Las Vegas homebuilding market is slowing. Here’s why
Las Vegas’ homebuilding market has been pumping the brakes this year with fewer sales and a drop in construction plans, while people who do buy are paying high prices.
Southern Nevada is not alone. Builders across the country are selling fewer homes as prospective buyers face high borrowing costs and other financial headwinds.
Locally, builders closed 802 home sales in July, down 23 percent from the same month last year, according to Las Vegas-based Home Builders Research.
Nationally, the sales pace in July for new single-family houses was down 8.2 percent from the same month last year, federal officials recently reported.
All told, elevated mortgage rates and ongoing economic uncertainty “are weighing heavily on buyer demand,” Buddy Hughes, chairman of the National Association of Home Builders, said in a recent news release.
Home Builders Research President Andrew Smith spoke with the Las Vegas Review-Journal a few months ago about the local market. The interview has been edited for length and clarity.
Your research shows that Southern Nevada builders’ monthly sales have fallen pretty sharply from year-ago levels, and they are closing sales at record or near-record-high prices. What is causing this right now?
The first thing I like to stress is for people to understand the context and the timeframe that we’re talking about. To me, it’s not a surprise that activity has dropped from last year. A lot of the articles I see, not just in Southern Nevada but also nationally, often compare today’s numbers to post-pandemic, which were all-time highs. But what’s causing it? The cost of constructing homes is not going down, and therefore, it tracks that the cost of buying a home is also not going to go down, regardless of whether they’re selling more than they were a year ago or not. Between land prices and regulatory costs, construction costs, labor costs, just generally the costs for homebuilders are not going down.
Interest rates are the big factor when people buy a home, because that determines your monthly payment. Interest rates across the country have been elevated for a few years, coming off what had been record rock-bottom lows during the pandemic. How much does that impact builders’ ability to sell houses?
Rates are higher than they were, and yes, that’s an adjustment that builders have had to make. But that’s one of the reasons why new homes have been able to gain market share in terms of overall sales because builders have been able to use in-house lenders or preferred lenders to buy down interest rates, which is something that’s usually not an option on the resale side. While rates have definitely kept some buyers on the sidelines, another way of looking at it is in a positive light, in terms of new homes attracting some of the buyers they maybe wouldn’t if rates weren’t such an important factor.
Las Vegas was for a long time seen as a very affordable place to live, which kept fueling what’s now been a decades-long population expansion. The price of everything has gone up everywhere, but do you think Vegas is still an affordable place to live?
I’m not an expert on economics. But based on the numbers that we see, it seems that it’s becoming less affordable, certainly. The normal income for our area is not matching the increasing prices of homes, whether it’s buying or renting.
On the resale side, inventory is way up. Do you see this as a source of competition for builders?
Yes and no. Builders will tell you it’s apples and oranges, it’s not the same thing, you’re paying for a house that was built five, 10, 20 years ago. But it is more competition. Will that lead to price softening? I doubt it. The increase in prices have been less than they were through the pandemic, but again, the costs on their side aren’t going down, so I don’t see a major change happening in terms of the prices of new homes, even with increased resale inventory.
I guess this depends on if interest rates fall to 2 percent again, but will Vegas anytime soon see the kind of buying frenzy we saw in 2021 and 2022?
Probably not, but particularly for new homes, it’s going to be very difficult because there’s just not as many lots to build on as there were in the past. The land constraint is a real thing for new development. Until that gets figured out, there’s not going to be a huge increase in the number of new homes being built, unless builders look to infill parcels or there’s another significant jump in the amount of condos and townhomes.
Contact Eli Segall at esegall@reviewjournal.com or 702-383-0342.