After almost three years of historically low mortgage rates, many people are starting to worry about the recent and upcoming national rate increases and whether or not buying in this market is a good idea.
Let me tell you, there is no need to cancel your plans for investing, refinancing or buying real estate any time soon. Here’s why: As the rates begin approaching pre-pandemic levels, they are still going to remain within a record-low margin. Southern Nevada’s 30-year fixed mortgage rate is averaging 5.1 percent. The 15-year fixed mortgage rate is averaging 4.2 percent, and the five-year adjustable-rate mortgage (ARM) is averaging 3.5 percent. Compared with 15 to 20 years ago, we were seeing rates as high as 8 percent to 10 percent.
Let’s break this down using the current market statistics. Today, a single-family home is averaging around $400,000. Next, we have our Federal Housing Administration loan that typically requires 3.5 percent down on a 30-year fixed note with a 5 percent interest rate. After property taxes and closing costs, you’re officially a new homeowner for about $2,539 a month.
As we compare this mortgage rate to the average rates in the Las Vegas rental market for similar single-family homes, the monthly payments are within the same caliber of $2,400 or higher. Yet, there is one big difference here — through renting, you are providing this money to a landlord, which helps them increase their profits instead of your own. Whereas purchasing your own home is a direct self-investment that leads to an increase in your equity, profit and tax benefits while paying down your note.
If we look back five years, a $400,000 home was worth half that amount. Imagine if you would have owned your house then. It would have already substantially appreciated. Even when we go through a lull, the market continues improve and proves that purchasing a home remains the best long-term investment.
While there are always more components involved in the decision-making process aside from interest rates, these rates are still low enough to work in the homebuyer’s favor for long-term investment and equity. They may not seem as comfortable as they were before, but the Federal Reserve has plans to hike the national average several more times this year to combat inflation.
These potential hikes have raised concerns around their impacts on buying power, which while logical are unnecessary, and I’ll explain why. Buying in the current market is a win for everyone involved. Your property value, equity and long-term investment will only continue to increase as the market is forecasted for a steady climb.
Las Vegas is a continual growth market, meaning we are on track to see gradual sustained growth even if it is not as accelerated as it was in previous years. Recently, we have already noticed a small increase in inventory and stabilization in the market. In February, there were 2,161 homes available for purchase. Fast forward to March, there were 2,276 homes available. While this increase is small, it still shows signs of a healthy adjustment and balance within our inventory.
The market is set in a much different environment than it was when we endured the crash in 2008. The problem then was an abundance of inventory with no one occupying the homes. Many of those houses sat empty because so much was being built on artificial demand purely for investment purposes, which eventually led to the 2008 financial crisis.
Today, we are seeing the situation completely reversed. The market activity is solely based off real demand and not overflowing with inventory. Las Vegas has a significant amount of inbound traffic and real people looking for homes. In 2021, a report from Updater ranked Nevada first among places with the most new residents.
A key factor positively influencing the market is that those who are purchasing homes are either paying cash or have strong down payments, allowing little to no room for defaults. The values are solidified because if a homebuyer decides they no longer want the house or can’t afford it, they can easily sell it and more than likely make a sizeable profit from the high demand.
Homeowners can optimize their opportunities for wealth building through transforming their home into an income producing rental property. If you are looking to move or relocate, you don’t necessarily have to sell your home. Renting it is a feasible option for those looking to create an additional source of income.
Las Vegas has endless opportunity for growth in the current market — if we continue taking advantage of what it has to offer. Since we are on track to reach pre-pandemic levels of stabilization and interest rates, there is no better time to act on this historically low market.
Gordon Miles is president and chief operating officer of Berkshire Hathaway HomeServices Nevada Properties, Arizona Properties and California Properties. The combined franchise is a wholly owned subsidiary of HomeServices of America Inc., operating 34 offices and 3,200 real estate sales executives throughout the three states. In 2021, the firm completed a record-breaking $9.3 billion in residential home sales throughout Nevada, Arizona and Southern California.