Demand for new homes driving big gain in Las Vegas land prices

A surge in demand for new homes has created “extraordinary market conditions” in which bid prices are higher than the logical value, said Bill Lenhart, managing partner of Sunbelt Development and Realty Partners.

Raw land prices overcorrected before the housing recovery and have now overshot the fair market value as it relates to homes being constructed, he said.

The average price for medium-density residential land with six to 14 units per acre was $202,983 an acre in the fourth quarter, up from $170,450 in the previous quarter and nearly double from $110,000 an acre a year ago, Lenhart reported.

High-density residential land (14 or more units) is going for $251,895 an acre, while low-density land (three to six units) is $145,280 an acre.

Bid prices for  residential land will continue to rise and put upward pressure on new-home prices, Lenhart said.

“There’s always peaks and valleys in a growth cycle, and right now we’re in the midcycle peak,” he said. “What we’re seeing now is post-peak highs on bid prices for residential land and an indication that new-home prices are expected to increase.”

The median new-home price reached $220,355 in January, a 4 percent increase from the year-ago period and the highest valuation for the new-home sector in four years, according to the Las Vegas-based SalesTraq housing research firm. Price per square foot is $116, up 26 percent from a year ago.

Tight resale availability has allowed homebuilders to adjust pricing upward, SalesTraq analyst Brian Gordon said. Harmony Homes, Ryland Homes and William Lyon Homes have increased prices in several communities, while other builders have reduced buyer incentives such as free upgrades, Gordon said.

Recent land acquisitions by D.R. Horton, Ryland and Richmond American show builders moving forward on plans for future development. Homebuilders pulled 5,846 new-home permits in 2012, a 56.3 percent increase from the previous year.

The new-home construction sector is expected to experience more demand, but supply-side shifts in the resale market may play a role, Gordon said. Even so, a soft landing to the recent pricing run-ups is more likely to occur than the “free fall” seen during the post-bubble environment, he said.

Rick Hildreth, manager of Land Advisors Organization in Las Vegas, said the market is definitely showing improvement. He recently negotiated the sale of 14.6 acres near the Beltway and Durango Drive in northwest Las Vegas to D.R. Horton for $3.12 million, or $213,700 an acre.

The seller was Beal Bank of Dallas, which had acquired several parcels in Las Vegas through the Federal Deposit Insurance Corp.

Hildreth also closed three transactions totaling 60 acres in Lake Las Vegas for investor John Paulson, who purchased 900 acres at the resort community last year. The land is in different stages of entitlement, including some partially finished residential lots.

“The nature of buyers today is homebuilders and speculators,” Hildreth said. “Homebuilders are the hottest right now. They’re buying up everything they can get their hands on. There are a few end-users and speculators still trying to buy land where they’re not priced out, mostly smaller stuff.”

Lenhart said land sales volume in Las Vegas totaled $329.5 million in 2012, up from $207.7 million in 2011. The southwest submarket captured 40 percent of 2012 sales volume.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.