Welcome back to Trust the Process,
podcast that takes you behind the scenes
of real estate construction.
And New Home's, this is the second half of our year end wrap up,
but we are in the back 2024,
and now we're moving into 2025,
and some of the things that have happened there.
In our 2024 episode,
we talked a little bit more on a national scale,
bringing it back home to the Vegas market now,
though we have listeners who are in other areas.
In this particular episode,
we're gonna talk specifically
about the Vegas market and how some of those national trends
from 2024 have carried over into what we imagine
will happen over the next 12 months.
Exactly, I think we can use Las Vegas as a microcosm
for a lot of growing Sunbelt cities,
because although the exact numbers might be different,
the trends are largely the same.
Then as we mentioned in our last episode,
there are national factors that do kind of mold our market,
migration, people leaving the Northeastern Sea
where people leaving kind of the denser cities
for suburbia, and when they're making those moves
a lot of times they're moving to other states.
They're coming from California to Nevada to Arizona to Texas.
They're coming from New York to North Carolina
to Georgia to Atlanta and Atlanta Metro,
and then a lot of the Metro Apollots
and subromanaries in Florida.
Those markets are Las Vegas,
and the numbers are going to be very different,
but the trends are there,
and the factors that affect those trends are there.
So last episode, we talked about stubbornly high rates,
as I look forward into 2025.
I see six as again.
I don't foresee substantial drops in the 30 year fixed mortgage rate.
That'll be enough to really move the needle
on affordability and where we could call ourselves
being in a low rate environment.
And for context, if you look at the 30 year fixed mortgage
came out in the early 70s, and if you average the rate
over all those 50 some years,
you come up with a rate in the five.
So people will say, oh, in my day, the rates were 14% and 15%.
Yes, but that was as short lived as our 2% rates were.
That was a very small area under the curve.
So yes, we can acknowledge that.
We're different than they were,
a symbol of the loans.
Oh, no, carries.
I mean, a lot of times you buy land contract
and homes were as a multiplier of income so much cheaper.
And they hate to use the word, but they were,
they were arguably more affordable.
And more affordable when you say cheap,
I mean, it building standards have been so much of a year.
Which has led to inflating costs.
And when they say they don't go homes like they used to,
that is an absolute load.
Right, in a good way.
First of all, just the amount of inspections,
the amount of jurisdictional inspections that go into a home,
the amount of engineering that goes into every single home,
energy audit, it's things like that.
Homes are built tighter substantially more solid than they ever
happened, which is why it's so hard to create new inventory.
It's not advocating to walk that back,
but we have to know what we're dealing with.
Right, with each new standard, that's creating an increase
in the build price.
It does.
So it's not just some manufactured inflation.
It's reflective of what it's actually
could seem to build that.
Exactly.
And it's how real estate is a representation of everything
converging.
Financial markets when it comes to mortgage rates,
public policy when it comes to building codes,
energy standards, zoning, the cost of water tapping fees
when you're in a desert climate and an adrow.
There's a lot of things that play into this
and then the labor market in terms of who's going to build
your home.
But then who is behind your homes?
So it's everything converging and then you also have
functionality and design, tastes and standards
that change throughout the year.
So not only is some of the inventory in the wrong location,
but if it's in the right location, it might be wildly dated.
And it might not be something that's palatable to the mask
with the mask market.
And it makes the industry that I'm in.
I mean, I can't gripe about it too much
because it's why there is this industry.
And if that were streamlined and less cumbersome,
it wouldn't be a business.
There'd be no business in it, right?
It would be too simple.
And people would build their own homes.
People would develop their own parcels.
So it's a blessing in the curse.
On that topic, though, if you look at where the industry is,
this industry that we love, it's chugging along.
And that's by 2025 and 2024 and 2023.
You're not seeing these big swings.
You're definitely saw a swing in 2021
because it was that chasm created by COVID.
So you'd see deliveries lower and then they rebounded.
But overall, the build process,
and the development process is on such long horizons,
a lot of things kind of iron out.
I mean, these little temporary blips.
Now we're in a period of sustained elevated rates.
It's still on a long enough horizon
that buyers can absorb in their mind that rates are higher.
They absorb what $500,000 gets them.
For my days as a broker, I would see people who waited too long
and then the market six months later was a wildly different market.
We're talking over horizon of six months.
It's still happening.
You're still a pretty long time.
The other day, we had a conversation about
how one of the best parts of this last year
when rates did spike a little because people get that
period of my gosh, am I going to miss it?
I really should buy now.
They're all actually getting it thinking,
well, it could fall.
It could fall when they realized it's not.
And that's what I'm talking about.
It's starting to take up.
It gave a great burst for the, exactly.
For the real estate market.
A 100%.
And what we saw was a paradoxical situation where
rates started to drop and there was a little brief sliver
of light.
I want to say the summer of 2024, where it looked like we might see rates
that start with a five.
They might be five point nine nine nine nine nine nine nine
but we thought for the first time since 2022,
we might see rates that start with the five.
And it may be one person got lucky and bought a point.
Got to five points.
But there's not a big cash of people that had five rates
and even five nine nine nine nine.
Most people are still well in the sixes.
So I was we're waiting as rates were coming off of the sevens
and going into that little sliver of light,
we saw cells drop tremendously.
We saw new home traffic drop tremendously.
We saw just general waiting.
We can see then as rates obviously rebounded and came back.
We saw a spike in activity that we're at the end.
They were playing chicken with a spike.
They're playing chicken with a mortgage rate market.
And the real estate market to an extent.
They're looking at these homes.
They're passing passing, passing, thinking,
oh well, I'll have forever.
I have can get that house whenever.
It's been on the market for 86 days.
And then rates go up and your inventory shrinks.
So buyers psychology is really important in the real estate market
and also in new home construction as well.
Because really what we do in new home construction
has to be informed by what's happening in the resale market.
We're building homes and there are plenty of homes out there.
Not available.
Right.
11 them but earlier on over what I've raised.
But at the end of the day, we have to be informed by what's happening in the existing home market.
Springboarding into Las Vegas and other sunbelt areas.
We're seeing, finished about 11,500 homes in 2024.
And we expect to finish around that same number in 2025.
Just based off of what permits are pulled right now.
And trends, there's about 9,000 ready to develop lots.
And that's just something that could be developed with them in the next six to nine months.
So there is the lot inventory in Las Vegas.
Now again, most of that's hold by those,
Fortune 500 home builders and publicly traded home builders.
Those are lots.
You can't go buying 9,000.
Las Vegas, I would say, is probably 400 lots.
And they're all luxury lots for the most part.
You could actually buy in Las Vegas.
But there's lots that are developed.
That's not even counting the infrastructure in the work that's going to be happening in the next.
No three or four quarters that will deliver more ready to go lots.
So assuming that builders will build on all 9,400 plus additional lots being brought to market.
It stands to reason that we're probably seeing around the same number of homes,
still, I've heard single family homes give or take 10%.
It will be probably not less than 10 and not more than 12,000.
Top speed and completed in single family.
Now when we go into multi family, we see around 4 to 4,500 doors being completed.
So just some quick math.
That's around 15,000 doors.
Las Vegas grew by 26,000 households last year.
If we see that same growth and the projections are,
we're actually significantly overperforming norms in Las Vegas.
And I would imagine many sunbelt cities are in the same boat.
We're overperforming.
So I have no reason to believe that 25, we're not going to see the same household creation.
That's new inbound immigration.
That's household formation of just your kids grow up and they get married and they do their thing.
And that also accounts for people that either die and households that are lost
or people that move out of state households that are lost.
So that's a net increase of well over 20,000.
That those numbers and how they match up, they're such a void.
Huge disparity.
Huge.
Doing the quick.
We close that or do we close that.
The problem is the housing market is not elastic.
But there's nowhere to go.
You can't just snap your fingers and make or 1000 in a quick math that's between
4 to 7,000 doors, shorts.
Every year that's building up.
The estimates are around 20% underbuilt every year, which is a really bad deficit.
Right.
To overcome.
That's why we've seen nearly 100% price appreciation since before COVID.
We're seeing supply and demand in real time.
We're going to be hard pressed to add to demand.
So what you would think is that you're just going to see more doubling up less household
Formation.
And that's bearing outing even in national politics.
This idea that I can't start my life.
Because I can't form a household because I can't afford a house because I can't afford
to mortgage because I can't.
And it's having political implications.
People are voting on these issues.
And because it matters to them, household formation.
Because that's where it's going to give first has to.
And not in the by intention just by design.
Just by design.
It's called out.
You put a jacket on.
It's just causing effect.
And if that's where we're going to see the elasticity.
You're not going to have new doors created.
Builders can only go so fast.
And it's going to be a while before you see downward pressure on migration.
Because of price.
I think people are still going to relocate.
There's a there's a very high threshold.
The average person migrating to a sundell city for a better life is going to have price
of homes and cost of living.
Not as high on their agenda as the move itself.
Because almost all sundell cities are in the same boat.
Which market is going to have quickest.
We've been watching the entry level product work.
It has been moving the clean recent years.
Yeah.
And now we're seeing that it is slowing.
Yeah.
I mean, that's a great point because you would think that as barren cost are higher.
And home prices are higher.
The bottom.
The top is where it's at.
Yes.
I would think that's the answer at 2025.
That's right.
You would think the bottom of the market is where it's at.
As it turns out, the most vulnerable, the rate shocks, the most vulnerable to unemployment,
the most vulnerable to minor economic changes can sway their fortunes drastically.
So if you're building to that bottom of the market, you're very exposed.
And the greatest underserved market.
As if positive feedback loop.
It's so underserved because it is underserved because it's.
So as if you're a builder to risk and as we get in the weeds later on in the podcast,
talk about some individual projects that we have coming as a company.
And as we're making decisions as to how to build those out.
This is informing my decisions.
The risk is higher building to the bottom of the market.
First, you have less room to go.
You have less room to absorb surprises.
If you're building at the median, which is in the middle,
$400,000 range.
If you have a $50,000 surprise.
Per home site.
It's 10% of the entire end of day sales price.
You can't sustain it.
It's just kidding.
If you're building to 150% of the median sales price at 800,000,
you have a $50,000 surprise.
Those are the things that I'm excited to expose that.
And to share those pieces.
Those are things that people know where are out there.
That's right.
Even, you know, there's just, you don't know what you don't know.
That's right.
Thought about it from that back in perspective.
This is going to open that door to the thought process that go into.
And hopefully start to explain.
Some of the nuances and some of the methods that the madness of the real estate market.
I don't see the problem reversing.
Like I said, I think household formation will be the first to go.
And then eventually as our supply and demand gets too outstripped,
you might start to see some people second guessing moves to certain
some bell cities that don't have the room to grow out.
Or that can't meet that demand.
The people can't in the city like Las Vegas or Phoenix.
They can't just drive another 30 minutes.
Like you might be able to in Texas.
You might be able to in Atlanta.
You might be able to move to an exor we don't have exorbs in these Southwest
Some bell markets.
We know the middle of town is built out and then be more expensive.
And so a lot of those cities are growing into the insularities.
That's right.
These are now referred to allow a lower price point or a more.
Yeah.
And that's ideally the elasticity that the real estate market has followed.
Since suburban sprawl after World War II.
That's what it was.
The belts became the elasticity in the housing market.
And then kind of helped to keep prices, you know,
and appreciation very stable.
And we don't really have that at least in our market.
It'll be interesting.
It'll be a great ride.
And projects on the book's board trust.
Land that is in the works and you know,
that are happening and a lot of things on yeah.
At the drawing board.
We're going to call those though.
You know, it's all, it's all the crystal wall guests at this point.
We're reading the two leaves.
Yeah, we're reading the two leaves.
You said love it.
Yeah.
Well, thank you for joining us again.
And we'll be back soon.
Hope to see you then.
Bye.
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