No boom yet, but homebuilding clearly on rebound
The sticks are flying again.
Residential home construction in the Reno-Sparks market is experiencing a full-fledged recovery — relatively speaking, that is. Although homebuilding has returned in strength for the first time in more than five years, and builders who’ve long held off construction of new subdivisions are once again putting stick framers to work, the total number of new homes being built still is far fewer than peak construction during the mid-2000s.
Permit activity is on the rise in the City of Reno, with 245 single-family permits issued through the first four months of 2013. That’s up 26 percent over all of 2012, and a rise of 82 percent from 2009. At the peak of residential home building in Reno during 2005 there were 3,141 permits issued for stick-built homes.
In Sparks during 2012 there were 209 permits issued for single-family homes — a 60 percent increase from 2011, and 137 percent rise from 2010, the City of Sparks Building Department reports. By way of comparison, there were 1,503 single-family building permits issued in 2005.
Homebuilding is going strong in several pockets of Sparks, including D’Andrea and Spanish Springs, as well as in Damonte Ranch, with Lennar opening new home communities in each area.
Lennar plans to build as many as 200 new homes in Reno-Sparks in 2013, says Dustin Barker, northern Nevada division president. That’s about more than 20 percent of the regional market, Barker says — but it’s a far cry from 2006, when the company erected more than 1,000 new homes in the area.
“Over time historically northern Nevada was building about 2,000 new homes a year,” he says. “We can say the market is coming back, but right now I doubt that will hit 1,000 new homes in 2013. Even though it is coming back, it still is half. And we are starting at a very low point from a volume and price standpoint.”
Perry Di Loreto, who has built new home communities in the area since 1976, says the few large builders that are still active in the area have finally shaken off the sawdust after years of hunkering down and holding on.
Di Loreto this year began a new subdivision, La Casada at Damonte Ranch, featuring single-story homes ranging from 1,800 to 2,200 square feet. Di Loreto expects to erect as many as 30 new homes in the first phase of La Casada.
“It’s been six years, and it has finally come alive,” Di Loreto says.
Di Loreto doesn’t expect homebuilding to return to the heated levels of 2003-2005, but the region doesn’t need to be at those levels of homebuilding, he says. With the market much more balanced, he says, the consumer is in charge of pricing.
Di Loreto isn’t building any speculative homes, and many of the deals that are being done at La Casada are all-cash deals from California-based buyers.
“We are very encouraged by the amount of activity going on and the quality of buyers,” he says. “They are very capable financially, they are shopping, and they are getting good deals.
“We are being very cautious,” Di Loreto adds. “There is a lot of reason to believe the market is returning, but we have been very careful and we plan to extend that caution into a recovery to make sure it has some depth to it.”
A rapidly shrinking inventory of existing homes — the opposite of the glut of homes that plagued the residential sector throughout the recession and led to drastic reductions in prices — has led to a demand for new homes. Barker says most of Lennar’s new product is on the market less than 30 days — a trend that led to 8 percent appreciation in home values last year, the Federal Housing Finance Agency reports. Prices still are nearly 40 percent off their levels of five years ago, though.
Demand currently is outpacing supply, despite builder’s best efforts to get the sticks flying. Lennar’s Barker says the residential market changed so quickly that it’s taking time to acquire raw land and develop the required infrastructure such as streets, sewers and storm drains. Developers also might have delays working through entitlement issues on land parcels, he adds.
The region’s compacted construction labor force also poses a small setback for developers — there are simply fewer framers, plumbers, drywallers and plasters to mobilize on new homes than three to five years ago. Workers who lost jobs during the downturn either left the area, or they’ve turned to other avenues of employment and aren’t willing to sacrifice steady paychecks for the uncertainties of the construction industry.
However, rising numbers of building permits that are issued can spur the return of workers who left the area for work in different states.
Di Loreto acknowledges that though sharp declines in residential building and home sales played a role in the economic downturn, they also will help northern Nevada finally shed the yoke of recession.
“Home buying is the ultimate expression of confidence in the economy and usually is the single-largest financial transaction a family will do,” he says. “As this part of the economy starts to recover, we will see it spill over into other parts.”
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