Las Vegas is coming out of 2022 free-for-all into a housing market correction. But I remain optimistic.
Last year was challenging for buyers and sellers. Early in the year, buyers could make 20 home offers and not get one accepted by the seller — even when offering over the asking price and waiving all contingencies.
Quickly though, the market flipped. After the Fed increased interest rates substantially, the lower-priced market, under $2 million, came to a screeching halt.
As inventory flooded the market, buyers backed off due to high-interest rates or fear about the market’s future. Adding to the slowdown, it was an election year, and the market always slows during a political season.
In essence, last year was the perfect storm. But just as sure as the market slows down, it always returns strong. As we start a new year, the lower and higher price points continue to reflect market disparity. Though sales are slowing on homes with lower price points, higher price points sales remain strong.
In just the past couple of months, buyers slowly returned to the market as interest rates began to trend down. It is encouraging because consumers drive the real estate market. They decide when to purchase or sell a home and at what cost.
As buyers slowly return, they are starting to experience inventory shortages. The shortages are driven by sellers pulling their homes off the market and choosing instead to renovate. History tells us that homeowners typically stay in their homes for at least two to three years when they invest in their property. In addition, numerous homeowners refinanced or purchased in the last two years at extremely low-interest rates. As a result, they, too, are unlikely to sell their home in the short term.
Therefore, inventory is going to continue to shrink. Currently, I’ve noticed a 10 percent weekly reduction. As the inventory continues to decline, prices will begin to rebound. As a result, we will continue to see interest rates decrease, though probably slowly. All these factors result in fewer buyers, but it will put sellers in a good position to negotiate.
Focusing on the luxury market, our team anticipates minor changes in the $2 million and higher price points. In the ultra-luxury, comparing the fall of 2022 to the same period in 2021, we sold only two fewer homes between $3 and $5 million and just five fewer over $5 million. The slight decrease in sales, I believe, has to do with limited inventory last year rather than the buyer’s hesitancy.
Since the new year, we have seen a solid increase in demand. More activity is on my over $7 million listings than at any other price point. I predict a continued uptick in the ultra-luxury market, driven by buyers fleeing states with unfavorable tax policies.
At the end of the day, the looming question is if the market will crash like in 2008. I don’t think there is a chance of it happening. One reason is that homeowners have equity in their homes. One stat I saw stated that 83 percent of homeowners in this market have six figures of equity or more invested. That provides a more stable scenario than we had in the past. Also, the difference between 2008 and today is the type and regulation of mortgage loans banks offer consumers. We’re not seeing the crazy loans today like we did then.
I’m optimistic about the next six months, even though a recession is looming. We’ve been through the recession cycle several times, in the ‘80s, ‘90s, and early 2000s. We even went through a short recession less than two years ago after COVID-19 and came out of it bigger and stronger. The leading indicator is that the market will remain stable and rebound.
Darin Marques is the president and founder of the Darin Marques Group, Huntington & Ellis.
