December sales picked up for the Las Vegas new-home market as falling interest rates and lack of retail inventory pushed more people to buy, and that trend is expected to continue into 2024.
Andrew Smith, president of Las Vegas-based Home Builders Research, said based on sales activity he has seen reported through mid-December, it might turn out to be a “very successful December for local homebuilders” after final numbers are tallied.
That comes off a November that had just over 800 new home net sales and the lowest number of sales per week for 2023. Smith said that is not a surprise given November historically yields the lowest net sales total of any month besides December.
The average 30-year fixed interest rates closed out 2023 at 6.61 percent, according to the St. Louis Federal Reserve, after peaking at 7.79 percent in October. Interest rates started rising in 2022 after starting the year just over 3 percent. They surpassed 7 percent by November 2022 and had done their damage by dramatically slowing sales.
Mortgage rates are expected to ease further in 2024 as inflation improves and the Federal Reserve cuts the federal funds rate.
The National Association of Realtors predicts mortgage rates will be in the 6 percent range by the spring.
The pickup in December sales should bode well for 2024, Smith said.
“So much of the slowdown was caused directly by the rising interest rates, and with those easing off, it’s definitely going to pick things up,” Smith said. “It’s still not going to solve the issue with the resale market because the rates won’t get down to the place where people are locked into (and want to sell their home and take on a new mortgage).
“It’s going to help homebuilders. There’s a housing shortage, and people are still moving here looking for a place to live.”
Kent Lay, division president for Taylor Morrison and board member of the Southern Nevada Home Builders Association, said 2023 wasn’t a bad year for builders, who will end up doing close to 2,000 more sales than 2022 when year-end tallies are completed. Lay said 2023 will end in about 10,500 sales compared with more than 8,500 in 2022. That is a 22 percent increase.
Las Vegas didn’t sell more than 600 homes a month after June 2022, and builders probably will have taken out between 11,000 and 12,000 permits in 2023, which sets their expectations for 2024, Smith said. There were 10,746 permits issued through November, and the 929 permits in November was 67 percent higher than a year ago.
“I’m expecting a robust year, especially if interest rates come down,” Lay said. “There might be a little bit of a lull for the new homebuilders because as soon as interest rates come down, (resale homes) are going to pop back up. People are waiting for those interest rates to come down to put their houses back on the market so they can move on. When that happens, you will see a big increase in those sales and probably hurt new homes for a little while until it reaches that equilibrium. Then, I think you will get a lot of people that are selling their houses moving into new homes, and we will catch back up.”
Lay said if interest rates decline as he expects, sales should be 5 percent to 10 percent higher in 2024 compared with 2023.
“I think we will do 11,000 to 11,500 in 2024,” Lay said. “When the resale market starts moving, people are moving up into new homes,” Lay said. “You also have a lot of people on the fence who can’t afford the house they want right now due to interest rates. When their payment comes down, a lot of those people sitting on the fence are about to come into the new-home market too. As long as we have a decent supply, we will outdo 2023 unless interest rates go up or stay the same.”
Builders are better positioned, Lay said. Most of the public builders have their own mortgage companies and go out and buy chunks of mortgages at discounted rates and offer that to buyers, Lay said. He said builders can get it down to at least 5 percent while individual homeowners can’t do that.
“That’s why homebuilding is doing very well right now considering the interest rates,” Lay said. Costs have stabilized for builders as evidenced by the November median price for single-family homes that stood at $498,899, a 2.7 percent year-over-year decrease. Affordability continues to be a concern for the market, however, and that’s why builders continue to introduce town home and other attached products.
Taylor Morrison is opening a town home project in the second quarter of 2024 in Summerlin, and Lay said he sees more higher density coming online, whether that’s single-family or town homes. It’s the company’s first new attached product for the builder since it sold out its Affinity project a year ago.
“I see both of those happening as prices escalate and people want to own a home,” Lay said. We’re presently looking for alternatives and spots where we can do more (town homes).”
Tom McCormick, founder of Touchstone Living, said he’s optimistic for the Las Vegas building industry in 2024 with interest rates declining and in-migration to the valley that doesn’t have enough homes for the newcomers.
December sales were better than expected, and McCormick attributed that to a decline in interest rates.
“Interest rates feel like they are going to keep going down and the lower it goes the better sales will be,” McCormick said.“We have so much demand, but it’s affordability that’s killing us.”
McCormick said that boost for demand, however, could hurt some buyers because it will increase home prices.
“I think incentives will go way down and disappear, which will be great for sellers,” McCormick said. “It will be interesting if the existing home side picks up at all, and people start to list their homes. I think 2023 was a scary year because rates got so high, and 2024 is feeling a little more predictable.”
Smith said he could see more town home projects come online with the 2023 record of 25 percent and above for all new home closings in that category. It was just under 20percent a year ago.
“It will be interesting to see if that rate of expansion continues or if it evens out a little bit,” Smith said.
