Are we in another bubble? When is the big crash coming? Should I sell my house right now? These are just a few of the questions that I, and probably every housing professional, hear regularly from friends and acquaintances. It is no secret that the housing market in Southern Nevada (and the entire country) can be said to be “booming.” For many homeowners, the length of this period of growth is at a point where the feeling of satisfaction kindled by increased equity is giving way to worries about “when will it end?” Those living in Las Vegas during the Great Recession, and its aftermath are particularly sensitive to this unease, and rightfully so. This applies to individual homeowners, but also real estate agents, contractors and homebuilders as well. Thankfully, the market sits on much more stable foundations than it did nearly two decades ago.
While the focus in the media has mainly been on the numbers since the start of the pandemic, the market has been building momentum for quite some time. Southern Nevada finally began climbing out of the depths of the recession a decade ago, and housing market metrics, like new home sales/closings and building permits, pulled have been increasing basically every year since. On the resale side, the number of closings has fluctuated somewhat year to year, and really began showing a higher level of activity all the way back in 2017.
By now, most are familiar with the headlines describing historically low home inventory along with rapidly increasing prices. As we head into the spring selling season for 2022, let’s look at a few market fundamentals to see how things might shake out for the next few months.
Demand remains high, supply remains low
Our friends on the resale side of the market are still sharing stories of homes selling at or above list price within days, sometimes even before being officially listed. Receiving multiple offers over list price is still a relatively normal occurrence for “good” listings, especially in the higher price ranges. On the lower side of the resale price spectrum, we are hearing institutional investors are ramping up homebuying activity once again making it even more difficult for buyers looking for a home under roughly $400,000. We ourselves have tracked no less than 3,500 resales going to either investment funds or larger scale “landlords” over the past 14 months. Demand from buyers moving to the valley from out of state continues to be a factor in the market, as well. Overall, the inventory of resale homes on the market remains dramatically low at around 1½ months supply.
On the new home side, local builders are doing all they can to build homes fast enough. The familiar headlines regarding supply chain problems, material cost increases and labor shortages are particularly relevant here. Nearly every local builder has had to self-regulate their sales by restricting the number of lots they release for sale because they must account for the inevitable delays and material cost increases that have become the norm. Another major factor contributing to rising new home prices is the lack of available land in the valley. It may surprise some to know, with all of that desert around our city, the vast majority is owned and managed by the federal government and is not available to developers. Sen. Cortez Masto has introduced legislation in an attempt to help ease the situation, but the timetable and ultimate outcome is unknown at this point.
The other major factor that could have a serious effect on home sales in the short- and mid-term is rising mortgage interest rates. Rising rates not only hinder buyers actively searching for a home, but they also can discourage homeowners from putting their homes on the market.
Many would balk at the thought of giving up the low rate they may have locked in while purchasing or refinancing over the past number of years, only to get into a new mortgage with a rate at 5 percent or higher.
For the next few months, I do not expect much change in the way the market is performing.
The ultra-low supply and sustained demand will mean sales of both new and resale homes will remain strong. They may sag a bit compared with 2021, but there will be no dramatic drop-off.
As for prices, I again do not expect much to change. Resale closing price appreciation may soften slightly, but basic supply and demand again points to more of the same. With new homes, dramatic increases in land and material costs will mean that price appreciation in that sector will continue and builders and buyers will have to continue to adapt.
Andrew Smith is the president of Las Vegas-based Home Builders Research President.