Despite rising prices, Las Vegas homebuilders sold the most homes since 2006, but industry sources predict that labor, material, and land limitations will continue to limit expansion in 2022, despite robust demand.
At least one homebuilder says it plans to expand in Pahrump this year, focusing on more inexpensive markets and taking advantage of the plentiful acreage.
Home Builders Research, based in Las Vegas, announced on Wednesday that there were 12,901 net sales in 2021, up from 12,596 in 2007. That’s up over 17% from 2020’s 11,059, but still far behind the 20,000 in 2006 and 29,000 in 2005 before the Great Recession and housing collapse. After declining in 2018 and 2019, sales have increased in the last two years.
“In terms of sales and permits, it was a very successful year,” said Andrew Smith, president of Home Builders Research. “It would have been much better if it hadn’t been for all the delays and supply chain concerns.”
As COVID cases grew in 2021, Smith claimed the housing market performed well, despite traffic seeking for new homes being 25% lower than in the first half of the year. Net sales were the lowest of the year, but still greater than the month before the pandemic in November 2019.
“It’s been a rollercoaster year,” said Luke O’Loughlin, director of sales at Richmond American Homes. “We didn’t know what to expect at times, and we were surprised by how much demand there was overall.” We had a fantastic year in sales and a robust year in sales when we witnessed price rises of 20 percent to 25 percent.”
Because of the high demand, several builders had to use wait lists and lotteries.
While 2021 was a strong year for sales and permits, Nat Hodgson, CEO of the Southern Nevada Home Builders Association, believes it might have surpassed 16,000 and reached 20,000 if more labor, a better supply chain, and accessible land had been available.
That issue isn’t expected to be resolved anytime soon, and Hodgson predicts that sales in 2022 will be similar to those in 2021. That’s partly because there’s already a backlog of permits, with Home Builders Research reporting 13,774 permits issued in Southern Nevada through November, a year-to-date change of 3,365 or 32%.
Hodgson described the year as “a banner year.” “I remember thinking it was all going to crumble and life was over 19 months ago, and four weeks later we were back up and growing.” It’s an understatement to say the industry is cyclical.”
“Certainly, demand exceeds supply,” said Klif Andrews, division president of Tri Pointe Homes. “We won’t be able to meet the market’s demand for housing.” As a result, there is a housing shortage, which I do not expect to improve anytime soon. I believe that 2022 will be similar to 2021 in terms of robust demand. The main worry is that interest rates may rise later this year, slowing things down.”
The ongoing migration of purchasers from California and other states, as well as millennials eager to make the switch from renting to buying, is boosting demand and price increases.
A single-family home cost $390,000 by the end of 2020, a 0.26 percent decrease from the previous year. By comparison, the price at the end of November 2021 was $469,898, a rise of 20.4 percent. Year over year, the cost of a townhouse has increased by about 19%.
In November, builders launched 14 new product lines. These offerings resulted in the addition of 1,144 new lots to the market. According to Smith, the average base price for plans in these neighborhoods is $576,376 with an average size of 2,602 square feet and a price per square foot of $230.
“I think it was a really strong market year,” Rick Barron, president of Signature Homes and immediate past president of the Southern Nevada Home Builders Association, said. “But I think supply chain and labor shortages probably kept us from being able to build and sell as many homes as we would have liked.” “Right now, I believe cost reduction is the most important element. Home prices have risen for reasons other than supply and demand. A lot of it also has to do with other expenses.”
Signature established a development in the southwest valley 18 months ago for entry-level houses priced between $340,000 and $380,000, but due to escalating material and labor expenses, the basic price has risen to $405,000, according to Barron.
“That completely changed our buyer profile,” Barron explained. “As a local citizen and someone who grew up in the valley, I am quite concerned that I will have to charge more than people can afford.” It has, unfortunately, had an effect. Builders continue to tell me that around half of the buyers are from out of state. The notion behind them coming from more expensive areas is that they are less concerned about paying as much. It has no effect on them.”
According to Home Builders Research, nearly half of active new-home developments had an average base asking price under $200,000 in January 2011, and only one project had an average base asking price over $750,000.
Available land, according to Barron, is part of the continuous difficulty of supplying demand at a reasonable price. Because it takes longer to build homes, there are more in production, draining some of the pipeline.
“I can see builders scrambling to figure out how to make 2022 work in the same numbers or with some potential for growth in closings,” Barron said. “We jumped ahead of ourselves.” The population of the community has decreased by around 5% to 7%.”
Home Builders Research reported 10,915 closings through November, which is about 3,000 fewer than the permits issued in 2021. There were 1,400 more permits issued in 2020 than there were in 2010.
Barron explained that for private builders like Signature, it’s all about identifying smaller land transactions and portions that have been overlooked by others. Large public builders are increasingly competing for property with companies like American Homes 4 Rent and others in the build-to-rent industry. In recent public auctions, they were outbidding public builders by 10%, he added.
Due to a dearth of land, more builders are looking to develop in distant locations like Pahrump, look for lots in Las Vegas they haven’t looked at before, and consider increasing the density of single-family homes and town homes, according to Barron. According to House Builders Research, town home sales accounted for 19% of the market in 2021, up from 17% in 2020. In 2018, it was 12 percent.
“Hopefully, it will result in more innovative design and what they’re bringing to the market to restore affordability,” Barron added. “I prefer microlots, small lots, and patio dwellings.” People were glad to live in them in the mid-2000s, when (builders) erected 10 to 12 homes per acre instead of the customary seven to eight for entry-level detached items. They can construct 12 to 13 homes per acre. To get those goods to market, zoning boards must realize that NIMBYISM (not in my backyard-ism) does not apply.”
In order to emphasis on affordability, Richmond American Homes is expanding to Pahrump in 2022, according to O’Loughlin. After already having a presence in Mesquite, he believes this will provide purchasers more options.
“Affordability is something we’re delighted to continue to drive home,” O’Loughlin added. “There will be more attached products, as well as a branch out to Pahrump and additional product lines.”
Richmond American established a plan to help consumers avoid wait lists and lotteries that other builders implemented due to demand and supply-chain concerns, in order to deal with demand and also help with cost.
The builder began buying materials ahead of time, dictating the floor plan and options on the lot while enabling the buyer to personalize it at the home gallery. It’s known as pre-plotting, according to O’Loughlin.
Even though the market is challenging due to supply-chain issues and rising construction costs, according to Andrews, demand for new homes remains robust across all price categories. He said that the epidemic may have exacerbated the tendency even more.