Homebuilders looking for land to construct high-end homes are driving up prices in the valley, which during the second quarter reached the highest level in eight years.
Research firm Applied Analysis reported that during the second quarter that ended in June the valley’s vacant land market reached its greatest average price per acre since 2008. The $367,947 per acre or $8.45 per square foot price was reached despite there being no resort transactions during the second quarter. Those are deals at higher price points that tend to skew the average.
Overall, land prices during the second quarter rose 16.3 percent from the first quarter and rose 10.9 percent from the second quarter of 2015, Applied Analysis reported.
It wasn’t demand for resort corridor land that drove transactions between April and June, but demand by homebuilders, said Brian Gordon, a principal with Applied Analysis. He said “much of the dynamics present during the prior cycle run-ups” are starting to emerge again and land availability is becoming a concern.
The latest prices are equivalent to those in late-2004, when they were on the rise prior to the real estate collapse during the recession, Gordon said. The average price exclusive of resort corridor deals reached a high point of nearly $800,000 per acre for all of 2007 and low point of $100,000 per acre in the second half of 2011.
“The land market has been experiencing continued upward pressure on pricing as homebuilders are finding it increasingly difficult to identify and acquire large parcels suitable for residential development,” Gordon said. “Price points in the land market are reaching back to the pre-recession levels as selected builders are acquiring real estate in desirable parts of the valley, including master-planned communities.”
Look for prices to continue to rise, Gordon said. The population is likely to continue to grow and so will jobs, thus creating greater demand for housing, he said. There’s only so much land available, he said.
“Supply-side constraints given the government ownership and control of the bulk in-land in Clark County has the potential to further exacerbate the issue going forward,” Gordon said.
The number of acres of non-resort land sold in the second quarter was the lowest since the third quarter of 2012. There were 550.2 acres sold during the second quarter, down 26.7 percent from the first quarter and 10.5 percent from the second quarter of 2015, Applied Analysis reported.
The biggest demand for land was in the southwest valley, accounting for 30.8 percent of the sales with 169.7 acres, Gordon said. Pardee Homes bought 33.7 acres in The Cliffs in Summerlin South for $16.9 million or $501,248 an acre, he said.
The southeast valley accounted for 22 percent of the land sales or 121 acres. CalAtlantic Homes purchased 22.1 acres within Lake Las Vegas for $8 million or $361,577 per acre. Pardee Homes purchased 20.1 acres from Corona Black Green Valley LLC at Green Valley Parkway and Sunridge Heights Parkway for $500,000 per acre.
“New home land acquisitions and development is continuing to skew prices higher, particularly in the western side of the valley as demand for housing continues,” said Melanie Framo, an Applied Analysis researcher. “Summerlin continues to see activity with five new-home villages currently selling. Builders are also seeking out properties in Skye Canyon (in the northwest), Cadence (in Henderson) and other communities.”
Those looking for lower-priced homes will be out of luck, given the prices that homebuilders are paying for land, said Dennis Smith, president of Home Builders Research Inc.. Builders would love to buy land for $300,000 an acre, but it’s not available, he said.
“You can’t build a home that is going to be priced under $300,000 on land that’s $400,000 per acre,” Smith said. “If you are looking for a $250,000 home, none of these land sales are benefitting that.”
Not all of the land purchases, however, were made by homebuilders.
Industrial land is scarce in the valley and made up a bulk of transactions, involving 109.5 acres in the northeast valley. It included a purchase of about 60 acres by Prologis, a developer of logistics and distribution facilities. It has about 1.3 million square feet of industrial space planned in the northeast valley, Applied Analysis reported.
“Given relatively low vacancies in the industrial sector, developers are likely to continue to seek out developable sites within the region,” Framo said.