Steady and better than 2019.
That’s the outlook for the 2020 Las Vegas housing market — both new and existing homes when it comes to sales — and there should be slight price appreciation in both segments as well, according to housing analysts, Realtors, builders and economists who track the Southern Nevada home market.
In a sign of the strength in the new-home market, Summerlin is starting to open hundreds of acres for development north of Far Hills Avenue in 2020 and Del Webb is opening its first active-adult community in more than a decade with Del Webb Lake Las Vegas and one in North Las Vegas.
The final 2019 numbers aren’t in yet but the year is expected to fall short of 2018 in terms of closings for new and existing homes. The 43,337 existing home closings through November were 5 percent below 2018. Prices rose about 3 percent in 2019 and the median price of existing homes sold in November was $295,000 for single-family homes and $166,000 for attached homes.
There’s been 9,500 new home closings through November, 1.8 percent below 2018. The final number is expected to be a couple hundred below the 10,673 recorded in 2018.
Given how 2018 ended and 2019 began with interest rates around 5 percent slowing sales, new home closings were down nearly 5 percent in the first quarter and existing home sales were down 14 percent.
The housing market steadily improved after three Federal Reserve rate cuts brought down 30-year fixed rate mortgages below 4 percent. Because of that, there’s a more favorable outlook of the housing market than there was a year ago when some economists predicted a recession in 2020. Those predictions have dissipated even though some expect national economic growth to be slower than 2019.
National housing experts talk Las Vegas
Frank Nothaft, the chief economist for CoreLogic and one of the leading national experts in tracking the housing market, said Las Vegas will benefit from mortgage rates remaining below 4 percent and continued population growth — Clark County grew by nearly 50,000 people or 2 percent between 2017 and 2018 with a strong economy and job growth.
“Las Vegas is a magnet, and I expect continued population growth in 2020 to add to demand for housing (to buy and to rent), and continued low mortgage rates (sub-4 percent for 30-year fixed-rate through 2020) to add to homebuyer purchases,” Nothaft said. “This will likely place additional upward pressure on (home price) growth, with prices up by more than 4 percent in 2020.”
Nothaft said he’s surprised by a forecast by Realtor.com of a 1 percent price decrease in the existing home market in 2020. It’s unlikely to drop unless there’s a recession or unemployment rose that in turn slowed demand, he said. Strong demand and lean inventory means higher prices, he added.
“We saw home sales pick up in the second half of 2019 after the Fed cut interest rates,” Nothaft said. “I think that will carry through for 2020 and with mortgage rates as low as we expect that should help support demand. With more residents moving into Las Vegas, that adds even more to demand.”
Nationally and including Southern Nevada, Nothaft predicts more new home starts in 2020 than in 2019, but the new homes “will generally add supply in the higher price, not in the less expensive tier.” That’s a reflection of rising costs of labor, land and materials, which have risen about twice as fast as inflation over the last three years, he said.
“Like resales, I think it will be a pretty good year with new home sales up in 2020 compared to 2019 because of the strong demand, low mortgage rates and population growth,” Nothaft said. “There are affordability pressures if rents and prices continue to rise so that’s going to be a challenge in 2020 and beyond. That’s why it’s important we have more new construction with single-family homes and apartments to meet those housing needs of people moving to Nevada.”
Tim Sullivan, a senior managing principal with Southern California-based Meyers Research, said Las Vegas in 2020 has the ability to be just as strong in the new-home as 2019 or beat it given its economy and as long as builders can provide the product.
Sullivan said because of the affordability of Las Vegas compared to Southern and Northern California and as long as Nevada has no state income tax and California taxes as its current rate, people will continue to relocate because they can save 12 percent a year on their income.
“For someone making $100,000, $200,000 or $500,000, that’s a significant sum of money and can make up for some of the dry desert days that occur in Las Vegas,” Sullivan said. “Your relationship with California, especially the high-end, is pretty significant. The capability of someone moving out of California and saving the income tax and buying a fantastic home for $1.5 to $2 million on a third of an acre that’s custom or semi-custom. That would cost you closer to $4 million or $5 million in San Diego.”
New home market from local perspective
The optimism for 2020 is reflected in how 2019 ended. Home Builders Research reported net sales (new contracts minus cancellations) continued to increase year over year in the second half of 2019 and net sales were only down 2 percent through the end of November. The 622 net sales in November was the second highest in the decade behind November 2017.
Home Builders Research President Andrew Smith said homebuilders have been converting potential buyers into sales at a higher pace in 2019, combating a “dramatic increase” in cancellations at the end of 2018 when interest rates rose.
“If people knew that this year would be pretty even with last year back in January, they would be OK with that,” Smith said. “It should be considered a good year for the homebuilders. It’s been really steady.”
For 2020, Smith said, there’s nothing so far to show any change in the behavior of builders and expects 2020 to be stable with a slight upward swing.
“Over the last month, there’s been a lot of positive national press about housing and what’s being forecast locally for the economy and housing,” Smith said. “We are on course for more of the same, which to me is good. I’m optimistic.”
After the median price of new single-family homes shot up to more than $410,000 in October, it came back down in November to just below $392,000. Smith said it appears the October number was influenced by luxury new homes that were closed, although prices aren’t expected to drop in 2020.
Nat Hodgson, president of the Southern Nevada Home Builders Association, said he’s not worried if new home closings end up down 200 to 400 compared to 2018. The concern is meeting the demand for units while builders continue to make them affordable, he said.
“Some 48,000 people are moving here a year,” Hodgson said. “What we’re doing is short, and we have to figure out how to build more units. At the same time, there’s a big push for affordability, but every time I turn around we’re adding to the cost of the house.”
Hodgson said believes some buyers are still fearful of what might happen to the economy after going through the Great Recession. Others, however, can’t afford the down payment, and even then a labor shortage limits how many homes can be built, he said. Despite those concerns, he said he remains optimistic about improvement.
“I think we’re going to grow in sales in 2020 because people will realize this is the sales price,” Hodgson said. “There’s no more land so those prices won’t go down, all of the government fees are increasing, you got to buy now because by the end of 2020 the house cost will be higher than in January.”
Summerlin showed its optimism for 2020 when in December it announced opening development north of Far Hills Avenue as part of a strategy for more affordable homes. Called Redpoint, it will be denser, some 11 to 12 units per acre in sections — and more affordable in the high $200,000s in a master plan where the average price is about $640,000.
Redpoint will include duplexes, town homes and triplexes, following the trend in the marketplace for more attached housing. There was a 5 percent increase in attached home closings in November compared to 2018 and at 132 was the third highest monthly total in 2019, according to Home Builders Research. The total of 1,373 through November has surpassed the 1,342 for all of 2018, Smith said.
“Attached product market share of new home closings registered 15.7 percent in November, the fourth time this year and in recent memory that this figure exceeded 15 percent,” Smith said.
Hodgson said builders that haven’t done condos in 15 years might be doing them again because of where the market is and the need for density to get the price down.
“I think next year the percentage will be 18 to 20 percent,” Hodgson said. “Remember, we were in 24 percentile in the mid-1990s.”
Sullivan said builders are getting smarter and savvy with their attached product, some of which is 1,200 square feet to 1,400 square feet.
“It’s very livable, and that’s the kind of stuff we’re going to see more and more because it’s the entry level. The entry level is no longer a 2,500-square-foot home built by American West. It’s going to a town home that’s 1,300 square foot to 1,400 square feet built by William Lyon.”
Del Webb’s first 55-plus community in years
In a further sign of the strength seen in the 2020 housing market, Del Webb, part of the Pulte Group, will open its first age-qualified community in Las Vegas since prior to the Great Recession. It’s called Del Webb Lake Las Vegas.
Danny Welsh, vice president of sales with Pulte Homes, said they have seven new communities coming online in 2020, ranging from Summerlin to North Las Vegas and Lake Las Vegas.
“We’re very bullish on what’s going on here in Las Vegas and expect it to be slightly better than 2019 and why we coming online with all of these new communities,” Welsh said. “The housing market started way behind (in early 2019) and made up a lot of ground in the third and fourth quarter. We’re hoping that trend continues as we get into the selling season. We have seen some of the best traffic in December and surpassed October and November traffic counts. I’m anxious about getting it out to the market so everyone can come and visit, and the jewel of what were working on is that Del Webb Lake Las Vegas project.”
In March, Pulte acquired private Las Vegas builder American West Homes with its 10 communities to add to the 10 that Pulte already had, Welsh said.
“The transition has been real good,” Welsh said. “I was with American West for 17 years. It’s two great companies with the same values and (in) the same city that merged. There’s going to be good pricing that comes out of American West, and with Pulte we have a little bit of the higher-end for move-up buyers. With Del Webb, we cover all markets, now.”
In 2020, PulteGroup will offer homes that start in the high $200,000s in a North Las Vegas community called Ashcroft at North Ranch near Centennial Parkway and Losee Road.
The Del Webb active-adult community at Lake Las Vegas will have its grand opening in late January or early February. There will be about 460 homes.
“We are pre-selling now. It’s one of the cooler projects we have done,” Welsh said. “It has a 10,000-square-foot clubhouse and views of the lake. Active adult hasn’t been done in more than a decade, and it shows the strength of the market. Las Vegas is less of a transient town. It’s a great place to retire, and we’re tapping into that market.”
The prices start in the high $300,000s and go to the mid-$500,000s at the Lake Las Vegas project for units that start at 1,500 square feet and go to 2,700 square feet.
“As soon as we are done with Del Webb Lake Las Vegas, we’re going to do Sun City North Ranch Feb. 29,” Welsh said. “We call it the New North because there’s so much development going on out there.”
There will be 400 homes there, and prices will start in the low $300,000s, Welsh said. The sizes range from 1,200 square feet to 2,000 square feet.
Del Webb has Sun City Anthem in Henderson, Sun City Mesquite, Sun City Aliante in North Las Vegas, Sun City Summerlin and Solera at Stallion Mountain.
Experts talk existing home sales FHA increase
Realtors and brokers are optimistic.
Mark Stark, the CEO of Berkshire Hathaway Home Services, said he expects 2020 to be a “very productive year.” Job growth and population growth along with low interest rates continue to set that stage, he said.
“I don’t see big adjustments in prices,” Stark said. “I don’t see them coming up or down.”
One outside influence that will help with home sales in 2020 is the Federal Housing Agency (FHA) increasing loan limits by $23,000 to $345,000. That’s expected to add about 23 new communities that are available to buyers in Clark County.
“It’s very important and good thing that happened,” Smith said. “It increases the number of homes that are available to those people. Not everyone can qualify for a conventional loan, especially first-time buyers. It’s opening up more opportunity. It benefits the buyers and the sellers and builders because they have that many more people to market their houses to.”
The percentage of FHA share of sales continues to increase. It was 12.7 percent during the third quarter of 2019, a 63 percent increase over the same period in 2018, according to ATTOM Data Solutions. The national average increase was 16 percent.
Tom Blanchard, the new president of the Greater Las Vegas Association of Realtors, said he expects a good year with sales to remain consistent with 2019 because of a lack of supply.
“What you saw in 2019 should continue in 2020,” Blanchard said. “It’s going to be a good year. It’s an election year and historically election years are good for real estate unless something dramatic happens. Las Vegas is a great place to live and raise a family and is no longer the Sin City of old.”
Blanchard said given the demand, the prices should have appreciated more in 2019, and he expects it to go up 3 percent to 6 percent in 2020 after double-digit increases in previous years. There are limits to how far they can go, he said.
“The folks who live here can only afford so much,” Blanchard said. “That may be the factor keeping prices in check. If we were making money like they are in Seattle and San Francisco, the prices would be outlandish. We don’t have that type of labor force. We’re limited by the amount of money people here earn.”
The ability to make a substantial down payment is determining the decision of whether to buy.
Meyers Research recently conducted a study showing that people are willing to rent homes in Las Vegas so they don’t have to come up with a down payment to purchase.
“The single-family rent side is becoming attractive to many different profiles,” Sullivan said.
“If you don’t have a whole lot of dough saved up, keep renting,” Sullivan said. “If you have the dough to put down, it can make sense to buy. I think there’s a solid runway for ownership because prices are still reasonable to incomes.”
That equation could change if rental rates of Las Vegas homes continue to rise, Nothaft said. CoreLogic said home rental rates have risen more than 5 percent the past year.
Lack of inventory cited as concern
Nothaft said one reason inventory of existing homes is lean and people are holding on to their homes is that while prices have mostly recovered from where they were before the recession, some people haven’t seen it recover fully and want more. Others have seen their needs change, he said.
“They have waited it out and want to wait a little bit longer until they are above water or can generate some capital gains before selling,” Nothaft said. “Another reason is the baby boomers. Some have retired, but they’re mostly still working. They might have an adult child in their 20s who moved back into the home. They may need the space and not ready to sell yet and maybe in five years they’ll be looking to downsize to a smaller home.”
Smith said some sellers may be “too ambitious” in setting their price, but with people moving into Las Vegas from out of state there’s no reason to believe there will be a slowdown in housing in 2020.
The problem with a lack of inventory is Las Vegas’ housing market recovery was fueled by investors buying foreclosures and turning them into rentals, according to Blanchard, a Las Vegas Realtor since 1994 who specialized in foreclosure properties. He’s now a broker at Renters Warehouse, which buys and sells properties to investors and manages them.
Blanchard said Las Vegas got out of the Great Recession and housing downturn that led to foreclosures by outside money coming into the marketplace to buy them and rent them out.
“Because of that, we’re stuck where we are at right now with a smaller amount of homes bought and sold,” Blanchard said. “If we had all of those homes sold to investors to regular homeowners, we would be in a different situation. They purchased tens of thousands of homes; that keeps our inventory down to the levels we are seeing now. Would you put a home on the market when you have an automatic ATM that’s spitting out profit to you? It’s a commodity that pays a dividend on a monthly basis.”
Institutional investors continue to be part of the marketplace. ATTOM reported 6.1 percent of the sales during the third quarter of 2019 was institutional, up from 4.8 percent in the third quarter of 2019. The national average is 3 percent.
Blanchard said a solution to overcome that lack of inventory is to build thousands more new homes that would increase the inventory for people who live in them.
“New homes have always helped push the appreciation of resale homes,” Blanchard said. “It would help with supply, and those folks in homes right now that have equity feel like there is no place to move to. If there were more new homes on the market, maybe they would move into that and freeing up that resale home for someone else to move into in that price range.”
Keith Lynam, past president of the GLVAR and Nevada Realtors and principal with Platinum Real Estate, echoed that by saying there’s a restriction on people moving because homebuilders are not constructing enough homes affordably priced for first-time homebuyers, he said. Higher density and lower prices will help solve that, he said.
“You don’t buy a home out of the gate, and it’s $350,000 to $400,000,” Lynam said. “If you look historically, they have always been the supplier of the first-time homebuyer. If people aren’t buying a first home, they’re buying the second home and step-up home. It causes issues long term. A healthy community has to have that market for first-time buyers to drive a lot of things.”