Las Vegas Valley Housing Market Update | 1st Quarter 2023 & Beyond

Home prices in 2023 has remained flat for five straight months at $425,000 for the single-family home (SFH) median sales price. The median sales price for single-family homes leveled off in December 2022 at $425,000 from the prior six-month decline (June to November 2023). The median home size remained about the same at just under 1,900 sf. The grid below shows the most significant changes year-over-year in every first quarter of the last 3 years. As expected, 1st quarter 2023 has declined from 1st quarter of 2022 in price and sales activity.

Single-Family Homes	1st Qrt 2023	1st Qrt 2022	1st Qrt 2021
Median Sale Price	$425,000	$470,000	$355,000
Median Home Size (sf)	1,892	1,916	1,933
No. of Sold Units	5,416	8,351	9,134
Days on Market Mo. Avg	38	8	12
Months of Inventory as Dec. 31	1.8	0.4	0.5
Sold Price to List Price	90.3%	94.8%	94.2%

Flat from Previous Year

Gain from Previous Year

Decline from Previous Year

Looking at a closer window of comparison of 4^th quarter 2022 to 1^st quarter 2023, besides the flat median sales price, there are some interesting trends. The number of sold homes is up 13%, days on market is up 15% and inventory reduced by 51%. Typically, you would expect to see sales prices rise when inventory drops by 50%, and days on market to reduce, not go up. 

Single-Family Homes	1st Qrt 2023	4th Qrt 2022
Median Sale Price	$425,000	$425,000
Median Home Size (sf)	1,892	1,916
No. of Sold Units	5,416	4,789
Days on Market Mo. Avg	38	33
Months of Inventory as Dec. 31	1.8	3.5
Sold Price to List Price	90.3%	94.4%

 

What is causing this mix up in the market? Affordability!!! When interest rates were below market normal of 5%, it opened the opportunity for buyers to purchase homes at a greater sales price than the traditional market would support. With interest rates ranging between 5.75% and 7.25% this quarter, it kept buyers from qualifying for homes, thus decreasing demand. However, there was enough demand to keep the market stable, reducing days on market.

The lower inventory levels are tied to interest rates as well. Those normal life events that typically trigger a move up for homebuyers to enter the market are being stopped from doing so as they cannot afford the payment at the current rates. This is also affecting downsizing sellers from entering the market because even at the reduced median sales price, their payment would be higher than the larger home they currently own in many cases. Who is selling then? Those who own their homes outright or have substantial equity and are not affected by interest rates for their new home purchase? Those experiencing life events that have to sell? We also see some investors selling some of the homes they acquired years ago as rents start to retract a little.

Core Factors Affecting the Market

Here are three core factors affecting the Southern Nevada housing market.

#1 – Affordability

The core reason for decreasing sales volume and the reduction of sales prices year-over-year, taking no one by surprise, is home affordability. The rise of interest rates from record lows of 3% to a more average rate of 6.25%, has moved homebuyers out of the market. Even with the year-over-year median sales price reduction of 10^%, the total monthly house payment at today’s conventional mortgage rate of 7.3% on a purchase price of $425,000 is $542 more than the conditions in March 2022, where the conventional mortgage rate was 4% and the median sales price was $470,000. This means the average household income would need to make about $19,700 more this year to qualify for the same home as last year. As we shared in our last update, the median house income is around $69,142 and to qualify for the conventional home loan at today’s interest rate, the household income would need to be around $116,000. This is a significant gap. 

Only 33.1% of Southern Nevadans have a median household income sufficient to afford the median sales priced home. According to a graph provided by Applied Analysis, this figure is projected to move to about 40% in the next five years.

How does this affect the average home buyer?

Scenario A: To purchase the same sized home as last year at a 10% lower purchase price, you would need to make $19,000 more on average to qualify for today’s interest rates.

Scenario B: You want to keep your monthly payment the same, but interest rates have risen by 3%, resulting in a reduction of purchasing power. In this case, the 2023 buyer would need to find a home at a purchase price below the median sales price by a reduction of $70,000. What does this mean to the average home buyer? They will need to consider purchasing a smaller home and build up equity to purchase their larger home in the future.

# 2 - Will interest rates provide relief? Quick answer: Slightly

Interest rates in 2023 are predicted to be in the 5.75% to 6% range. March ended above 7% for conventional loans. The GOOD NEWS is FHA & VA rates dropped slightly below 6% of a period this quarter. A reductio rate of 1.25% makes a significant difference to the payment. Also, FHA lowered the mortgage insurance premium making it more affordable. An FHA loan at 6% rate, 10% down (higher than the FHA minimum down of 3.5%)  and a median sales price of $425,000, the monthly payment is $2,925. With inflation seeming to settle down somewhat, the majority of mortgage rate experts are expecting a reduction in mortgage rates starting sometime in second quarter. However, there are no predictions for rates to drop below 5%, with the average prediction being 5.5% to 6%. According to an article published by Forbes, mortgage rate industry projections have been updated as following: 

Zillow Home Loans senior macroeconomist Orphe Divounguy says, “A fight over raising the debt ceiling is likely to drag into the summer, and mortgage borrowers should expect rate volatility as a result.

What do homebuyers need to plan for?  Purchasing a home at an average interest rate for the last 50 years of around 6% for the next few years (pending any crisis that affects the market).

50-Year Historical Interest Rate Graph

#3 - Will demand increase or decrease in 2023?  

We expect Buyer demand to increase mildly in the second quarter with the leveling out of interest rates sometime in May. If rates do drop quickly below 6%, then we expect buyer demand to outpace inventory for a short period. We are encouraging buyers to GET READY and be ahead of the crowd. When rates drop, all those waiting to purchase are going to move forward at the same time. This will decrease buyer’s inventory options and buyer’s negotiation terms.

Rental Market

The median rent for a single-family home has followed the sale market and has flattened for the last three months at $2,000 at +/- 1,812 sf.  The median price-per-square foot is $1.15 with new homes or updated homes still obtaining a premium. The days on market (time it takes to lease a home) has stayed flat quarter-over-quarter at 28 days.

As a reminder from our last report, most landlord qualifications require 3x the rent of monthly income. From the household income graph mentioned earlier, this means less than 47% of households in Southern Nevada can afford the median rent.

Housing Snapshot • 1st Quarter, 2023

Let’s review a snapshot of what happened in the 1st quarter of 2023:

Our Takeaways

What 2023 will bring?

1. Sales Prices: We are still expecting the median sales price to remain relatively flat for the year, with a slight increase in the Spring and Summer months. We do expect that when rates drop and buyers enter the market at the same time, we will have an inventory reduction. This may cause prices to jump up for a couple of months.
2. Interest Rates: In the 5.85% to 6.5% range, fluctuating as economic reports are released.
3. Foreclosures: To remain at very low levels. Today’s homeowner simply has too much equity and low payments (most locked in at lower interest rates) to see foreclosures rise to a level of significance. There has been a rise in mortgage defaults, however, the time frame of a default to a foreclosure is a long time, and the path to recovery has many options.
4. Inventory: We had expected inventory to stay higher due the affordability issue, however, inventory took a significant drop by the end of March. With less sellers entering the market, we predict inventory to reduce and stay within 1-2 months.  
5. Rental Rates to Drop: Maintain the median price of $1.15 per square foot.

Buyer Opportunities

1. Moderate Selection: We had a buyer’s market between September 2022 and January 2023, and now it has moderated. With the limited number of homes listed, buyer options will be reduced. We do not expect it to be drastic, but not as many options as they had over the last six months. Although they will not be rushed to make a same-day decision, we expect that with reduced inventory, the time on market for a home will also go down.
2. Be Prepared: Our greatest advice we can give our buyers is to get ready!!! We’ve held a lot of buyer’s consultations this last quarter which allowed our clients to do the small things. This includes moving their credit score (even those with excellent credit can move up), because the stronger your credit score, the lower your interest rate. Being prepared will get you ahead of all the buyers who are waiting for interest rates to drop. Once those rates drop from the 7s to the 6s, we anticipate a flood of buyers to enter the market. With low inventory, this will remove all the incentives and positive terms being offered to buyers.
3. Less Out-of-Pocket Expenses
   1. No more over-appraisal value offers
   2. Sellers willing to contribute to buyer’s closing cost
   3. Sellers willing to accept offers with programs with down payment assistance
4. More Favorable Terms
   1. Repair requests will be more evenly considered now
   2. Buyers can really think about the homes they tour and decide on the best one for them
   3. No competing with multiple offers
   4. Longer close of escrows periods. If you are in a lease and need time to coordinate the end of your lease term closer to the COE, we have successfully negotiated longer dates so it reduces costs and gives you more time, therefore relieving stress.
5. Affordability: With interest rates expected to remain in the 6% range through 2023, buyers are still going to have an affordability challenge. Buyers need to consider purchasing a lower priced home, smaller or in a different area then their long term home would be. This will allow them to build equity and then move when they have the source of funds and income to purchase that next home or their forever home. More buyers can afford a smaller home with less amenities/features, or in a different location than they were hoping for.
6. Renting Will Still Be Expensive
   1. If you rent a home for $2,000 for 3 years, you just paid your landlord $72,000 with no equity, no gain. 
   2. If you really want to own a home in the next couple of years, reduce the size of home you are currently renting and put away the difference in rent. It will also prepare you for the size of home you can afford to purchase. We foresee the rents will run lower than the purchasing options on a monthly basis, before appreciation and accounting for principal reduction.

Seller Opportunities

Price-to-market value is always good advice, but in today’s market, it’s super important. The sellers who were priced over the market lost 10% over the last 4 months, ouch!!

Here’s our advice:

1. Review the market comparable and be realistic with your home’s current value. 
2. Marketing your home will be extremely important. Having a high-quality online presence is crucial.
3. Patience: it will take longer to sell. Plan 60 days, if priced to market.  If you price over market it will take quite some time. Your home will get a lot of tours before a buyer offer is received. Buyers want to see many options before deciding on a home.   
4. Buyer terms: expect home buyers to ask for closing cost credits and repairs.
5. Luxury Product: Improved 1st quarter, 2023, with homes priced between $1.5 and $2.5 million reducing inventory from 14.5 months to 3.5 of inventory. Homes priced over $2.5 million reduced from 11.2 months to 6.5 of inventory. Days on market for homes sold is average 117 and median 79. 

Questions or comments? Contact Us:

Graham Team Real Estate • (702) 930-9551 • Team@grahamteamnv.com

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980 American Pacific Dr. Ste. 111 Henderson, NV 89014