Las Vegas’ homebuilding market kept its foot on the brake last month, as higher borrowing costs put houses out of reach for many buyers.
Builders logged 350 net sales — newly signed purchase contracts minus cancellations — in Southern Nevada in October, down 59 percent from the same month last year, according to a recent report from Las Vegas-based Home Builders Research.
Builders pulled 545 new-home permits last month, down 55 percent from October 2021, indicating a sharp drop in construction plans, and their land buying was “basically non-existent” in October, wrote Andrew Smith, the research firm’s president.
Touchstone Living founder Tom McCormick, whose Las Vegas homebuilding firm targets first-time buyers, told the Review-Journal on Monday that house hunters have by no means vanished.
But he said the homebuilding market is “much slower” and buyer traffic has dropped off from last year’s levels. Many people can’t qualify for a mortgage, as they can’t afford the higher payments brought on by rising interest rates, he indicated.
“Our buyers are definitely feeling it,” McCormick said.
Locally and nationally, homebuyers have been largely pumping the brakes for months amid the Federal Reserve’s interest rate hikes, aimed at fighting inflation. The sharp jump in borrowing costs wiped out the cheap money that fueled America’s unexpected housing boom after the pandemic hit, sparking drops in home sales this year.
The average rate on a 30-year home loan was 6.58 percent last week, up from 3.1 percent a year earlier, mortgage buyer Freddie Mac reported.
In Southern Nevada, sales have fallen sharply from year-ago levels, sellers have increasingly slashed their prices, and builders have offered more incentives to house hunters and higher commissions to agents who bring in buyers.
Across the U.S., higher interest rates have “significantly weakened demand for new homes,” and buyer traffic is “becoming increasingly scarce,” Jerry Konter, chairman of the National Association of Home Builders, said this month.
During last year’s buying spree, Las Vegas Valley homebuilders put buyers on waiting lists, regularly raised prices, took bids for lots and, in some cases, drew names to determine who could purchase a place.
With buyers pulling back this year, Southern Nevada has seen a sharp jump in builders’ “standing inventory” of houses. Last month, the average weekly count was 371, up from 125 in January, Smith told the Review-Journal.
He said builders were “trying to keep up with sales” over the past two years and started homes before they signed sales contracts with buyers, figuring the properties would sell quickly.
But sales have now “dropped pretty significantly,” so as a result, many homes that got underway when activity was higher are now being finished without a buyer, Smith said.
Las Vegas’ overall buyer pool has shrunk, and more than a few people have backed out of their purchases. Last month, builders’ sales cancellation rate in Southern Nevada was 36 percent, the highest since December 2008, Smith reported.