High home prices in Las Vegas are driving buyers to more affordable homes

Las Vegas set a record high in May when 29.1 percent of new home sales were attached products — primarily townhomes — and the trend shows no sign of slowing as builders continue to pursue denser development projects.

Driven by affordability, home builders are turning to city homes to attract buyers in a market where high interest rates over the past year have pushed more single-family homes out of their price range. It is expected that a push will be made to build two-storey residential projects to increase density.

In new home closings tracked through the first six months of 2023, the 4,106 single-family home closings declined 12 percent during the first six months of 2022. By comparison, there were 1,237 attached homes closed during the first six months, That is, 6 percent. An increase year over year, according to Las Vegas head of homebuilding research, Andrew Smith.

About 23 percent of new homes sold during the first six months of 2023 were connected, boosted by 29.1 percent in May and 25 percent in June. The 23 percent share would represent the highest percentage over the past decade tracked by Home Builders Research, and is on pace to set an all-time record, according to builders.

“I’ve been here since the 1990s, and we’ve never seen this high.” said Tom McCormick, founder of Touchstone Living, one of the Valley’s leaders in city home projects.

In 2021 and 2022, the market share reached 19.8 percent and 19.7 percent, respectively. That’s up from 5.3 percent in 2015 as cheap land and lower prices resulting from the Great Recession allowed builders to focus on single-family homes because they couldn’t afford to build them for more than just a townhome, McCormick said. That changed as land prices rose.

“It’s about affordability and lifestyle,” McCormick said. “Land is very expensive and leads to housing unaffordability, but with houses in cities, you can put more houses on the same amount of land. This makes the cost of land per house lower and results in a lower selling price.

Touchstone Living can build 12 to 18 homes per acre, while builders who build single-family homes average about five homes per acre and eight to 10 acres in densely populated areas, McCormick said.

“Land prices haven’t gone down,” McCormick said. “There’s so little of it that the price stays high. Seeing something at $1 million an acre is not uncommon.”

Besides the low price, McCormick said buyers, especially millennials buying their first home, are attracted to the lifestyle and low maintenance costs.

“Typically, city homes have gardens, pools, playgrounds and other amenities that go with them,” McCormick said. “For us, it’s a much younger buyer, and they like a more community-oriented neighborhood where you share everything rather than single-family people who retreat into the garage and stay inside your house.”

Building defect laws put in place in the 1990s slowed the construction of apartments and houses, said Nate Hodgson, CEO of the Home Builders Association of Southern Nevada. Townhomes are attached homes, and apartments are multiple floors of units stacked on top of each other.

Hodgson said construction defect laws were reformed in 2015, giving builders the green light to pursue those projects in the future because there were fewer concerns about lawsuits over attached products. He added that in addition to today’s higher home prices due to land costs and interest rates, buyers are demanding more connected products.

“I see it growing,” Hodgson said. “Most of the builders I deal with are in apartments. Most of the 2024 builders have a project on the board for apartments as well as townhomes all over the valley. You have to keep density, density, density. And that’s happened in every metropolitan area in the United States that has grown .

Local governments are working with builders to allow greater building densities and more connected projects to address affordability, Smith said. This should help keep the market share high for a while, he said.

“It feels like we’ve reached a new normal,” Smith said. “I think it will rise further due to land scarcity, increasing costs and the need for more housing.”

Interest in townhomes is only growing among builders and buyers as evidenced by the latest figures. The 259 attached home closings in June were 20 percent higher than in June 2022.

Attached home sales were once again prevalent among the top 10 new home subdivisions registered during the second quarter. Among the top 10 homes across all communities, city homes took seven of the top spots.

Diamond Ranch Trails, D.R. Horton’s townhome project in the Southwest Valley, ranked first in total subdivision sales during the second quarter with 50. The Touchstone Living Watercolor townhome project in North Las Vegas ranked second with 47 sales.

Lennar placed fourth for its Terra Bella residential project in the Anthem masterplan in Henderson for those 55 and older. He had 44 sales.

Touchstone Living’s Mosaic Town home project in the South Valley, which has one remaining unit of 793 lots, took fifth place with 43 sales.

Lennar’s Highline, a townhome project in Summerlin, also had 43 sales, and the Roxbury townhome project at Valley Vista in North Las Vegas was next with 41 sales.

DR Horton’s Symmetry Trails at Cadence in East Henderson placed ninth with 34 sales.

Interest rates have more than doubled over the past year and have more buyers considering city homes. The 30-year fixed mortgage rate was about 7.52 percent this week.

High borrower costs and the median closing sales price for single-family homes in June of $501,000 put a single-family home out of reach for many first-time buyers. While the selling price is 2.4 percent lower than in June 2022, affordable homes sold for an average price of $363,990, a 5.8 percent decrease year over year, and some homes in the city can be had for less than $300,000.

The leading community with homes sold in June was Touchstone Living’s Watercolor with 23 net sales. Touchstone purchased 85 acres in 2019 and plans to build 1,180 homes and has sold 692 homes. These prices range from $280,000 to $400,000 for homes measuring 1,000 square feet to 2,200 square feet. The project mainly includes duplex apartments, four duplexes and six duplexes.

Touchstone’s latest project in the East Valley is located at the former Royal Links Golf Club and is known as Independence, which will include 1,600 homes. The contractor purchased the land in December 2021 and has begun construction on models that are expected to open in October.

These homes have not been priced, but are expected to range from the mid-$200,000s to mid-$300,000s. There are already 9,000 people on the interest list for the project, which will contain houses and duplexes. The inspection center opened in May.

“We’re getting 50 to 80 kits a week at this sampling center, which is a remarkable number of people,” McCormick said. “We’re used to seeing less than 10 a week at the preview center, so to see this level of interest is incredible. Prices and interest rates are going up and affordability is very important to people. We’re seeing more demand as time goes on.”