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Homebuilders reverse sales slump, but not forecast to last

Updated October 3, 2022 - 7:05 pm

Homebuilders reversed months of slumping sales in Southern Nevada and across the country in August.

But with mortgage rates climbing higher again, new home sales are expected to tumble once more around the U.S.

Builders logged 488 net sales — newly signed purchase contracts minus cancellations — in Southern Nevada in August, up 12 percent from July, according to Las Vegas-based Home Builders Research.

Before that, sales totals had dropped for four consecutive months.

Still, sales in August were down 44 percent from the same month last year, and builders’ land buying activity “has basically decreased to zero as they wait and see where things end up going into the end of the year,” Home Builders Research President Andrew Smith wrote in a report last week.

“Do not be surprised to see this lull continue for at least the next couple of months,” he added.

‘Sidelined demand’

Not long ago, rock-bottom mortgage rates were fueling a buying binge in Las Vegas and across the nation. But house hunters pulled back in recent months amid higher borrowing costs, and at least one industry group doesn’t expect builders’ sales bump to last.

A “brief decline” in mortgage rates helped boost U.S. sales in August, though sales are “expected to move on a downward trend in the months ahead,” the National Association of Home Builders said last week.

Nationally, the pace of builders’ sales soared 28.8 percent in August from July, after falling almost every month this year, according to government data.

The sales jump showed “there is clearly sidelined demand for housing, but it is being constrained by rising interest rates that are pricing many potential consumers out of the market, particularly entry-level buyers,” Robert Dietz, chief economist with the builders association, said in a news release.

The average rate on a 30-year mortgage in August was 5.22 percent, down from 5.52 percent in June, according to mortgage buyer Freddie Mac.

As of last week, however, it was 6.7 percent.

Last year, the average rate on a 30-year home loan was 2.96 percent.

Fueled by low borrowing costs — and by an influx of out-of-state buyers as people worked from home — Las Vegas’ housing market accelerated to its most frenzied pace in years in 2021.

Prices hit new all-time highs practically every month, buyers flooded properties with offers, and houses sold rapidly. Amid the buying spree, builders put buyers on waiting lists, regularly raised prices and, in some cases, drew names to determine who could purchase a place.

‘Weak’ buyer traffic

The Federal Reserve has raised interest rates multiple times this year in an effort to cool inflation, and in the housing market, higher borrowing costs have thrown cold water on the once-sizzling industry.

On the resale side in Southern Nevada, home purchases have tumbled, available inventory has soared, and sellers have increasingly slashed their prices.

With buyers pulling back, the median sales price of previously owned single-family homes — the bulk of the market — was $450,000 in August, down 3.2 percent, or $15,000, from July, trade association Las Vegas Realtors reported.

Prices were still up 11 percent from a year ago, but this marked the third consecutive month that prices fell, after not dropping for more than two years.

On the construction side, buyer traffic is “weak” in many U.S. markets as more people “remain on the sidelines” because of increased mortgage rates and high home prices, Jerry Konter, chairman of the builders association, said in a news release last month.

In a survey that showed a continued slump in builder confidence, more than half of the builders reported using incentives to bolster sales, including free amenities and price cuts, the association said.

Contact Eli Segall at esegall@reviewjournal.com or 702-383-0342. Follow @eli_segall on Twitter.

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