It’s a good time to give some perspective on the real estate market now that we have a few months of data available on the trends.
During the last major recession we saw home prices drop off a cliff in Las Vegas, with some zip codes declining as much as 90% from the peaks. We also saw an explosion of inventory with more than 25,000 homes available in Las Vegas at the market’s low point. This is important as housing inventory is the single most important way to track the housing market, whether you’re interested in buying a home or selling your current one, or just want an idea as to what to expect in the future. When you read articles that say “housing market is at its lowest level in a decade” such as a recent one on Yahoo! – keep in mind that’s largely irrelevant to what matters most to almost everyone: how easy is to buy or sell, and what will the price be?
Despite a drop in real estate sales, there are far fewer homes for sale than normal. Those who don’t have to sell are holding off due to Covid fears, and those who can and want to buy are not. Trends like relocations from California to lower cost of living have not stopped (and may even accelerate), retirement to Las Vegas, especially from a larger city, has not stopped, and renters who have not seen a job loss still want to be homeowners if they can. This has led to a steady increase in the median price despite the high unemployment and overall uncertainty.
After a sharp rise in inventory from March to mid April, inventory has been declining every week. An expected bottoming of the market has not occurred (yet). So what happens next? Here are some arguments to consider either way.
MARKET WILL SOFTEN BECAUSE….
The government enhanced unemployment benefits will taper off in the weeks to come, as will eviction moratoriums and mortgage deferments. The combination of this along with potentially an easing of Covid fears will lead a large number of homeowners to move towards selling their homes. The corresponding rise in inventory will lower home prices or at the very least temper the increases.
The unemployment rate in Las Vegas will persist to the point that many will be forced to relocate. This will result in a slowing or halting of the population growth (similar to what we saw from 2007-2012) which will lower demand for new construction. That will result in a slowing of the market and growth of home inventory.
The rising cost of homes and potentially higher interest rates will soften demand and affordability.
MARKET WILL NOT SOFTEN…
Unlike the 2007-2012 market decline in Las Vegas, the vast majority of homeowners have equity in their home. They either paid cash or put cash down when they bought. Investors have had to put 20% down, not 0% down, meaning they will hold before walking away in a panic. This is the #1 reason we will not see a bottoming of home prices even if the economic effects worsen.
Las Vegas, with its mostly suburban and lower density communities, will benefit from mass out-migration from the Bay Area, New York, Chicago and other major cities that are far costlier to live in. The expansion of tech workers being able to work from home will make it more attractive to relocate to Las Vegas and work remotely here.
Even with higher prices, Las Vegas is the most affordable major city in the Pacific time zone and will continue to be so. New homes are readily available and interest rates are so low, it will be a priority for renters to become homeowners, which will keep inventory low.