Maybe the new homebuilding market won’t be so bad after all in 2019.
That’s the assessment of Andrew Smith, president of Home Builders Research, who had feared the market would take a step back in 2019 after sales slowed sharply during the second half of 2018. Last month, he predicted a 5 percent decline in permits and closings for 2019 after closings rose 14.2 percent in 2018 and permits rose more than 11 percent.
“With the first two months of 2019 nearly in the books, the new home segment of the housing market in Southern Nevada is performing well enough to temper some of the growing concerns many felt about the future in the fourth quarter of 2018,” Smith said.
The reason for optimism for now is twofold, Smith said. There were 984 new homebuilding permits issued in January, an 8 percent increase over January 2018.
Second, net sales in January, which means initial contracts, were down only 4.4 percent year-over-year, Smith said. Despite the drop, that’s better than expectations, he said.
“The total was still a pleasant surprise for us after somewhat frighteningly low totals in November and December,” Smith said.
Smith said the outlook from the construction industry shows “they’re as busy as ever” and aren’t seeing a slowdown in activity, which he said “are good signs that homebuilders are navigating the waters so far.” The industry is helped by a strong economy and continued population growth, he said.
Those positive signs, however, won’t show up in the closing numbers right away since they’re a reflection of the end of 2018, Smith said. There were 611 closings in January, a decline of 13.9 percent over January 2018. That decline was attributed to single-family home construction because attached home construction was 2.4 percent higher in January.
“While it remains true that new home closing numbers should remain lower year-over-year for the next few months due to relatively slow net sales figures in the second half of last year, front-end totals for 2019 give a positive impression, at least for the short term,” Smith said.
The 611 January closings was the lowest total since January 2017 when there were 530, Smith said.
There are some signs of improvement with affordability but it may not last long.
The median new home closing price in January for all product types was $375,996, a year-to-year increase of 7.82 percent, Smith said. That’s a decline of 5.3 percent from the all-time high in December.
“This is a trend we have witnessed for the past three years where the January median closing price is one of the lowest of the year followed by a gradual upward trend through December, then dropping slightly the following January and starting the cycle over again,” Smith said.
There is some positives to be gleaned from the price numbers and affordability, Smith said. The year-over-year increase was at or below 10 percent for the fifth straight month — a positive sign for the market after growth of 12 percent or more in the summer of 2018.
The single-family residential median price dropped below $400,000 after its all-time high from December, the seventh straight month of going back and forth over that $400,000 threshold, Smith said.
The median price for attached products fell year-over-year to $264,750. That’s a reflection of the increased number of lower priced town homes offered by builders, he said.
As of Feb., Smith said about 10 percent of active new-home communities are attached product types, and in January they accounted for nearly 14 percent of new home closings. In January 2018, those figures stood at 6.5 percent and 11.5 percent, Smith said.
“It’s quite impressive how quickly homebuilders have diversified their offerings to create more affordable choices for potential buyers,” Smith said. “For the past year there has been an average of one new attached product community opening each month.”
Among the other happenings in the housing market, Smith said there was a large increase in the number of new-home communities coming online in North Las Vegas, Smith said. The number went from 15 active in January 2018 to 35 by the end of January 2019. Net sales are up 59 percent in North Las Vegas.
“While net sales have not taken such a big leap, North Las Vegas did increase its overall sales market share by over 6 percent,” Smith said.
In contrast, the number of active communities in Henderson decreased by 12 percent and in the southwest declined by 13 percent over the same time period, Smith said. These areas saw net sales decrease by 4 percent and 25 percent respectively, which Smith said is “directly tied to the affordability of new homes.”
As of Feb. 19, the average base price for active new home plans in North Las Vegas was $297,510 or $146 per square foot, Smith said. For the rest of Southern Nevada, it was $454,208 or $185 per square foot.
“That difference of over 34 percent bodes well in the current environment where affordability is paramount,” Smith said. “And while, historically, North Las Vegas may have been seen as a less desirable area with fewer amenities than other areas of the valley, that is unquestionably changing.”
Fast freeway access, improving infrastructure, more retail and dining options and three new master-planned communities “are quickly making North Las Vegas look considerably more attractive to the homebuying public.”
Those aren’t just smaller entry-level homes either, Smith said. There are more active plans of 3,000 square feet or more (9 percent of the total), than there are under 1,500 square feet (7 percent), he said.
On the high end, DR Horton is offering a 4,425-square-foot plan in its Polaris Pointe community in Valley Vista Drive for a base price of $484,990 or $110 per square foot, Smith said.
When it comes to land purchases, homebuilders weren’t active in January with less than 100 acres picked up across the valley, Smith said. The largest individual parcel was 10.52 acres on Rancho Drive and Rainbow Boulevard purchased by KB Home for $499,049 per acre, he said.
Touchstone Living closed five separate transactions to add 15 total acres to their Homestead project in the southwest where it offers estate-sized homes starting at $600,000. The builder is averaging more than one home sold per month since opening in January 2018, he said.