Tuesday, October 05, 2004

Cold shower for one of Vegas' biggest homebuilders

Last modified Tuesday, October 5, 2004 8:16 PM PDT

LAS VEGAS -- Pulte Homes Inc. is cutting new home prices in Las Vegas, abruptly abandoning aggressive increases that helped drive up housing costs by tens of thousands of dollars.

The company, one of the nation's largest residential builders, also lowered third-quarter and full-year earnings expectations, citing sluggish sales from its southern Nevada developments.

The price cuts in one of the nation's hottest real estate markets sent Pulte shares down 7 percent Tuesday to $52.45 after an 8.6 percent decline Monday. It also weighed on others in the housing sector.

But most industry officials shrugged off the news, attributing the move to overly aggressive pricing rather than a slowdown.

"The main thing is, people are seeing that customers do have a limit," said Arthur Oduma, a real estate analyst for Morningstar Inc. in Chicago. He characterized the Pulte price shifts as "a hiccup."

Las Vegas is Pulte's second largest market after Phoenix. Those two are the only markets that represent more than 10 percent of the company's business.

Pulte, headquartered in Bloomfield Hills, Mich., cut prices in 18 of 23 southern Nevada developments it markets under the Pulte name, and all four of its Del Webb division communities in the Las Vegas and Henderson area.

"The supply and demand equation has changed," said Sheryl Palmer, Nevada area president for Pulte Homes. "That's simple economics."

Pulte price reductions ranged from 5 percent to 28 percent, with most in the 10 percent range, Palmer said. One Pulte home originally priced at $593,000 had been reduced to $425,000 and one home in Sun City Anthem was reduced from $656,000 to $499,000.

Palmer said Pulte did not plan price cuts in its other 44 markets around the country, and did not believe the housing bubble had burst in Las Vegas.

"I can tell you this is an isolated issue here," she said. "What we're doing is recognizing the market is shifting, not burst."

KB Homes, the largest builder in southern Nevada, said it did not plan to follow the lead of the region's second-largest builder.

"Our sales continue to remain very strong and very healthy," said Jim Widner, KB Homes Nevada president. He attributed the Pulte price reductions to "overaggressive pricing."

"The problem is not market-wide," agreed Dennis Smith, president of Home Builders Research, a regional real estate market databank. "It's builder-specific."

Still, Las Vegas area housing prices dropped in August after months of rapid increases, and more homes were staying on the market longer, Smith said.

"The bloom was off the boom about a month ago," said Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association. She said she expected some of the other 100 builders in the region to also cut prices.

"Across the board, we are going to see prices fall in the Las Vegas area. But how far? No one knows," she said. "We still anticipate selling 28,000 new homes in this marketplace for the year. That would be a record."

The number of homes sold in August dropped 6 percent compared with July.

The median new home price of $259,700 in August also decreased from the month before. Still, that was up 26 percent from $206,167 in August 2003, Smith said.

Las Vegas-area existing home prices had increased 45.3 percent at midyear, from $165,135 in June 2003 to $240,000 in June 2004.

After news of Pulte's price cuts, other homebuilders with business in Vegas also closed lower Tuesday, including: KB Home, which fell $1.19 to $79.70; Lennar Corp., down 67 cents to $44.63; and D.R. Horton Inc., which dropped 69 cents to $30.22.

One Las Vegas area developer and investor called the Pulte move a market stabilization after a period of low interest rates and rapid building.

"I don't think anybody thought the superheated bubble we were in would last, nor that it was real," Jim Dunn said. "I'm going to use the word 'hysteria.' Everyone thought they weren't going to get a house."