While overall new home construction slowed in the first six months of 2022, closings of $1 million-plus homes rose 16% from 2021. But even in this price segment, builders see buyers more cautious when buying.
Las Vegas-based Home Builders Research reported 235 new home closings of $1 million and more in the first six months of 2022, up 16% from 203 in the first six months of 2021.
The rise, partly attributed to rising home construction costs pushing up sale prices, is part of an ongoing trend since the pandemic for luxury homes, especially those moving from California.
There were 52 such luxury new home sales in the first six months of 2017; 87 in 2018; 123 in 2019 and 115 in 2020, when the housing market briefly halted at the start of the COVID-19 pandemic.
The number of new luxury home sales even increased during the second quarter from April to June, even as interest rates started to rise and fears of a possible recession grew. There were 134 closures in the second quarter, compared to 101 between January and March. In 2021, there were 112 luxury closures in the second quarter after 91 in the first quarter.
The strength of the luxury new home sector mirrors that of the $1 million+ existing home market, which is also doing better than the overall market.
Net new home sales fell 20% overall in the first six months of 2022, while closings fell 0.3% over the same period, according to Home Builders Research.
There was an 11% increase in luxury closings during the first quarter, outpacing the overall new home market which fell 2% in closings, Home Builders Research reported.
Blue Heron CEO and founder Tyler Jones, a luxury builder that continues to expand its footprint in Las Vegas, said the momentum with the slowing economy, high inflation and rising interest rates caused people to “hesitate over decisions and people drag their feet a little bit before deciding when they’re ready to pull the trigger. He called it, however, a “slight shift.”
Jones said he remains positive about Las Vegas luxury home sales given the market’s momentum and hopes the national economy will experience a soft landing without a major recession.
“As far as real estate is concerned, we haven’t changed our strategy at all,” Jones said. “We believe there will continue to be a very strong demand for luxury homes on the market. We are always looking for new projects and are very busy in our sales offices. I think the big factor for l “Luxury real estate in Las Vegas is California’s exodus, and it’s most certain. There will always be people trying to leave California for tax and political reasons. There’s a lot of demand and little offer for these people. Vegas is well positioned to be a place that will continue to achieve this immigration.
Jones said the interest rate increases correlated with lower sales of homes in the overall Las Vegas market at lower prices, but not in luxury.
“These are people who aren’t as affected by interest rate changes,” Jones said. “If you’re going to buy a multi-million dollar house and interest rates go up one point, that won’t stop you from buying the house.”
Erika Geiser, vice president of marketing for Christopher Homes, said it’s no surprise there’s been a slowdown in the number of people buying luxury homes, but that won’t last. Part of the problem, she said, is that it’s summer and July and August are historically slow.
In previous years, when people weren’t traveling, luxury summer sales were stronger.
“Our buyer is on vacation and he’s not coming to Vegas when it’s 114 degrees,” Geiser said.
Earlier this year, Christopher Homes began converting 17 bookings into contracts for its SkyVu project in MacDonald Highlands during the second quarter. It has 102 reception sites built on the mountainside with a view of the valley.
“We had a few crashes,” Geiser said. “We only had a few sales in June when it started to slow down. It was slow in July and we expect it to be the same in August, but that’s how it is, historically.
SkyVu detached homes range from 2,800 square feet to over 6,200 square feet and have one or two stories. The average sale price, including the lot and the base price of the house sold so far, is $3 million.
Geiser said their buyers don’t worry about interest rates and it doesn’t dictate their behavior.
“They’re certainly worried about seeing their stock portfolio drop 25%,” Geiser said. “When they’re buying a second home or a third home, and it’s a discretionary decision, it causes a pause if their portfolio drops.” Geiser already expects buyers to return in September and October.
“They will schedule dates,” Geiser said. “Many of them will come back from Europe.”
Overall, for the whole new home market, sales have slowed and prices have stabilized, and that’s a good thing, Geiser said.
“Not a bad thing, but I still see the luxury market being viable starting again in September and October after the 115 degree temperatures have calmed down a bit.”
Tri Pointe Homes Division President Klif Andrews said sales remain strong in his Overlook community at Redpoint in Summerlin, where the builder’s homes start at $1 million. Tri Pointe began selling Overlook with its 90 home sites in October and has had 55 sales to date.
“The luxury segment is doing well,” Andrews said. “We’re seeing cash buyers in Overlook at a time when the stock market is a bit wobbly. The high end of the market is actually stronger and getting a lot of support from out-of-state buyers, primarily of California. The (lower end of the market) is slower right now. Those looking to change their lifestyle – this part of the market looks strong.