It didn’t take long after the latest mortgage interest rate hike for every real estate guru and pundit across the nation to put their Chicken Little hat on and begin forecasting the onslaught of a gloomy real estate market. We can pick up almost any newspaper and read about sellers slashing prices as if to infer panic selling and rapidly declining market prices.
We are not really seeing anything like this in Las Vegas or Southern California. Yes, there was a modest uptick in the number of price reductions in Las Vegas this month, but this market has supported massive overpricing for several years. The average amount of overpricing for a single-family residential listing remains around $65,000 for properties listed below $1 million. Thus a $20,000 or $30,000 price reduction may still be above market value for at least 25 percent of those properties.
Are the price reductions simply the result of increased interest rates? Or does buyer and seller behavior have more to do with the resultant price drops? Perhaps both, but it’s not solely determined by mortgage interest rates. For example, if a seller is price cutting shortly after listing, it speaks more to their motivation. It makes sense that if a seller is already in a purchase agreement to buy (potentially trading up), then they need to protect that purchase contract, especially if they are not already in escrow with the home they are selling. They have a contingency to sell their home that may expire soon.
That generates motivation to protect both transactions. Looming mortgage interest rate increases should create a sense of urgency to ensure the pricing is at the market.
Sellers still command the initial negotiating advantage while there is less than six weeks of available inventory. On the other hand, I would expect to see more price cuts should we ramp up to three months or more of available inventory. More available inventory is the market’s natural cure for overpricing! But will the dramatic hype of the real estate soothsayers — rather than the market itself — fuel a market shift?
The Las Vegas real estate market captivates and intrigues us, in part because it’s never boring! Right now, the market enjoys the confluence of continued strong demand, job creation and business diversification. Those who proclaim that prices will fall simply because mortgage interest rates have risen are ignoring the ongoing contribution of job creation and economic diversification.
No one variable — including mortgage rate increases — will be the sole determining factor that shapes the future of Las Vegas real estate. What about the recent and alarming downward trend overtaking Wall Street and the stock market? Some investors may already be liquidating some of their stock positions and looking toward real estate for future returns. The remarkable increase in rental markets across the United States makes the real estate market attractive to those individuals. Inflation and soaring gasoline prices already have more than a few homeowners searching for a home closer to work and schools! Each individual buy-and-sell decision encompass factors unique to that transaction.
Finally, all real estate is local, if not hyperlocal. What’s happening in one community or subdivision is not necessarily occurring in the adjacent community. Market changes are far more complex and dynamic by nature. We are only about halfway through 2022, leaving plenty of time for market, economic, political and even social forces and values to shape the future of the 2022 Las Vegas real estate market. One or two data points do not constitute a trend, so I prefer to let the future market data and statistics tell us what the market is doing or saying.
Forrest Barbee is the corporate broker with Berkshire Hathaway HomeServices for Nevada, Arizona and California.
