Dennis Wilson, president of the Reno Sparks Association of Realtors, said his group believes that the resale market will continue to strengthen through the year, mostly as consumers regain their confidence.
Even though median home prices in northern Nevada have retreated more than 10 percent from year-earlier figures, Wilson noted that they remain above their 2004 levels a year in which homeowners had seen a sharp run-up in values.
But potential buyers who are sitting on the sidelines need to get that message, he said, and they need to hear that some observers think the buyers' market of the past year is about to come to an end.
Providing further support to the Reno-Sparks resale market, he said, is continued job growth and strong migration into the area.
Tom Cargill, an economist at the University of Nevada, Reno, agreed that the fundamentals of the region's economy remain strong.
But the region no longer can use low housing prices as a tool to attract new employers to the region.
"That has become a distant memory," Cargill said. "Nevada is becoming an expensive place in which to live."
That means that the region has lost two of its three tools to draw companies from California, said Tim Ruffin, an office broker with Colliers International.
At the same time that housing prices have lost their competitive edge, he said, office rents also have risen to levels equivalent to parts of the San Francisco Bay area.
But the slump in sales appears to be making some housing more affordable.
In 2005, Krueger said, it was nearly impossible to find a new home priced below $250,000 in the Reno-Sparks area. Last year, about 12 percent of the sales were in that range.
Builders, he said, are working hard to develop homes at the lower end of the market, mostly by designing smaller homes that can be built less expensively.