Entry Level Priced Homes In Las Vegas R.I.P.
For buyers and realtors alike the lack of affordable inventory has been frustrating.
There are fewer than 1,000 units for sale priced between $200,000 and $300,000. The Valley has a population of 2.2 million people. It is astonishing in a city this size to have so few homes available for first time buyers and retirees wanting to downsize.
In September, the median sales price of previously owned single-family homes was $300,000, up 1.7 percent from August and 13.2 percent from a year ago September, according to the Greater Las Vegas Association of Realtors.
The last time the median was $300,000 was in June 2007. The actual peak median sales price of a previously owned single-family house was in mid-2006 at $315,000. That price adjusted for inflation would be more than $391,000 today.
So, $300,000 back then is nearly today’s $400,000. At the market bottom in early 2012 the median was $118,000, or more than $131,000 today.
In my business, the sweet spot for buyers is $200,000 to $300,000. If there is a shortage, my economist friend tells me homebuilders will create new supply to satisfy this overwhelming demand. What gives Mr. Economist?
It turns out supply and demand is not so simple in Las Vegas real estate. Steve Hawks of Platinum Real Estate Professionals pointed out something recently that no one who drives around town will dispute: apartments are going up everywhere. And if you read the paper, as soon as these fancy new apartment complexes are leased up by some of the 5,000 people who move to town each month, the projects are sold for somewhere around $235,000 per unit.
As much as we hate it, we have to do the math. To make things simple, let’s say you have an acre of land and build 6 homes on that acre and sell the houses for $300,000 each, or a total of $1.8 million. An apartment developer can sometimes get 24 units on an acre and sell at $235,000 per unit and that comes to $5.6 million. By the way, it costs much less to build an 800 to 1,000 square foot apartment than a 1,200 to 1,500 square foot home.
The land owner will sell to the apartment developer every time.
Increasing rents are stimulating apartment development and pushing up the price of land for home builders as well. As long as there is demand in the $400,000 and over price range, the new inventory will be priced out of reach for first time home buyers.
You might be thinking, “what about all those houses that were sold cheap a few years ago after the crash?” Wall Street firms like Blackstone bought those up by the dozens. And again, with rents being strong, these big money firms are holding on to these units. If builders did construct affordable units, taking renters out of those units, rental rates would weaken and the Blackstone’s of the world might start unloading inventory and providing unwanted competition for the builders.
Mr. Hawks made another point every builder painfully knows. There is an extreme shortage of labor. The labor participation rate among 18 to 54 year olds is the same as it was during the recession. Why? Two addictions, opioids and video games, are keeping potential carpenters and plumbers off the job. This has both increased the price of labor and slowed completion times.
Meanwhile, the price of materials has spiked with the president’s trade policy. Right or wrong, the price of Canadian softwood and concrete have soared.
Hawks believes there will be no affordable homes constructed in Las Vegas for the next three to four years. The price of everything has increased and now interest rates are doing the same.
Mark Twain said, “Buy land, they’re not making it anymore.” In Las Vegas, to paraphrase Twain, buy affordable housing (if you can find it), they’re not making it anymore.