Home Building in Las Vegas

OK...I worked for a Home Builder in Las Vegas, as a Land Development Manager...what that means is...I oversaw the management of getting all the streets and utilities in so that the housing side of the business could build the homes....

Here's what I saw that was unbelievable...

Land had been purchased at about $10 to $20 K per lot prior to about 5 years ago...maybe even before that...
To improve the lot...build streets and put in the utilities and pay all the fees...that was about $60 to $80 K per lot...
Then the house costs about $50 a square foot to build....(1200 SF House = $60K, more for a bigger house)
So they were building homes for about $150K and with overhead and margin they could sell the home for $210K and make a decent profit.

They started increasing the sale price to what the market would bare...$300K plus...they made a ton of money, gave out unimaginable bonuses....and then hired more people who didn't know this whole thing was temporary...those new people didn't know the basics of this area...

Median income only allowed the average family to purchase in the area of $300K...and that was a stretch, when it went beyond that it was too expensive for the average family...so people did interest only or some other loan deal that allowed a temporary ability to afford the more expensive home.

The Home Builders started purchasing land for upwards or $80 to 100K per lot. They paid more for improvements to the land, because the land they purchased was ridden with issues that were costly to improve around, ie...flood channels or lengthy utility tie ins...they paid more for the haste by which they delivered the homes in general. It was greed that caught them in this pickle and the smart ones got out early and left the ship to sink like the titanic with all the unknowing poor souls left to go down with the ship including the purchasers.

I saw and so did everyone in the business that the market had reached its limit 3 years ago this spring. No one really wanted to report the numbers, because they didn't want to believe that the ride was over. But it was.

The math should tell you that if you can buy a 1200 SF home for under $200K, that the Home Builders cant build a home for less even if the land was free and we know its not. As an investor or a Home Builder, if you can pick up finished lots for less than $50K, and you know you can build the home for about $60 to 100K (depending on the size of the house), that you can make a profit. Homes will not rise to the prices of 3 to 4 years ago, until the median income rises...that's just a fact of economics.

Everyone seems to be missing this simple math equation.