Laying low

The market for new homes may be stabilizing in northern Nevada, but most builders aren't confident enough to invest heavily in raw land for future development.

The Builders Association of Northern Nevada reported a few days ago that new home sales in Reno and Sparks during the second quarter were up 18 percent from the depressed levels of the same period a year earlier.

And builders say that traffic through model homes has been up even before the start of the heavily promoted Parade of Homes this month.

But the improved stability of the new-home business hasn't yet led builders to begin stockpiling land for development.

A big issue, say specialists in land sales,

is this: Potential buyers of land are looking for bargains as the result of the downturn over the past couple of years. Sellers, however, continue to hold out for the sorts of strong pricing that was common before the market turned south.

But the willingness of a few buyers to come out of hiding and begin looking around for land deals in recent weeks marks a departure from market conditions at the start of this year, says Mark Krueger, a principal in Lee & Associates who handles many big land transactions for homebuilders.

Early this year, he says, "Everyone was hunkered down, nursing their own programs."

Now Krueger describes potential buyers as "extremely cautious." As they analyze potential purchases, he says, residential developers want to make sure the deals pencil out at today's prices. A few years ago, land transactions often were based on the belief that new-home prices would rise steadily, allowing builders to recoup sky-high costs for land purchases.

The caution is shown, too, in the small bites that developers are willing to take.

"A 100-lot deal is a big deal in this market," Krueger says. "It used to be a little deal."

Some developers are willing to take on larger parcels, says Bruce Breslow, a land broker with Commercial Partners of Nevada, but only if sellers are willing to take a haircut on their asking price.

"We have several developers seriously looking for the right opportunity to buy land," Breslow says.

But sellers, he says, are hanging tough on their asking prices as they expect the newhome market to recover and land prices to stabilize.

Stability in the housing market, Breslow says, depends largely on the reduction of inventories of unsold homes on the market.

"We're getting closer," he says. "The standing inventories are getting reduced."

The prices developers pay for water rights, meanwhile, have softened as residential development cooled. Today, Breslow says, buyers are paying about $28,000 an acre-foot for water rights. Two years ago, prices topped $40,000 an acre-foot.