It’s shocking how fast things change in the local real estate market. Is it time to accept that the housing bubble has officially burst and we’re headed for another collapse like 2007-2008? I can see the eager investors now, licking their chops and rubbing their hands together excited, waiting for values to crash so they can swoop in and cash in on deals, like before. Well, don’t begin to drool yet expecting a crash; I think a housing correction is what we’re witnessing.
There are some important differences in the market of today vs. 2007-2008 we should understand. Here are a few:
In 2007 and 2008, lending standards were a lot looser while lenders offered mortgages to just about anyone who wanted one, regardless of their down payment amount or credit history. Prior to the Great Recession of 2007-2008, lenders offered stated and no-income loans that were used by borrowers with bad credit or no credit to get mortgages. Some lenders weren’t required to verify employment, income or assets, and borrowers could get mortgages for amounts they had no way of paying back. A number of loans allowed people to borrow as much as 125 percent of the home’s value, and consequently home prices skyrocketed. As millions of borrowers defaulted on their loans, the market collapsed, sending the entire economy into a recession.
Over the past years, borrowers are more creditworthy than ever. Just ask someone who’s obtained a mortgage, recently. Lending standards remain strict while lenders are doing their diligence, insuring borrowers can afford and repay their loan.
Not many foreclosures
Homeowners of today have more equity in their home than ever before. It’s difficult to imagine a person with $150,000 in equity losing their home to foreclosure when they can hire a Realtor and sell it for market value. Over the past year, 31 percent of single-family homes were purchased with cash (they won’t be getting foreclosed on).
There is still an underlying demand to buy homes. When rates increased in March of this year, it was asd if the Fed threw a bucket of ice water on the red-hot housing market. Higher interest rates meant elevated monthly cost of homes, shutting out many buyers and decreasing overall demand. These buyers still want to buy homes, but with higher interest rates and record-high home prices, many have been priced out of the market.
Was the appreciation we’ve seen over the past two years and homes selling for tens of thousands above appraised value just a bubble?
Over the past two years, prices appreciated about 30 percent. The fundamentals were there: High demand for homeownership combined with limited supply and record-low interest rates all together helped create a Las Vegas-in-July hot housing market.
Alter any of those factors and the same fundamentals will work in reverse. As a result, and by design, the Fed raised rates in order to cool off a housing market that was pushing the bounds of affordability.
Has the housing bubble burst, will this be another 2007-2008 crash?
Housing supply in Las Vegas has increased over 300 percent since the Fed increased rates in March. “Decreased demand,” increasing supply and higher rates will put downward pressure on home prices. The Las Vegas housing market is rapidly shifting from a strong sellers’ market to an atmosphere where buyers have more homes to choose from and can even make demands; nevertheless, it’s not crashing, but correcting. We’re witnessing sagging and lost momentum in the local housing market. The frequent price increases of the past two years could not be sustained. As a result, prices may dip and stabilize, but won’t crash.
The current market conditions are edging toward stability and a great time for both buyers and sellers to negotiate like the good old days. For sellers, values are still historically high and if you have a lot of equity, why not cash in? For buyers, the market is shifting, more homes are available and sellers are cutting prices. Yesterday, a seller I’m representing opened escrow on their home after six counter offers, and yes, both buyer and seller are happy.
Las Vegas is a city that needs no introduction and is unquestionably a world-class tourist destination for restaurants, entertainment and now, sports. People, young and old, move here every day for new opportunity. Whether moving here to retire and take advantage of our endless attractions and no state income tax; or to join our thriving and diverse job market, getting a home is a necessity.
Understanding current local market conditions and knowing the difference from the past market events will assist you and your loved ones to make the right decision, today. There is a great deal of opportunity in our current market, just be well-informed and speak with a professional.
Shannon Smith is a broker/salesman for Realty One Group.