By Brad Hunter
After a devastating downturn 10 years ago, Las Vegas’ housing market is bouncing back, driven by a combination of renewed job growth, home flippers, rising housing prices, a newly emerging high-tech sector and an increased demand for “fixer-upper” homes.
In 2004, more than a year before the start of the nationwide housing collapse, I pointed to Las Vegas during one of my talks in Florida and dubbed it the canary in the coal mine for the rest of the country. The Vegas housing market had fallen out of bed long before Miami, Phoenix, Riverside and other bubble markets started to drop. And homebuilders had begun slashing home prices as sales collapsed.
Back then, my job was to give market advice to the division presidents of homebuilding companies operating in Florida. And those homebuilding executives all blithely pronounced it an anomaly. “It won’t happen here,” they said. I told them, yes, it most likely would.
In October 2005, Florida was hit by Hurricane Wilma. Immediately after, home sales fell 95 percent. Builders uniformly tried to reassure me “home sales will bounce right back; people are just busy picking up after the hurricane.” I replied: “They didn’t have a hurricane in Las Vegas… or in Phoenix… or in San Diego.” By then, I was getting reports that home sales were dropping in many overheated markets. The bubble had been blown away. And hurricanes had nothing to do with it.
Las Vegas was the first to go over the cliff — and, to its credit and to the relief of a lot of investors, it mounted a robust recovery that started in 2011 and is still going strong today. In fact, new home construction in Clark County is now double what it was in 2011, although it is still below historical norms.
The recovery began slowly in 2011. Flippers started buying foreclosed homes, often tapping home improvement professionals to fix them up, and selling them at a substantial profit. Many of the foreclosure and short-sale homes were in dismal condition, including some that were deliberately vandalized by angry homeowners who were losing their homes, so the renovation and rehabilitation process was often extensive. By 2012, home prices were rising by as much as 30 percent in some submarkets, and new home inventories were lean. As much as the renovators and flippers were enjoying these price surges, a 30 percent rate of price increase couldn’t go on forever. But, prices have continued to rise at a more measured and still-impressive pace. Home prices have gone up 50 percent since 2012, and they are now far higher than they were at pre-boom levels (though they have barely topped one-half of peak levels).
Frustrated by the lack of lots in the close-in locations, builders are starting to consider land parcels farther from the urban core. While this can mean a longer commute for homeowners, cheaper land may also facilitate lower home prices. Suburban communities — such as Inspirada, Sky Canyon and Cadence — are seeing solid demand.
Builders are also experiencing a labor shortage, most acute in the skilled trades. Builders used to be able to build a house in three months or so — and some builders are reporting that it now takes five to six months to get homes built.
The slower growth in new housing construction means that people looking for a home often turn to existing homes, many of which need some updating or more extensive renovation. For this reason, Las Vegas is seeing growing demand for home improvement services. According to HomeAdvisor’s proprietary database, the following home improvement categories are growing fast: fences; siding; tree service; landscaping and sprinklers; cabinets and countertops; and plaster, drywall and paving.
The lot and labor shortages are also contributing to the inflation of home prices. Home prices are rising (up about 10 percent over last year), but new home prices are starting to increase at a slower pace (now close to 7 percent), due to affordability issues. Land prices are the controlling factor; builders are having to pay extremely high prices for their land and lots, and that is making it difficult to build entry-level housing.
Even DR Horton, a builder known for building affordable new homes, is going upscale in this market. Despite the rapid increase in prices, from where somebody in southern California is sitting, Las Vegas is a bargain — and that is adding to demand. The median new-construction home in Los Angeles costs $577,000, according to John Burns Real Estate Consulting. And that includes a large number of condo projects that bring the median down, whereas a new single-family detached home in Las Vegas is priced in the low $300,000s.
In the wake of higher home prices here, some of the demand for affordable homes is searching for “fixer-uppers.” The inventory of foreclosed homes that remains available in this market is still in rough condition. Those buying the “handyman special” types of homes can certainly save money, but they also have to factor in a significant amount for home improvements and repairs. The categories of home improvement that we see surging in this market are reflective of the fixer-upper demand coming from first-time homebuyers, but even more so from investor-flippers, as they fix landscaping and add better irrigation, repair and replace cabinets and upgrade countertops, add siding and, in some cases, repair or replace entire interior walls. Current trends point to further increases in home improvement activity in 2017 and 2018.
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Brad Hunter spearheads HomeAdvisor’s analysis and tracking of housing markets and the home improvement industry using proprietary data from HomeAdvisor. He is regularly cited in local and national journals, and has recently been featured in the Wall Street Journal, Bloomberg News and CNBC.