Town homes and other new attached housing products have recorded the highest percentage of the housing market since before the Great Recession, and builders aren’t slowing down in their pursuit of those projects.
Home Builders Research reported that 974 closings of town homes through the end of August are 134 more, or 16 percent higher, through the same period in 2018.
Town homes make up 14 percent of the overall home closings this year, and single-family home closings were down 4.4 percent through August. A year ago at this time, town home closings made up 12 percent of the total marketplace and finished the year at 12.5 percent.
Town home closings made up 15 percent of the marketplace in 2006 and steadily declined as the recession hit, falling to 8 percent in 2010 and as low as 1 percent in 2012, according to Southern Nevada Home Builders Association.
It rose to 4 percent in 2014 and has steadily increased since the Nevada Legislature in 2015 shortened the statute of limitations and streamlined the process for repairs. The changes reduced construction defect litigation that emanated in the 2000s from legislation passed in 1997, when the mix was more than 25 percent.
“We are on our way back up to where we used to be before construction defect happened, and it should keep going up,” said Nat Hodgson, CEO of the Southern Nevada Home Builders Association. “Every builder is going to do some sort of attached product now. I have even heard some rumblings from builders about doing (two-story) condominiums again, which we haven’t done in 15 years.”
Builders said affordability is driving the increase because rising land prices force higher densities to keep home prices down. And there is demand by older residents wanting to downsize but still own and be in a place that lives like a single-family home. Also, the town homes target the younger generation who no longer wants to live in an apartment, especially as rising rents make buying more affordable.
Not only are new town home sales increasing, but it’s the same for the for-sale marketplace of town homes that is outpacing single-family home resales. Sales of existing single-family homes were down 11 percent through August, while for-sale town homes were up 9 percent, according to Home Builders Research.
Again, the prices are at the heart of the matter.
The median single-family price of new homes sold in August was $395,000 compared with $275,000 for town homes. The median price of existing town homes sold in August was $165,000 in a reflection of that value.
The percentage of new town home closings might have been higher except for the proposed legislation in the Nevada Legislature this year that would have repealed the 2015 law, according to Home Builders Research President Andrew Smith. The final bill that was passed and signed into law by Gov. Steve Sisolak is expected to increase costs but not slow town home development.
“I would have thought it would have been a little bit higher a year ago,” Smith said, pointing to the scare builders felt over proposed construction defect legislation. “Nine months ago I was writing that I wouldn’t be surprised to see it go over 20 percent. Some builders were in a wait-and-see mode, so it’s possible it might pick up again going into spring next year.”
That will depend on what happens with single-family home prices and how much they increase, Smith said. They’ve plateaued recently, and if that continues there won’t be as many attached products. In 2017 and 2018, new-home prices rose more than 15 percent compared with less than 5 percent this year.
“Affordability is No. 1, and if builders can’t build a detached home and make the profit that they want, then they will go to attached,” Smith said.
Smith said that nothing epitomizes the trend of what’s happening in the marketplace than what Richmond American Homes has done, Touchstone Living is planning for the first time, and Lennar and other builders continue to do.
Richmond launched its first town home development, Duetto, in Cadence in Henderson and then announced it’s doing a second phase after that sold out. The builder also said it’s planning a similar town home development in Summerlin.
Steve Corbett, vice president of sales for Richmond American, said he expects the trend to continue because of the economics of what builders are paying for land.
“Everyone that’s sold attached products has had a reasonable amount of success,” Corbett said. “It’s across the board in the north, northwest, Henderson and Summerlin, so geographically it appeals to everybody. I think it will be a part of the builder’s business plan going forward, and part of it depends on the land.”
Smith said one surprise is that Touchstone Living announced its first town home condominium project, Mosaic, which will be off St. Rose Parkway in Henderson east of Las Vegas Boulevard.
“Touchstone has been mostly larger homes of $700,000 and up,” Smith said. “That’s a change.”
Lennar, which has four town home communities in the Top 10 of closings in the region as tracked by Home Builders Research through August, plans a project on Las Vegas Boulevard South called Altair and another in southeast Henderson, Smith said.
* KB Home’s project in Henderson, Groves at Inspirada, is the top seller this year, according to Home Builders Research. It had 99 closings through August.
* That project was followed by Beazer Homes with 86 closings at the Cliffs at Dover in the northeast valley near Nellis Air Force Base.
* Lennar was third with 74 closings at its project The Hudson in North Las Vegas.
* DR Horton was fourth with Mesa Verde in North Las Vegas with 52 closings.
* Shea Homes’ Trilogy active-adult community in Summerlin with 48 closings came in fifth.
The rest of the Top 10 featured Lennar with Madori Vistas in the southwest valley with 46 closings; Lennar’s Santa Rosa in Summerlin with 44 closings; DR Horton with Bilbray Meadows in Laughlin with 43 closings; KB Home with Autumn Winds in the south valley with 41 closings; and Lennar with Watermarke in Mountain’s Edge with 36 closings.
Uri Vaknin, a partner with KRE Capital, which co-owns three condo towers, cited the projects of KB Home and Beazer as significant. Town homes have never had an impact on the Las Vegas condo market, but condo sales are down this year, and buyers are gravitating to the town homes with amenities and value, he said.
“The Cliffs at Dover start at $155,000, and with the Inspirada ones by KB Home (in the $230,000s) you can sell that type of product all daylong even through a recession,” Vankin said. “Homebuilders are building town homes because buyers are priced out of houses by affordability.”
Builders were able to buy land at much cheaper prices in the aftermath of the recession, and that allowed them to build single-family homes, Vaknin said. With the price of land higher now, it’s difficult to build a home under $400,000, he said.
“Once you get over $400,000, sales slow down,” Vaknin said. “And there’s been so many town homes built but no high-rise condos since 2008. There’s been a shift in the marketplace to town homes by homebuilders.”
That shift is evident with even more town homes coming online, part of a national trend.
Edward Homes is obtaining permits for a town home development at 10544 W. Centennial Parkway, Brownstones at Providence, which is the final new-home community in the master plan.
Five of the 30 town homes have been reserved with those prices starting in the upper $200,000s, but most are more than $300,000, said Brian Krueger, senior vice president of Strategic Services with Coldwell Banker Premier Realty and broker for Edward Homes. Construction will start in November, and the first two buildings will be done in the spring.
Edward also plans a 60-town-home development in the southwest near the Grand Canyon Shopping Center. Construction is expected to start in the first quarter of 2020. Prices will start in the $320,000s. No name has been selected. The builder is also looking to acquire more land in the southwest for a 50-town-home project.
“It’s about having some affordability in the marketplace, and this is one way to keep prices south of $350,000,” Krueger said. ”If they are under $300,000 in this marketplace, they are moving pretty quick. We’re not seeing as large of product being built post-Great Recession when the move-up was so big. Price points were fairly affordable at that time, but we’re seeing smaller product overall now because the median income in Las Vegas hasn’t grown a lot over the last decade.”