Las Vegas Housing Market Update | Qtr. 2 2022

The market turned 180° in less than 30 days from a Seller’s Market to a Buyers Market. In May, we were still in a very strong Seller’s market with inventory around 30 days, and the median sales price was still climbing. Thirty days later at the end of June, inventory was over 2 months and the median sales price began to drop. Fast forward to just a few weeks later into July (keeping you very current), we are now at over 3 months of home inventory and the median sales price has dropped by 3.5% to $465,000 (+14.8% appreciation YOY).

What caused this dramatic SHIFT?

1. Interest Rates: Homebuyers were used to mortgage rates in the 3% range. When they shot up to 4%, then to 5%, and in June over 6%, it has their heads spinning. This dramatically affects what the Buyer can afford to purchase. The rate hike from 4% to 6% increased the mortgage payment on a 5% down conventional loan for a $450,000 purchase price from $2,730 (PITI) to $3,252 (PITI), that’s a $522 increase in the monthly payment.
2. Affordability: In our 1^st quarter market update, we reported the median sales price (MSP) in March exceeded the “Home Affordability Index”, when the ratio went above 7. This is measured by MSP divided by median income. In March, we were at MSP of $460,000. Then add the increase in interest rates for the same price, homebuyers must make $18,900 of additional income to qualify. We also move a lot of Buyers either down in price or out of the market.

3. Demand: Besides the drop in Buyer demand from the affordability and interest rate hikes, we have seen a dramatic drop in the California wave to Nevada. A large portion of the homebuyers who were making cash offers or large amounts over appraisal originated from California. That faucet when from a full force to a trickle just overnight.
4. Value: With the drop in California buyers, the local home buyer has repeatedly stated “I do not feel that homes are worth the asking price.” They are not willing to pay asking price for the size or age of home. They are seeking a greater value for their purchase.
5. Inflation: With the rising cost of everything, Buyers simply do not have the extra funds for an increased housing payment.
6. Negative Headlines: Every news channel and almost every economist is reporting the likelihood of some sort of recession in the upcoming months. It is a natural tendency to be more conservative when the future seems uncertain.

Is this the right time to buy or should I wait?

That is the question all buyers are asking. There is no doubt that the drop in demand will affect housing prices. We’ve already seen prices drop 3.5% from this year’s high of $480,000. But where will they bottom out at? That is the magical question no one has a strong answer for. The fundamentals in the economy (supply and demand) state we are 7 years short of housing in the US. However, the other fundamental is the ability to purchase. The affordability factor is running in contradiction to the supply shortage.

Who is winning right now?

Landlords. Rents are still at record highs; however, we have seen the market soften ever so slightly in July. Last quarter, we reported that lease rates skyrocketed 22% to a median of $1,950. At the end of June, the median lease rate was still climbing to $2,025 for approximately 1,625 sf home.

Housing Snapshot: June 2022

Before jumping into our thoughts for the remainder of 2022, let’s review a snapshot of where we are for the 2^nd quarter of 2022:

Graham Team Takeaway

What Can We Expect to See in the Remainder of 2022?

Price depreciation could be limited to a short period, then it could level out and start to re-appreciate.

Interest Rates: If inflation levels out, we feel the market has priced in current conditions and that rates will fluctuate between 5.5% and 6.5% for the remainder of this year.

Inventory: Until Buyer demand returns even with the very limited supply of housing, we expect it to rise to 4 months and then settle back down to 2-3 months.

Buyers Have Opportunities They Didn’t Have 30 Days Ago

1. More options: Buyers have a lot more homes to choose from today. They are not being rushed or purchased into making a quick decision.
2. Less out-of-pocket expenses to buyers
   • 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
3. More favorable buyer terms
   • Repairs requests will be more evenly considered now
   • Time for Buyers to really think about the homes they have toured and decide on the best home for them
   • No competing with multiple offers
4. Renting will be expensive
   • Evaluate the amount you’re willing to pay to your landlord for their equity vs. the potential for future price reductions.

Sellers, It Was a Good Long Run for You, But Now the Market Has Leveled Out

1. If you do not have to sell right now, we recommend waiting for the market to settle a little. However, you if you do need to sell within a year, consider that prices may continue to move downward. If you are selling & buying, then you get the upside of the Buyer’s market today.
2. Price to market: over-pricing your home will most likely result in a lower price to you in the end. Look at the trends while keeping in mind that the end of May & early June was the height of the market.
3. Marketing of your home will be extremely important. Having a high-quality online presence is crucial.
4. Patience. It will take longer to sell. Plan on 60 to 90 days.