LAS VEGAS 3Q18 HOUSING: With Affordability Pressures Rising, Production Moves into Attached Housing
- Quarterly Detached New Home Starts are down 9% from 3Q17 – Annual starts are down from 2Q18 Levels for the first decline since the end of 2014;
- Activity in this market is actively pushing into attached product; annual attached starts are up 124% YoY and attached product is now 11% of the market – up from only 2% in 2016
- Median new home pricing continues to rise and is up 7.5% to $414k – production under $250k is now attached housing
- As the market continues to escalate in price expect the share of attached housing to continue to grow as builders try to meet the growing Millennial and empty-nester Boomer demand.
Metrostudy’s 3Q18 survey of the Las Vegas housing market shows that annual detached new home starts for 3Q18 rose just 4% from a year ago to 9,058. Quarterly detached starts dropped 9% from 3Q17 to 2,242, accounting for why annual starts were actually down compared to last quarter. There were 9,089 annualized closings in the third quarter which was an 8% increase over a year ago when there were 8,407 detached closings. The quarterly closings totaled 2,286, an 8% jump over the same quarter a year ago.
“It should be noted that it was the first decline in annual starts since the end of 2014, patly because the attached market has seen a much more significant jump in activity as several builders have focused on that product type in order to deliver more affordable product,” said Ryan Brault, Regional Director of Metrostudy’s Las Vegas market. “Annual attached starts in 3Q18 hit 1,151, a 124% climb from a year ago. Attached product now makes up 11% of all share of new home activity versus two years ago when it made up less than 2% of all new home starts. As the market continues to escalate in price expect the share to continue to grow as builders try to meet the growing Millennial and empty-nester Boomer demand.”
Median base pricing for new detached homes continues to climb, though the increase in median base price moderated slightly from last quarter to hit $414,000. That is a 7.5% increase over 3Q17. Production of all detached homes under $250k is almost non- existent now, with higher land, labor, and materials (especially lumber) costs forcing builders to continue to raise prices in order to try to maintain margins. Most new housing under $250k is now attached. Some 82% of all detached new home starts were base priced at $300k or above.
Total housing inventory remained flat at 4,867 in 3Q18 and is down 1% from a year ago as builders struggle to keep up with current demand. Finished vacant inventory decreased 8% year over year and stood at only 712 units, or 0.9 months of supply, while under construction inventory was up a modest 5%. Model count for detached subdivisions was down a whopping 98 from a year ago to only 408, a 24% drop, and reflects an overall drop in single family community count.
The resale market remains hot locally despite the normal seasonal lull which has resulted in a slight increase in inventory. The local market now has 1.6 months of supply of existing homes available, versus a four to six month supply in a balanced market. The median price of existing single-family homes was $295,000 in August, up 13.5% from the same month a year ago. That median is about $20,000 below the all-time peak in June 2006 when it was $315,000. Average days on market (DOM) in August was only 29 days for single-family homes and 25 days for condos/townhomes. Townhome & condo DOM remained steady from a year ago while single family dropped 5 days from an average of 34 DOM a year ago.
While nationally a number of housing markets seems to be showing early signs of a slowdown, the Las Vegas market keeps chugging along, now leading all measured markets in appreciation over the past year per the Case Shiller Index. Builders seem to be turning to new ideas and product types to try to try to meet the still high demand in Las Vegas, but escalating costs and lack of supply seem to be the limiting factors to making that happen, which is why I think starts volume will remain stagnant to end the year while Vegas continues to lead the country in most appreciation measures.
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