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Welcome back to Trust the Process,

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podcast that takes you behind the scenes

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of real estate construction.

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And New Home's, this is the second half of our year end wrap up,

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but we are in the back 2024,

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and now we're moving into 2025,

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and some of the things that have happened there.

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In our 2024 episode,

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we talked a little bit more on a national scale,

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bringing it back home to the Vegas market now,

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though we have listeners who are in other areas.

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In this particular episode,

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we're gonna talk specifically

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about the Vegas market and how some of those national trends

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from 2024 have carried over into what we imagine

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will happen over the next 12 months.

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Exactly, I think we can use Las Vegas as a microcosm

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for a lot of growing Sunbelt cities,

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because although the exact numbers might be different,

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the trends are largely the same.

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Then as we mentioned in our last episode,

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there are national factors that do kind of mold our market,

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migration, people leaving the Northeastern Sea

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where people leaving kind of the denser cities

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for suburbia, and when they're making those moves

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a lot of times they're moving to other states.

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They're coming from California to Nevada to Arizona to Texas.

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They're coming from New York to North Carolina

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to Georgia to Atlanta and Atlanta Metro,

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and then a lot of the Metro Apollots

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and subromanaries in Florida.

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Those markets are Las Vegas,

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and the numbers are going to be very different,

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but the trends are there,

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and the factors that affect those trends are there.

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So last episode, we talked about stubbornly high rates,

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as I look forward into 2025.

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I see six as again.

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I don't foresee substantial drops in the 30 year fixed mortgage rate.

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That'll be enough to really move the needle

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on affordability and where we could call ourselves

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being in a low rate environment.

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And for context, if you look at the 30 year fixed mortgage

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came out in the early 70s, and if you average the rate

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over all those 50 some years,

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you come up with a rate in the five.

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So people will say, oh, in my day, the rates were 14% and 15%.

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Yes, but that was as short lived as our 2% rates were.

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That was a very small area under the curve.

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So yes, we can acknowledge that.

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We're different than they were,

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a symbol of the loans.

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Oh, no, carries.

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I mean, a lot of times you buy land contract

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and homes were as a multiplier of income so much cheaper.

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And they hate to use the word, but they were,

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they were arguably more affordable.

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And more affordable when you say cheap,

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I mean, it building standards have been so much of a year.

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Which has led to inflating costs.

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And when they say they don't go homes like they used to,

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that is an absolute load.

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Right, in a good way.

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First of all, just the amount of inspections,

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the amount of jurisdictional inspections that go into a home,

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the amount of engineering that goes into every single home,

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energy audit, it's things like that.

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Homes are built tighter substantially more solid than they ever

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happened, which is why it's so hard to create new inventory.

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It's not advocating to walk that back,

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but we have to know what we're dealing with.

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Right, with each new standard, that's creating an increase

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in the build price.

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It does.

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So it's not just some manufactured inflation.

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It's reflective of what it's actually

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could seem to build that.

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Exactly.

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And it's how real estate is a representation of everything

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converging.

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Financial markets when it comes to mortgage rates,

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public policy when it comes to building codes,

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energy standards, zoning, the cost of water tapping fees

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when you're in a desert climate and an adrow.

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There's a lot of things that play into this

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and then the labor market in terms of who's going to build

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your home.

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But then who is behind your homes?

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So it's everything converging and then you also have

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functionality and design, tastes and standards

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that change throughout the year.

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So not only is some of the inventory in the wrong location,

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but if it's in the right location, it might be wildly dated.

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And it might not be something that's palatable to the mask

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with the mask market.

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And it makes the industry that I'm in.

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I mean, I can't gripe about it too much

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because it's why there is this industry.

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And if that were streamlined and less cumbersome,

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it wouldn't be a business.

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There'd be no business in it, right?

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It would be too simple.

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And people would build their own homes.

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People would develop their own parcels.

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So it's a blessing in the curse.

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On that topic, though, if you look at where the industry is,

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this industry that we love, it's chugging along.

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And that's by 2025 and 2024 and 2023.

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You're not seeing these big swings.

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You're definitely saw a swing in 2021

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because it was that chasm created by COVID.

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So you'd see deliveries lower and then they rebounded.

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But overall, the build process,

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and the development process is on such long horizons,

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a lot of things kind of iron out.

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I mean, these little temporary blips.

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Now we're in a period of sustained elevated rates.

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It's still on a long enough horizon

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that buyers can absorb in their mind that rates are higher.

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They absorb what $500,000 gets them.

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For my days as a broker, I would see people who waited too long

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and then the market six months later was a wildly different market.

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We're talking over horizon of six months.

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It's still happening.

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You're still a pretty long time.

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The other day, we had a conversation about

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how one of the best parts of this last year

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when rates did spike a little because people get that

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period of my gosh, am I going to miss it?

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I really should buy now.

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They're all actually getting it thinking,

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well, it could fall.

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It could fall when they realized it's not.

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And that's what I'm talking about.

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And that's what I'm talking about.

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It's starting to take up.

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It gave a great burst for the, exactly.

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For the real estate market.

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A 100%.

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And what we saw was a paradoxical situation where

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rates started to drop and there was a little brief sliver

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of light.

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I want to say the summer of 2024, where it looked like we might see rates

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that start with a five.

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They might be five point nine nine nine nine nine nine nine

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but we thought for the first time since 2022,

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we might see rates that start with the five.

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And it may be one person got lucky and bought a point.

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Got to five points.

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But there's not a big cash of people that had five rates

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and even five nine nine nine nine.

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Most people are still well in the sixes.

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So I was we're waiting as rates were coming off of the sevens

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and going into that little sliver of light,

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we saw cells drop tremendously.

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We saw new home traffic drop tremendously.

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We saw just general waiting.

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We can see then as rates obviously rebounded and came back.

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We saw a spike in activity that we're at the end.

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They were playing chicken with a spike.

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They're playing chicken with a mortgage rate market.

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And the real estate market to an extent.

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They're looking at these homes.

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They're passing passing, passing, thinking,

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oh well, I'll have forever.

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I have can get that house whenever.

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It's been on the market for 86 days.

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And then rates go up and your inventory shrinks.

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So buyers psychology is really important in the real estate market

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and also in new home construction as well.

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Because really what we do in new home construction

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has to be informed by what's happening in the resale market.

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We're building homes and there are plenty of homes out there.

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Not available.

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Right.

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11 them but earlier on over what I've raised.

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But at the end of the day, we have to be informed by what's happening in the existing home market.

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Springboarding into Las Vegas and other sunbelt areas.

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We're seeing, finished about 11,500 homes in 2024.

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And we expect to finish around that same number in 2025.

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Just based off of what permits are pulled right now.

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And trends, there's about 9,000 ready to develop lots.

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And that's just something that could be developed with them in the next six to nine months.

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So there is the lot inventory in Las Vegas.

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Now again, most of that's hold by those,

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Fortune 500 home builders and publicly traded home builders.

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Those are lots.

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You can't go buying 9,000.

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Las Vegas, I would say, is probably 400 lots.

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And they're all luxury lots for the most part.

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You could actually buy in Las Vegas.

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But there's lots that are developed.

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That's not even counting the infrastructure in the work that's going to be happening in the next.

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No three or four quarters that will deliver more ready to go lots.

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So assuming that builders will build on all 9,400 plus additional lots being brought to market.

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It stands to reason that we're probably seeing around the same number of homes,

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still, I've heard single family homes give or take 10%.

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It will be probably not less than 10 and not more than 12,000.

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Top speed and completed in single family.

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Now when we go into multi family, we see around 4 to 4,500 doors being completed.

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So just some quick math.

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That's around 15,000 doors.

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Las Vegas grew by 26,000 households last year.

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If we see that same growth and the projections are,

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we're actually significantly overperforming norms in Las Vegas.

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And I would imagine many sunbelt cities are in the same boat.

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We're overperforming.

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So I have no reason to believe that 25, we're not going to see the same household creation.

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That's new inbound immigration.

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That's household formation of just your kids grow up and they get married and they do their thing.

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And that also accounts for people that either die and households that are lost

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or people that move out of state households that are lost.

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So that's a net increase of well over 20,000.

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That those numbers and how they match up, they're such a void.

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Huge disparity.

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Huge disparity.

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Huge.

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Doing the quick.

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We close that or do we close that.

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The problem is the housing market is not elastic.

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But there's nowhere to go.

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You can't just snap your fingers and make or 1000 in a quick math that's between

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4 to 7,000 doors, shorts.

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Every year that's building up.

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The estimates are around 20% underbuilt every year, which is a really bad deficit.

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Right.

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To overcome.

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That's why we've seen nearly 100% price appreciation since before COVID.

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We're seeing supply and demand in real time.

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We're going to be hard pressed to add to demand.

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So what you would think is that you're just going to see more doubling up less household

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Formation.

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And that's bearing outing even in national politics.

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This idea that I can't start my life.

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Because I can't form a household because I can't afford a house because I can't afford

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to mortgage because I can't.

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And it's having political implications.

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People are voting on these issues.

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And because it matters to them, household formation.

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Because that's where it's going to give first has to.

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And not in the by intention just by design.

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Just by design.

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Just by design.

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It's called out.

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You put a jacket on.

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It's just causing effect.

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And if that's where we're going to see the elasticity.

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You're not going to have new doors created.

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Builders can only go so fast.

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And it's going to be a while before you see downward pressure on migration.

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Because of price.

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I think people are still going to relocate.

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There's a there's a very high threshold.

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The average person migrating to a sundell city for a better life is going to have price

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of homes and cost of living.

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Not as high on their agenda as the move itself.

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Because almost all sundell cities are in the same boat.

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Which market is going to have quickest.

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We've been watching the entry level product work.

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It has been moving the clean recent years.

261
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Yeah.

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And now we're seeing that it is slowing.

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Yeah.

264
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I mean, that's a great point because you would think that as barren cost are higher.

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And home prices are higher.

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The bottom.

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The top is where it's at.

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Yes.

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I would think that's the answer at 2025.

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That's right.

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You would think the bottom of the market is where it's at.

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As it turns out, the most vulnerable, the rate shocks, the most vulnerable to unemployment,

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the most vulnerable to minor economic changes can sway their fortunes drastically.

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So if you're building to that bottom of the market, you're very exposed.

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And the greatest underserved market.

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As if positive feedback loop.

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It's so underserved because it is underserved because it's.

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So as if you're a builder to risk and as we get in the weeds later on in the podcast,

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talk about some individual projects that we have coming as a company.

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And as we're making decisions as to how to build those out.

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This is informing my decisions.

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The risk is higher building to the bottom of the market.

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First, you have less room to go.

284
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You have less room to absorb surprises.

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If you're building at the median, which is in the middle,

286
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$400,000 range.

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If you have a $50,000 surprise.

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Per home site.

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It's 10% of the entire end of day sales price.

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You can't sustain it.

291
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It's just kidding.

292
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If you're building to 150% of the median sales price at 800,000,

293
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you have a $50,000 surprise.

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Those are the things that I'm excited to expose that.

295
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And to share those pieces.

296
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Those are things that people know where are out there.

297
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That's right.

298
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Even, you know, there's just, you don't know what you don't know.

299
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That's right.

300
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That's right.

301
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Thought about it from that back in perspective.

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This is going to open that door to the thought process that go into.

303
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And hopefully start to explain.

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Some of the nuances and some of the methods that the madness of the real estate market.

305
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I don't see the problem reversing.

306
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Like I said, I think household formation will be the first to go.

307
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And then eventually as our supply and demand gets too outstripped,

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you might start to see some people second guessing moves to certain

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some bell cities that don't have the room to grow out.

310
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Or that can't meet that demand.

311
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The people can't in the city like Las Vegas or Phoenix.

312
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They can't just drive another 30 minutes.

313
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Like you might be able to in Texas.

314
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You might be able to in Atlanta.

315
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You might be able to move to an exor we don't have exorbs in these Southwest

316
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Some bell markets.

317
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We know the middle of town is built out and then be more expensive.

318
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And so a lot of those cities are growing into the insularities.

319
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That's right.

320
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These are now referred to allow a lower price point or a more.

321
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Yeah.

322
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And that's ideally the elasticity that the real estate market has followed.

323
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Since suburban sprawl after World War II.

324
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That's what it was.

325
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The belts became the elasticity in the housing market.

326
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And then kind of helped to keep prices, you know,

327
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and appreciation very stable.

328
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And we don't really have that at least in our market.

329
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It'll be interesting.

330
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It'll be interesting.

331
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It'll be interesting.

332
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It'll be a great ride.

333
00:13:22,200 --> 00:13:25,200
And projects on the book's board trust.

334
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Land that is in the works and you know,

335
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that are happening and a lot of things on yeah.

336
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At the drawing board.

337
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We're going to call those though.

338
00:13:33,200 --> 00:13:36,200
You know, it's all, it's all the crystal wall guests at this point.

339
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We're reading the two leaves.

340
00:13:37,200 --> 00:13:39,200
Yeah, we're reading the two leaves.

341
00:13:39,200 --> 00:13:40,200
You said love it.

342
00:13:40,200 --> 00:13:41,200
Yeah.

343
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Well, thank you for joining us again.

344
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And we'll be back soon.

345
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Hope to see you then.

346
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Bye.

347
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Thanks for tuning into the Trust for Process podcast.

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Make sure to follow us on Spotify to stay in the loop with the latest insights.

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Project updates and everything in between.

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See you next time.