Stirrings in housing's low end

In 2001, 83 percent of the new homes built in the Reno-Sparks area were priced at $250,000 or less but by 2005, there wasn't a single stick-built home erected in the Truckee Meadows at that price point.

Fast-forward to 2009, when 66 percent of the new home inventory constructed once again fell in the lower-price range.

This year regional homebuilders are expected to begin erecting homes in earnest in new subdivisions featuring models priced at $250,000 or less.

Development already has picked up in northwest Reno, Spanish Springs, North Valleys and Damonte Ranch good news to area builders and subcontractors who've long been hunkered down and desperately trying to keep their businesses afloat.

Steve Hayden, vice president of sales for Peninsula Group, a floor covering contractor that garnered a large share of the residential market during the boom years, says that even if his company isn't landing contracts with developers, traction in the new-home market is good news for anyone in the northern Nevada construction industry.

"We are all looking for some signs that we are headed out of this," Hayden says. "We are looking for some optimism, a sign for us in the trades that there are some new projects coming out of the ground.

"To actually see new projects, even though maybe I do not have a contract with that builder, if that builder is moving forward and can be successful with a project, then others might follow."

The combination of falling land prices, brisk re-sales in homes priced under $250,000 in the Reno-Sparks area, and lack of new inventory at that price point are a signal for developers to start building residential construction in entry-level homes, says Mark Krueger, managing director and senior vice president of the land division for commercial broker Grubb & Ellis|NCG.

The Reno Sparks Association of Realtors says that in the past three months 832 existing homes priced at less than $200,000 were sold in the metropolitan area. That accounted for 61 percent of all the houses sold since Oct. 15.

At that sales rate, the 1,360 homes priced under $200,000 currently on the market amount to about a five-month inventory. A six-month supply is considered a rough indicator that a market is in balance. Anything less is a sign of a sellers' market.

"Buyers of the most desirable homes in this price range are often subjected to bidding wars," says Ken Amundsen, president of the real estate group. "The low inventory number in this price range makes it tough for buyers, and especially for buyers who are looking for a home to live in."

New home development at all price points has been stagnant for several years. But low land prices will allow builders to construct entry-level homes profitably, Grubb & Ellis' Krueger says.

"A lot of lenders have finally dropped pricing on land where it can now pencil out for a builder to go in and build at that entry-level range and compete with foreclosures and other products on the market," Krueger says. "There is very little new-home inventory, and it is not competing with new homes, it is competing with the resale market."

Bill Burke, general manager of Newell Roofing, has contracts in place with Lakemont Homes in the Canyon Pines subdivision in Somersett and Estancia in North Valleys. His company already has roofed seven new homes in Somersett and expects to complete seven more by March.

"We are all faced with survivability issues from day to day," Newell says. "Lack of work these last couple of years has us all on the edge of our seats looking to the day we have to close our doors.

"The little bit of movement we see in the market has us all optimistic. Saturation of foreclosures is diminishing, home prices are standardizing, and builders are seeing a way for value engineering to compete with the foreclosure market."

Steve Fine, marketing and communications manager for Signature Landscaping, says his company works closely with D.R. Horton, builder of the Cyan subdivision in South Meadows, and new work means the company can keep its core group busy. Signature, the largest landscape outfit in the area, was forced to transition its business model from new construction to a maintenance-oriented company as new construction vanished, Fine says.

Krueger says builder confidence will increase when builders know they can match pricing in the resale market and not get pounded financially on their product by another large wave of foreclosures flooding the market and driving down values.

But residential builders still are challenged by a lack of construction financing. Banks are still shying away from developers, Krueger says, and the only builders who can make headway in the regional market are publicly held builders who can tap the national equity markets or investor-backed private builders who can fund a few houses at a time.

"We are not going to light it on fire, but we are seeing signals that they want to get back in and hopefully we'll start seeing more transactions coming," Krueger says. "Land price and location are key builders have to the pick right spot and land has to be priced very competitively."

Peninsula's Hayden says gains in the new home market will positively benefit the region beyond the construction workers drawing checks for their labors.

"The short of it is that we need that optimism it is going to create jobs for those who do the work, and that ripple effect drives business to suppliers and provides greater stability and job security," he says.


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