Homebuilders pick up tools as demand strengthens at low end

Homebuilders may get a much-needed boost this year from northern Nevada's improving residential real estate market, which is signaling that it's time to build, particularly at the low end.

But stubbornly high office, industrial and retail vacancy rates likely mean no commercial construction anytime soon.

"There is a lack of inventory and an opportunity for builders, particularly at the entry level," said Helen Graham, president of the Reno/Sparks Association of Realtors and an agent with Keller Williams Group One.

Graham was among speakers at the Builders Association of Northern Nevada Forecast 2013 last week in Reno.

Graham said first-time homebuyers are being edged out of the market at the low end by investors who think prices have hit bottom.

Cash deals have jumped from 6 percent of sales in 2005 to 28 percent of sales in 2012, indicating an influx of investors. And median home prices jumped at the end of the year, from $155,000 in 2011 to $190,000 in 2012, so prices are bouncing back. Meanwhile, there is just four months of inventory on the market of houses priced under $400,000.

"The available inventory is at the lowest point in years," Graham said.

That could be good news for builders.

"We've turned a corner," said Mark Krueger, principal, ArchCrest Commercial Partners. "I've finally got some positive numbers to throw out there."

Krueger said new home sales in the Reno area jumped from 477 in 2011 to 785 in 2012, and he's forecasting another leap to 925 sales in 2013. Building permits went from 520 in 2011 to 798 in 2012, and he's projecting 950 permits in 2013.

Sparks and Spanish Springs accounted for 35 percent of all new home sales last year, said Krueger, while 32 percent were in south suburban Reno and 22 percent were in west/northwest Reno.

Krueger said there were 39 active communities, defined as developments with at least 10 lots and one home built. He thinks that will jump to 49 in 2013 with 18 new ones planned and eight closing.

The top five areas for new home construction are Monte Sereno, being built by KB Homes; Sonoma, built by Desert Wind; Sierra Canyon by Pulte; LaTierra, being built by Ryder; and Lennar's Casa Bella.

Other hot areas are Monte Vista, Monte Rosa and Cyan in south Reno; Mountainside, Canyon Pines and Breckenridge in west Reno; Pinnacles, Casoleil and D'Andrea in Sparks; and Pebble Creek, Autumn Trails and Highlands in Spanish Springs.

Finished lot prices are rising, said Krueger, jumping 9.5 percent last year from a low of $30,000 in 2011 and projected to hover just under $40,000 this year.

Krueger said in 2013 there will be a 2.66-year supply of finished lots or about 2,456 home sites, down from 3,407 lots in 2010. There's another 2.45-year supply of tentative map lots or about 2,263 lots that are recorded with the county but do not have streets or utilities available. And there is a 9.5-year supply of tentative map lots, 8,828 proposed lots, he said.

The commercial real estate market, meanwhile, is looking up but any new construction is probably years away.

"Things are looking better, most definitely," said J. Michael Hoeck in the industrial properties group at NAI Alliance.

The vacancy rate in industrial properties dropped a point last year, from 14.65 percent in 2011 to 13.56 percent in 2012, and is projected to reach 12.3 percent in 2013.

"Eight to 10 percent is a healthy market," said Hoeck. "Frankly, we overbuilt."

Hoeck said all of the net absorption in 2012 involved existing inventory. No new construction came online in 2012.

"That's unprecedented," Hoeck said. "And there's no construction planned for 2013, but we need to start thinking about it. When do we build? It will be driven by rents."

Scott Shanks in NAI Alliance's office property group said the office vacancy rate stands at 16.6 percent and should dip to 16 percent this year. There has been no new office building for three years running and 2013 won't be any different.

"We'll start to see construction when the vacancy rate hits 10 to 12 percent," said Shanks.

Mark Keyzers, senior vice president in NAI Alliance's retail properties group, said the retail vacancy rate rose a point last year to 18.52 percent or twice the normal rate. He expects it to drop back a point in 2013 and he remains bullish.

"Activity is up. The fourth quarter 2012 was one of the busiest I can remember," said Keyzers. "In the 1990s, it took us nine years to recover and we're already five years into it now so hopefully things will continue to improve."