Las Vegas & Henderson Housing Market Update | Qtr. 4, 2022 & 2023 Predictions

2022 flatlines for home appreciation. This means December 31, 2022 was at the same median sales price as December 31, 2021 at $425,000 for approximately the same size home (+/-1,900 sf). As shown on the grid below, the most signifiant changes year-over-year was the decline in sold units (down by 29%) and the rise in inventory (up by 3.3 months). This moved 2022 from a seller’s market for the first half of the year to a buyer’s market in 3^rd and 4^th quarter.

In 3^rd quarter 2022, we reported that there was a stare down occurring between buyers & sellers. Sellers were not willing to accept lower offers, and buyers were not willing to offer asking-price. We saw this break in 4^th quarter particularly in December, where buyers and sellers were starting to meet at the difference. Signed contracts in December closings also increased. As we moved into 2023, sales activity has already gone up.

 

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 flattening of sales prices (year-over-year), taking no one by surprise, is home affordability. With the rise of interest rates from record lows of 3% to a more average rate of 6%, topped with median sales price increases, this moved a portion of potential homebuyers out of the market. A median sales price of $425,000 is at an affordability index of 6.14. In May 2022, we were at a 7.3 index. (Note: an index greater than 6 is considered alarming and in most most markets, unsustainable. However, markets like California and New York have been over 7 for decades.) 

Only 33.1% of Southern Nevadans have a median household income sufficient enough 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 homebuyer?

Scenario A: To maintain the same purchase price as the year before, your income would need to increase by 36% to afford the same sized home. Due to rising interest rates, your monthly payment would then become higher in this situation.

Scenario B: You want to keep your monthly payment the same, but interest rates have doubled, therefore, your purchasing power went down. In this case, the 2022 buyer would need to find a home at a lower purchase price.

# 2 - Will interest rates provide the relief? Quick answer: not likely.

Interest rates for 2023 are predicted to stay in the 6% range. Below are predictions from top mortgage providers. It’s important to remember that forecasting is not a guarantee, but rather a guide by those in the industry based upon current economic factors. In the last 3 years, we have seen some anomalies impact the U.S. economy which has had a positive and negative affect on mortgage rates (i.e., Covid, war in Ukraine, sharp rise in inflation).

Just as a reminder, interest rates are currently at the 50-year average. So, in hindsight, rates are not as high compared to previous years, such as in the 1980s. 

50-Year Historical Interest Rate Graph

#3 - Will demand from out-of-state buyers increase or decrease in 2023?  

The graph below shows which states contributed to the migration to Southern Nevada the most. Also, interesting fact: 8.4 new residents move to Southern Nevada per hour!

If we ignore 2020 (Covid), 2022’s population growth was at a 5-year low, just slightly. In 2021, the population growth was 80,000 people year-round, comparable to 2004-2006.  

We can expect the California migration to continue at a slower rate in 2023. 

Do buyers see value? In 2022, buyers (especially local) were pushing back on asking prices and felt “homes were not worth the asking price.” With December’s reset to 2021’s median price of $425,000, we are starting to see this opinion change. Buyers are starting to see value again.

Inflation impact on buyers’ ability: With essentials costing more and paychecks not covering the basics, this will continue to impact a buyer’s ability to purchase a home. The recent reduction in gas prices should start to be recognized in all sectors, and we are all crossing our fingers that we will return to a normal inflation range of 2 to 4%.

Rental Market

In our last report, we told you that we were seeing a shift in lease rates. The rise was flattening out and we were expecting a small decrease in lease rates. In 3^rd quarter of 2022, we were at $2,100 for an 1,836 sf a single-family home. In 4^th quarter, the median lease rate dropped to $2,027 for an 1,814 sf home. December ended the month at a median lease rate of $2,000. Not a huge drop, but rents were escalating higher and higher, so this plateau and slight reduction is providing the market some relief.

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 So. Nevada can afford the median rent.

Buyers, sellers… what now?

Uncertainty was causing anxiety to both buyers and sellers. It appears people are becoming more certain and are starting to rethink their homeownership goals. Mortgage applications, a great preview into future buyer activity, are up in January by 39%. Now before you say ‘WOW’, the number was so low in 3^rd and 4^th quarter that it’s easy to make that jump from lower levels. However, this is a positive indication that the market has settled down and buyers are starting the process of discovery and qualification. We expect sellers to have more activity on their home sales in this 1^st quarter of 2023 than the last half of 2022.

Housing Snapshot

Let’s review a snapshot of what happened in the 4th quarter of 2022:

Our Takeaway

What do we think 2023 will bring?

• Sales Prices: Median sales prices are to remain relatively flat for the year. We may see some months bump up and some bump down.
• Interest Rates: In the 5.85% to 6.5% range, fluctuating as economic reports are released.
• 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).

• Inventory: We expect inventory to be in the 3-to-4-month range.  
• Rental Rates to Drop: We were a little aggressive in our lease rate projections last quarter, as rents did not drop as much as we thought they would. We expect rents to be relatively flat for 2023, around the $2,000 median lease rate.

 

Buyer Opportunities

1. More Selection: Buyers will continue to have more selection in 2023. However, we do not expect homes to be on the market for as long as they were in the second half of 2022. Buyers will not have as much time as they did the last part of the year to make a decision on a home they like, however, still way more time than they had in 2021 and the first half of 2022. You’ll still not have to make a rushed decision, but if you wait too long, you may lose “the house”. We just had this discussion with 3 buyers this week who were waiting to get pre-qualified and the home they really wanted went under contract after being available for months.
2. Be Prepared: It is true that “the early bird gets the worm”. Set yourself up for success by getting pre-approved, being prepared and knowing your must-haves from your like-to-haves. This will make the process less stressful and allow you to make a well-calculated decision on the right home purchase.
3. Less Out-of-Pocket Expenses
   • No more over-appraisal value offers
   • Sellers willing to contribute to buyer’s closing cost
   • Sellers willing to accept offers with programs with down payment assistance
4. More Favorable Terms
   • Repairs requests will be more evenly considered now
   • Buyers can really think about the homes they tour and decide on the best one for them
   • No competing with multiple offers
5. Affordability: With interest rates expected to remain in the in 6% range through 2023, buyers are still going have an affordability challenge. The home they can afford may be smaller with less amenities, or in a different location than they were hoping for.
6. Renting Will Still Be Expensive
   • If you rent a home for $2,000 for 3 years, you just paid your landlord $72,000 with no equity, no gain. 
   • If really want to own 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.

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 on 60 to 90 days. 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. Luxury Product: Homes priced between $1.5 and $2.5 million have 14.5 months of inventory. This market segment will continue to be oversaturated in 2023. Homes priced over $2.5 million have 11.2 months of inventory. 

Questions? 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