Las Vegas has shut down to the world for gaming and hospitality as it deals with COVID-19, but the homebuilding and home sales’ industries continue on despite a blow to the economy that has caused a halt to some sales and postponement of others.
The new-home market is expected to take a hit after recording two strong months of net sales (sales minus cancellations) in January and February, up 27 percent and 42 percent, respectively, the most sales in those two months since 2007.
The same is true for existing home sales. The rate of cancellations is expected to rise as buyers and sellers put off transactions until they know what happens with the economy, their jobs and the stock market. Some transactions, however, are continuing.
New home market
Many builders have closed their model homes to buyers dropping in, but they will show them by an appointment.
“They expect traffic to be way down, and so we presume sales will be way down, too,” said Andrew Smith, president of Home Builders Research. “I wouldn’t be surprised if it’s substantial but also not surprised if (it is) not that much. Everything is in the air, but the majority of people aren’t going to go home shopping when they are told to stay in their house. I don’t think it will stop dead, but the buyers are going to have to be the ones that are motivated.”
There were more than 1,100 net sales each in January and February, and March was on a similar pace with 589 net sales through the middle of the month, Smith said.
Buyer traffic through new homes fell to just under 4,000 through Sunday — 16 per community, down from 20 per community the previous week — when the nation was starting to come to the grips with the coronavirus crisis but before the shutdown of casinos and other businesses. Traffic counts were about 4,500 and more than 5,000 people in the previous two weeks, Smith said.
Smith said he doesn’t expect any price drops initially from builders as a way to boost sales.
“That would be in a few months if spec homes are sitting there for 30 days or more, but that’s down the road a ways,” Smith said.
Nat Hodgson, CEO of the Southern Nevada Home Builders Association, said the homebuilding industry has been deemed essential by Gov. Steve Sisolak and continues to operate to meet people’s need for a home but with changes to be safe.
Nonessential staff who don’t have to be in an office are working remotely and reducing their contacts, Hodgson said. Workers in the field are keeping 6 feet apart to meet social distancing guidelines to be safe.
Hodgson said some cities across the country are shutting down homebuilding operations. He said he is glad it’s continuing here.
“We just can’t shut down,” Hodgson said. “If you shut off homebuilding, it’s not just builders that would be harmed but employees and employers of subcontractors and those working for manufacturers and suppliers and delivery, and on and on. And, there are people (who) are counting on moving into their homes. If they don’t have a house, they could be homeless. We produce a large product, and everybody has protocols in place. We haven’t hit the panic button, and nobody is shutting the door on us.”
Clark County and Henderson, Las Vegas and North Las Vegas continue to process plans from builders and conduct inspections, Hodgson said. North Las Vegas has started doing inspections by video.
The only issue is the Nevada Division of Water Resources isn’t signing off on maps to process new communities, but that doesn’t affect existing homes being built, Hodgson said.
As for sales, Hodgson said there was good traffic last weekend, but builders started feeling the impact this week with businesses closing and people staying at home.
“We have to give this two weeks to see what’s going on, but (this week) hasn’t been our best,” Hodgson said.
Hodgson said the luxury market will be affected by the steep decline in the stock market but added he is more worried about starter homes for families who have been hit hard by layoffs and a loss of income.
The one silver lining was the new home market was so strong through mid-March that the industry can handle a spike in cancellations and be healthy.
“I’m worried about tourism,” Hodgson said. “We will be impacted, and we need to get through this, but I will stay optimistic. I’m the positive guy here.”
Hodgson said none of this will hurt land prices like what happened in the aftermath of the Great Recession because “there’s a limited amount of land, and they’re not making any more of it.” People shouldn’t expect bargains by waiting to buy as people did during the recession. “
If you cancel now in nine months or a year you will not be paying less,” Hodgson said. “It will be more.”
Some builders are reaching out to buyers even if they can’t make it to their model homes.
Summerlin issued a statement saying that in this new environment of social distancing, buyers can do virtual tours of more than 20 new-home neighborhoods. The videos, which are generally less than two minutes in length each, offer a bird’s-eye view of homes in all styles, price points, elevations and configurations, according to Summerlin.
“As we navigate through these challenging times, the phrase, “home sweet home,” has taken on even greater meaning for all Southern Nevadans,’ said Danielle Bisterfeldt, vice president of marketing for Summerlin. “We are well-equipped with virtual model home tours that can be viewed in the comfort of your home. Summerlin homebuilders have adjusted hours and some are open by appointment only, so we encourage everyone to call the sales offices before they make a visit.”
Existing home market
Even before this week’s shutdown of Las Vegas, existing home sales this month through March 16 were down compared with the same period in 2019. There were 1,780 closed sales and 3,086 newly signed sales contracts compared with 2,913 closed sales in 2019 and 3,876 newly signed sales contracts, according to the Las Vegas Realtors group. There were only 374 sales cancellations through March 16, which is down from 557 a year ago during the first 16 days of March.
LVR President Tom Blanchard said cancellations started March 13 and have picked up this week and will be reflected as they are entered into the Multiple Listing Service.
“It’s coming from sellers and buyers,” Blanchard said. “People are getting notices they’ve been laid off and are hunkering down because they don’t know where they will be and how long it is going to last. People are scared because they don’t know.”
Blanchard said sellers are pulling listings because they might not be able to to qualify for a loan because of their job status. Others are afraid of the unknown and would rather stay where they are.
Blanchard called it the “$8 billion question” of when the housing market will recover from the hit by the coronavirus but said that it will be a “temporary upheaval” and once people realize “this unknown factor is now known, everything will come back to normal.”
Deals are still going through, Blanchard said. He recounted getting a call from an agent who had a client ready to close on a $1.4 million house and was wondering whether to renegotiate to get a lower price. He encouraged them to go forward if they wanted the house.
“I think it’s going to be a temporary downturn by the end of the third quarter, and we will be singing praises by the fourth quarter of this year.”
Blanchard said the group shut down its office last week to people walking in and staff are doing work by phone and email. His industry can continue to operate if Clark County accepts recording of transactions as it is done now, he said.
Fitch Ratings issued a report that said the spread of the coronavirus in the U.S. will slow down homebuying activity and possibly lead to a decline in home prices “with widespread and protracted period of containment.” Fitch said home price declines are possible if COVID-19 turns out to be a larger disruption to the economy with higher unemployment.
The report cited Las Vegas as prime for a cutback in prices by saying its home prices are 20 percent to 24 percent overvalued.
Local home prices broke their all-time record in February, and the housing supply keeps shrinking. The median price of existing single-family homes sold in Southern Nevada through the MLS was $316,000, up 3.6 percent from January and 6.7 percent from February 2019. The previous record was $315,000 in June 2006.
Smith disputed that Las Vegas existing home prices are overvalued but wouldn’t be surprised if there are declines as the housing market slows amid the virus outbreak.
“I don’t have a crystal ball, but I assume that as buyers pull back, sellers will have to adjust their expectations a little bit to help during this period,” Blanchard said. “I expect a pull back in prices, but I don’t know if it will be immediate or lagging because of the deals in the pipeline. Cancellations are more of an issue immediately. As cancellations increase, the ones who have to sell are more likely to agree to take less, and that will lower our pricing. I don’t know if it will be this month or two months.”
Luxury real estate
Ken Lowman, owner of Luxury Homes of Las Vegas, said potential buyers from out of town are canceling trips to see luxury homes. Local buyers are choosing to stay home and not go out to view homes, which he said is smart to reduce social interactions. Much of the change in behavior started Monday, he said.
“It’s slow right now, but there’s still business going on but at a slower pace,” Lowman said.
Lowman said he had a home worth $4.1 million and another worth $2.3 million enter escrow last week, and negotiations are continuing on other homes with more to close by the end of the month.
“This seems to be similar to Sept. 11 (terrorist attack in 2001) when some people put a pause on their plans and wait two to eight weeks and see if the world stops and when things get back to normal.,” Lowman said.
Lowman is like other Realtors who have canceled open houses, asking buyers to wash their hands when they enter a home and keeping their distances from each other by not riding in the same car.
Kristen Routh Silberman, a Realtor with Synergy Sotheby International Realty, said she’s still showing people homes and putting homes into contract, but the crisis is changing how they do their business.
Buyers aren’t flying, but instead they’re doing a walk-through on Facetime and other video conference chats. She said they’ve already changed practices by increasing web and electronic marketing to show more homes online. Because people aren’t traveling and spending time in their own homes, they have more time to look at listings online, she said.
Those who are using cash to buy plan to do a cash-out refinance because they can get an interest rate of 3 percent, Routh Silberman said. Other buyers are doing traditional financing because they can get interest rates between 3 percent and 3.5 percent, she said.
“We haven’t seen the full effect yet, and it could be a totally different world next week,” Routh Silberman said. “We don’t know when it will get back to normal and if this is the new normal for now. Hopefully, by May we will be going fully again.”
Ivan Sher, owner of the Ivan Sher Group with Berkshire Hathaway HomeServices, said transactions are continuing because people need homes. But he said he is expecting a pause for the first half of 2020, and the second half of the year could be strong if the virus passes through and as people understand where the situation is heading. Sales will be helped by low interest rate of 3 percent, he said.
“It’s going to be tight for some people for the next few months, and, hopefully, it will be business as usual as we get to the summer months,” Sher said. “People are losing their jobs, and there’s going to be a short-term impact for a lot of business owners. We hope the government offsets that, but we can’t hang out hats on that. Everyone is tightening their belt. And when it comes to luxury, I feel any slowdown we experience will be specific to the stock market as opposed to the virus itself. The stock market always has an impact because they have their wealth in the market.”
Tom Love, broker and owner of the Tom Love Group, said that the uncertainty in the job market and stock market has ended looming transactions and that he is “feeling the effect in our business. It’s been a rocky couple of days.” He said the situation reminds him of what happened to the market during the Great Recession.
Love, who does transactions mostly ranging from $750,000 to $2 million, said it started at the end of last week with people canceling and others doing extensions. The reaction is mixed from people who are more optimistic and think it is a “blip on the radar” to others who are more conservative who are trying to preserve capital and “live to fight another day.”