Las Vegas home analyst sees little chance of bubble in market

Driving around the valley and seeing all the new subdivisions taking shape, locals still wary from last decade’s housing crash might wonder if another bubble is inflating. But builders aren’t selling nearly as many homes as they did in the go-go years of the mid-2000s or even in the 1990s, before the U.S. housing craze took off.

Builders sold about 1,200 new homes in Clark County this year through February, up 34 percent from the same two-month period in 2016, according to Home Builders Research. The median sales price of February’s closings was $325,360, up 4 percent year-over-year and not far below the peak of $338,560, reached in summer 2007.

Builders sold almost 8,000 homes in the Las Vegas area last year, more than double the market’s low point during the recession but nowhere near its record of almost 39,000 sales in 2005.

Projects underway include master-planned communities that stalled when the market crashed, such as 2,200-acre Cadence in Henderson and 1,700-acre Skye Canyon in the northwest valley. Other projects include Pulte Homes’ 300-acre Reverence community at the northern tip of Summerlin, which has been on the drawing board for a decade but was declared “officially underway” just last month.

Home Builders Research founder Dennis Smith held a market outlook event at the Orleans Arena on Friday as part of Real Estate Expo Las Vegas, which runs through Sunday. He spoke with the Review-Journal last week about the home construction market:

Excerpts from that interview:

Overall, how is Las Vegas’ homebuilding market doing?

The new-home market is doing extremely well right now. It’s doing much better than I ever thought it would do at this point in time.

Why is that?

You tell me. Everyone is scratching their heads. The demand is very, very strong. The most prevalent answer is that a lot of people are getting off the fence — (they figure) now is a time to buy because, if I wait, interest rates are going up, prices will go up, I don’t know what’s going to happen politically, in the economy. There’s also another factor, that there’s an extreme shortage of listings in the resale market, and it’s driving a lot of people to new homes.

I remember that happened three or four years ago when investors were buying homes all over the place and pushing people out of resales.

That’s correct, but it’s not because of investors now. They put a big dent in the supply of existing homes, especially lower-priced homes, and the replacement stock for those homes has been very limited — the inventory of listings under $300,000 has been very limited for resales. Another factor is that homebuilders see that as an opportunity: They’ve been marketing that particular point, that, hey, we’re here, we’re building new homes. They’ve used the shortage of existing homes to their advantage.

Which segments of the market are getting more- or less-than expected sales?

I’m not surprised by anything that I’m seeing. What usually happens when you have a strong market, especially in a place like Las Vegas, is lower-end homes do extremely well. The best-selling subdivision in Las Vegas is D.R. Horton’s Expressions community in North Las Vegas — those are lower-priced homes. If you take that product at similar prices and put it in Henderson or the southwest valley, their sales rate, in my opinion, could be 50 percent higher, but they can’t find the land in those areas at the prices that will allow them to do that. They have to build where they are, in North Las Vegas, to get the sort of velocity that they’re getting.

Do you ever drive around town and think there’s too much construction?

Never. I do understand why people say that — we’ve been there, done that. Is Vegas going to grow? Yes. Do they want it to grow? I would certainly hope so. If not, then go live out in the desert. But is there a bubble or too much construction? I don’t understand why people would suggest there’s too much construction when the demand shows there isn’t. How can anyone convince me that 8,000 sales a year is a bubble? We’ve had 30,000, 40,000 permits a year; that was a bubble. But before that, in the 1990s and early 2000s, we were doing 20,000 permits and closings a year, and everyone was marveling how wonderful everything was in Las Vegas.

Do you think Las Vegas will ever get back to 40,000 sales per year?

Not in my lifetime. There’s not enough land or lots to do that. Also, we couldn’t build 40,000 homes if we wanted to; we don’t have the labor supply.

Even if builders had the land and the labor, is there enough demand for 40,000 sales a year?

Not yet. Do I see 20,000? That’s more realistic, but not for a long time.

Contact Eli Segall at esegall@reviewjournal.com or 702-383-0342. Follow @eli_segall on Twitter.