Nevada’s residential housing should be stabilized and sustainable throughout 2020.
Despite a relative lack of inventory and as potential homebuyers continue to flock to northern and southern Nevada alike, multiple Nevada real estate executives said they believe the housing market will settle into a groove.
“For the first time in 13, 14 years, I can use the words stable and sustainable,” said Nat Hodgson, CEO of the Southern Nevada Homebuilders Association. “Prior to having this job, I worked for a major builder and it was an up and down roller coaster. When I took the helm in 2011, we were at rock bottom. [It’s great] to see where we’re at and to be able to say that, I like saying that.”
It’s not just the homebuilders saying the market is stable. Tom Blanchard, president of the Greater Las Vegas Association of Realtors, echoed an almost identical sentiment.
“We’ve gone from a high appreciation market to a more normalized market,” Blanchard said. “We could not sustain the high appreciation market we were in the past couple years. To me, all I see is a housing market in Vegas that has turned to stable and sustainable.”
Reno is in a similar situation, said Don Tatro, CEO of the Builders Association of Northern Nevada.
“No large spikes or dips,” Tatro said. “I anticipate [2020] to be similar to [2019] or slightly better because we have some projects that were approved.”
The stability could certainly be tested as the population is expected by many to continue to grow. Nevada is projected, along with Texas and Arizona, to continue to see an influx of homebuyers who have been priced out of California.
Realtors and builders in both the Las Vegas and Reno areas are ready to weather the increase.
Realtor.com predicts Las Vegas will experience a 9.5 percent drop in resale totals, the third-largest drop among 100 metro areas. Nationally, resales are expected to drop 1.8 percent.
A more stable year is welcome, Blanchard said, even if fewer resales will make residental brokers nervous.
“It’s a great pressure relief valve,” he said. “We’ve had three years of steady growth, people coming and it’s not like we’ve been able to increase the housing market of new homes. If you don’t sell, you don’t make money, but it’s healthy for us as a housing market to have taken a breather from what we’ve seen in the past, which was just unsustainable.”
That lack of housing options will pose an issue for most of the nation, according to the Realtor.com study.
“[This year] will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can find,” said George Ratiu, senior economist at Realtor.com.
Continuing to Build
With a predicted influx in homebuyers and a slowing number of resales, building new homes will be required to keep the market flowing smoothly.
Nationwide single-family home starts are expected to rise by 6 percent. New builds in Las Vegas will be, yet again, stable, Hodgson said. While individual builders want more growth, Hodgson said the 11,000 new single-family homes is a nice pace. He put that in perspective as, in 1992, with a city population of approximately 700,000, new builds were upwards of 11,800. At the peak, new builds were upward of 20,000.
“It’s great. People want headlines, but its evened out,” Hodgson said.
New builds in Reno will crest 2,000 this year, consistent with each year back to 2015, Tatro said. At the building height, Reno was above 5,000 new builds.
Tatro said there has been a slight lag in supply, but builders are doing what they can to catch up and fill the void. He’s hopeful there might be a positive supply this coming year.
“It’s important to realize builders don’t create demand, they react and they can’t react overnight,” he said.
With a tight supply, Tatro said he’d like to see an increase but regulatory issues are keeping it low and pushing costs up. He said fees for new builds can be between $35,000 and $55,000.
“Our regulations continue to increase,” he said. “Every time a fee goes up, a chunk of people are priced out of the median price and we can control those costs, that’s something easily reduced.”
Hodgson said the southern Nevada new home starts are slowed by the cost, which are higher than at the height of the building boom, because land, labor and materials are higher.
“If it costs, $350,000, all in to build, they’re not selling a bunch [of homes] for $250,000,” he said.
Hodgson said he is nervous about available land, explaining the Federal Lands Bill which examines 400,000 acres, which could result in about 22,000 acres for residential.
“I’m here to look out for Nevadans,” he said. “We have a ton of land, but my biggest fear is the artificial lack of supply.” The Bureau of Land Management (BLM) sold more than $170 million worth of Las Vegas Valley land in August 2019, as investors purchased nearly 665 acres. The largest parcel was bought by Olympia Companies, which purchased 270 acres for $43.2 million. Company leadership has indicated the upper northwest valley land the company purchased would be a residential community.
The realtors want more homes added to the market, naturally. “We need to continue to to see a healthy number of new homes built,” Blanchard said.
Blanchard is hopeful that, as big construction projects like Allegiant Stadium and Resorts World are completed, it will help put construction workers back focused on residential projects.
“We have a labor shortage through our own great economy,” he said.
Hodgson expanded on the labor shortage, which could be amplified in the coming years as much as 25 percent of the workforce could age out in the next 5 to 10 years with no immediate replacements in the pipeline. “We need to focus on land and labor, our skilled workforce we need to figure out,” he said.
In northern Nevada, Tatro said the Builders Association is doing all it can to help shift the perception of trade careers as viable options.
Hodgson made specific mention of a new workforce development program in Las Vegas which recently graduated 10 transitional homeless young adults through a four-and-a-half week construction fundamentals course. Those 10 were then placed with subcontractors.
New Homebuyers
Millennials will be the largest segment of the mortgage market, projected to take out more than 50 percent of mortgages as the oldest members of the generation turn 39.
Hodgson said he believes the previous lack of millennial homebuyers has been blown out of proportion.
“That generation saw what happened to friends and families,” he said. “It’s taking them a little bit to get back feeling comfortable. The generation behind them, they don’t really remember, but they know it’s the American dream to own a house.”
Housing inventory nationwide is expected to remain constrained, particularly entry-level homes.
The homeownership rate among Americans peaked in 2004 at 69.2 percent but fell to 62.9 percent in 2016. The rate is currently 64.8 percent.
Conflicting Ideas
Las Vegas home prices are predicted to fall, according to Realtor.com. The listing website forecasts previously-owned home prices in southern Nevada will drop 1.1 percent. That’s in contrast to most of nation, as prices are expected to rise 0.8 percent nationwide.
A drop in home prices seem to go against all other information and basic economic principals as the same report predicts Nevada will see a surge in homebuyers, Blanchard said.
“We still have a draw, we still have a need and people want to buy. But, supply is limited, and the price is going down?” Blanchard said. “That goes against all the laws of the economics of supply and demand.”
Several markets in nearby states are among those expected to see prices jump the most. Boise, Idaho, which has been one of the fastest-growing cities in the country is expected to rise 8.1 percent and Phoenix is projected to bump up 3.8 percent.
According to the Greater Las Vegas Association of Realtors, the median price of previously-owned single-family homes in October 2019 was $307,000. In Reno, the median sale price is $370,600, while home values increased 5.1 percent in 2019. Those prices are expected to rise another 1.7 percent by next June.
Tatro said while median prices in the Reno area has increased significantly the past couple of years, it’s growing with wages. He doesn’t believe that is set to change anytime soon with the influx in technology-related jobs locating to the area.
Regardless if the numbers are growing or shrinking, Hodgson said the prices in Nevada are still a bargain when looking at prices in markets like California.
Safe Market
The thought of a recession can make many nervous and while most don’t expect one in 2020. Others expect a slowdown because of the presidential election. Nevada executives predict the housing market will remain smooth.
“All eyes should be on the election and economy,” Blanchard said. “But even if there is a recession, four out of the last five, housing appreciated even with the recessions going on. Even the R-word is not necessarily a bad word for housing.”
Tatro said this stabilized market in northern Nevada — and Nevada in general — should stay safe throughout 2020.
“The only indicators are that it will be a solid year,” Tatro said. “I don’t believe there is a bubble, or if there is and it were to burst, Nevada would be the epicenter as it was 12 years ago. The hope would be we’ve diversified and established solid work by elected officials to bring this stability. “
