Las Vegas, in a similar vein to many areas of the country, is experiencing a slowdown in reported net sales after the strongest first half in the Valley for years. The slowdown can be attributed to different issues affecting the market: metering of sales, price appreciation, diminished affordability, seasonality, commodity challenges, labor constraints, increasing land prices, and decreasing developed lot availability. Despite the issues, Las Vegas still has many positives emanating throughout the economy. Many of the issues have been reviewed throughout the news media and national lexicon, but here we will review some of those issues that can offer overview, opportunity, and warning.
First and foremost, the Las Vegas economy is springing back to life faster than expected. Annual taxable sales through April increased 8.61% since February and is only 6.74% below record annual taxable sales of February 2020. Employment has been steadily digging itself out of the massive losses from the start of the pandemic through May 2021 with an unemployment rate falling to 8.9%, well removed from the 34% rate in April 2020 with further gains likely.
The partial reopening of the Valley’s resort-casino industry allowed tourism to rebound strongly with occupancy rising to 70.9% overall and 87.8% on the weekends in May, according to the Las Vegas Convention and Visitors Authority, with average room rates further rebounding. The reopening of resort-casinos is further spurring increases in visitor traffic from both air and land, while Las Vegas Strip gambling winnings in May surged with Nevada besting the highest monthly win ever, according to The Associated Press. Keeping this in perspective, Gov. Steve Sisolak removed all restrictions from the pandemic for casinos in June (although mask mandates have returned for public indoor settings) with data only available through May, which should further ignite the resort-casino industry as well as push more capital into the local economy and the reliant ancillary industries. These factors have the Valley economy humming along with typical Las Vegan resilience and optimism for the future, if lots and attainable homes can be supplied to the market.
Secondarily, the Las Vegas market is still moving at an exceptional pace through the first six months of the year, totaling over 7,300 net sales per Zonda’s Weekly Traffic and Contract report, which is well above any of the previous four years. The next highest year totaled just under 5,700 net sales in 2018. In June, we did see a significant slowdown compared with May with net sales dropping to under 925 from 1,301 due to the various constraints stated above.
Similarly, closings are on a pace for over 5,100 new homes in the Las Vegas Valley through the end of June. Again, the next highest year for closings in the first six months was 2018, with slightly over 4,900 closings. The past four years have averaged 52% of closings occurring in the second half of the year. This phenomena is expected to yield similar results during the draw of 2021, after the unusually strong second half of 2020 and the exceptional results of 2021 presently.
This rapid pace of home sales, and the accompanying increase in home closings Las Vegas is exhibiting, should be spurring land development. However, Zonda’s proprietary survey data is showing signs that the exceptional sales pace has been decreasing the vacant developed lot supply over the past year significantly. Las Vegas’ vacant developed lot months of supply has been pushed to lows not seen in 15 years. The decline in vacant developed lots is affecting home builder planning and strategy this year, as builders look to the future development and sales efforts in 2022 and beyond. Further, while annual lot deliveries have been increasing, the slowdown in lot deliveries in the second quarter of 2020, coupled with the exceptionally strong first half of net sales in 2021, is straining the market as lots are not being brought to market efficiently and fast enough to quench the markets thirst in the Valley.
Looking toward potential future replacement lots coming to market in the near future leads us to review Zonda’s database of known future lot inventory. We like to look to this to see the overall potential of the market in both the short and long term. The near-term potential of the future market are lots observed as having on-site land development replacing current vacant developed lots, while long-term lots exhibit overall potential though many of those lots likely will be replanned prior to development. Zonda’s updated data through the second quarter of 2021 shows those near-term lots in the pipeline have declined since the last quarter by 5.3%, meaning further signs of strain on lot supply in the near-term future for the Valley.
However, certain submarkets have shown an increase in on-site development with lots being brought to market offering opportunity in the near future. A careful review of Zonda’s database exhibits potential long-term opportunity for lots that have not yet been final mapped and shape them toward the market’s needs and desires to maximize market potential through proper planning and advisement. However, the decrease of potential near-term future lots will put continued pressure on available vacant developed lot supply through the end of 2021, and likely into the start of 2022, pressuring land prices while new-home listings prices likely begin to plateau. Keep in mind that prices can also be affected by an increase in higher-density products that are more attainable for many of the Valley’s buyers.
While the vacant developed lot supply pressures the market in the short term, builders have been pivoting and looking toward solutions such as higher-density detached and attached products through land planning and development that should pick up over the coming quarters to alleviate some of the lot constraints. Despite these challenges, the Valley remains an under-supplied market with strong continued demand that is likely continue throughout 2021 and into 2022, keeping the appetite for lots and land high but enhance the need for proper planning, advisement, and strategies. We will continue to study the supply, demand, and potential path forward for the Valley’s real estate market in the coming months.
