LAS VEGAS HOUSING MARKET 4Q18: With Under-$300k Detached Home Starts Virtually Eliminated, Attached Starts Become the Solution for Affordability Pressures
- Annual attached starts in 4Q18 hit 1,304, a massive 103% climb from a year ago. It is clear now that attached product has become the way for builders to deliver affordable product to satisfy the very strong entry-level and move-down demand.
- Annual detached new home starts are down 0.4% from 2017 levels; 4Q18 detached starts are down 6% from 4Q17 numbers.
- Production of all detached homes under $300k is almost nonexistent now, making up only 14% of starts in the fourth That was made up for by attached starts of which 70% were in the sub-$300k price point.
- Housing Affordability continues to erode: only about 48% of all homes sold are affordable to a household earning the median income – down from 1Q18 when it stood at 58.8%
Metrostudy’s 4Q18 survey of the Las Vegas housing market shows that the number of annual detached new home starts for the quarter dropped 0.4% from a year ago to 8,892. Quarterly detached starts fell 6% versus 4Q17 to 1,986, the first time it has been below 2,000 in two years. There were 9,023 annualized closings in the fourth quarter which was a 5.4% increase over a year ago. The quarterly closings totaled 2,245, a 3% decrease from the same quarter a year ago.
“The attached market has seen a much more significant jump in activity as is becoming a bigger part of the overall market now at 13% of all starts,” said Ryan Brault, Regional Director of Metrostudy’s Las Vegas market. “Annual attached starts in 4Q18 hit 1,304, a massive 103% climb from a year ago. It is clear now that attached product has become the way for builders to deliver affordable product to satisfy the very strong entry-level and move-down demand, and also still be able to hit necessary volumes to make up for the shrinking buyer pool of those able to afford single-family product that has become near impossible to deliver at a sub-$300k price point in most of the Las Vegas Valley. That jump in attached starts and closings meant that the combined new home activity was still positive year over year, with 10,196 annual starts (up 7%) and 9,998 closings (up 13%).”
While wage growth in the region has outpaced the nation as a whole, housing affordability has dropped considerably as a result of higher interest rates and appreciation that is among the highest in the country. As of 3Q18, the NAHB Housing Opportunity Index stood at 47.6, which means that roughly 48% of all homes sold are affordable to a household earning the median income. That is down from 1Q18 when it stood at 58.8. It is expected that the 4Q18 index number will be even lower given continued rise in prices even as interest rates have generally flattened more recently.
It should be noted that the resale market cooled substantially in recent months even compared to normal seasonal slowdown. The number of active listings began creeping up in July and was at 6,521 as of November. That still represents only 2.7 months of supply – well below the “new normal” equilibrium level of 4.0, meaning it’s still very much a seller’s market. The median price of closed existing single-family homes was $294,900 in December, up 13% from the same month a year ago. That median is still about $18,000 below the all-time peak in 2006, and more if adjusted for inflation.
Median base pricing for new detached homes stayed essentially the same as 3Q at $414k. That is 7.5% higher than in 4Q17. Production of all detached homes under $300k is almost non-existent now, making up only 14% of starts in the fourth quarter. That was made up for by attached starts of which 70% were in the sub-$300k price point. Lot deliveries have remained flat even as demand for new housing has risen, which is helping to put upward pressure on land and home pricing.
Overall 2018 was a good year for the Las Vegas market from a volume and appreciation standpoint, even though there were significant peaks and valleys. Interest rate rises, tariff and tax change impacts, and stock market volatility all impacted the market, though Las Vegas has seemingly ridden the year better than most other markets which experienced significant pullbacks in sales and pricing. Fundamentals still look good for Vegas, however. Price appreciation has been the highest in the country amongst major markets per the Case Shiller Index, a staggering 12.8% as of the most recent data. As that has contributed to a substantial drop in affordability, though, expect both volume and pricing to flatten as we go further into 2019. As of now I’m projecting an even 10,000 combined new home starts for 2019 with a more moderate 3-4% growth in base prices and 8% appreciation on the resale side – still good considering increasing challenges.
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