The Real Estate Market Frenzy: Will it continue?
Housing Market Update: Quarter 3 2021
Median Sales Price Single Family Homes: $395,000↑ as of June 30th, 2021
This is a year-over-year appreciation of 21.5%. The average sales price jumped up to $496,518. However, this includes the highest priced home sold in the valley at $25,000,000. If we remove that home from the equation, the adjusted average price would be closer to the median. The Year-to-date median sales price is up 14.4%. National housing prices appreciated at a rate of 2.8% — the median listing price was $350,300 in May 2021.
Inventory
Inventory is available homes on the market. Las Vegas and the national housing market are still experiencing record low inventory of existing homes and new homes. In June, the inventory for existing homes rose 32%↑ from May’s level. This sounds like a significant increase, however, as you can see from the graph below, inventory is 50% down from June 2020 and 66% down from June 2019. The addition of inventory will eventually slow down the frenzy, however, we are still at unprecedented levels.
Month-over-Month & Year-over-Year Data Comparison:
The current frenzy is being driven by low supply and high demand.
What is keeping supply down besides high demand?
We have a shortage of new home construction. According to the National Association of Home Builders, this is driven by higher material cost and labor shortage. Lumber went from $375 a board foot in June 2020 to over $1,500 in May, but has reduced to the $850 range. This is an encouraging sign. Those home sellers who were typically selling their existing homes to acquire a new home cannot put their home on the market until they are able to secure a new home. We still have a good number of sellers who are waiting for things to return back to normal before making a move.
What is driving demand?
- Record low interest rates
- Improved employment
- Millennials are entering the peak of homebuyer years
- Working from home gave many people the opportunity to relocate and move to more affordable markets or areas with a higher quality of life.
- For Nevada, the California exodus has had a significant impact
Who is purchasing these homes?
We have been astounded to see the amount of buyers who have the cash reserves to either pay cash, or pay an amount over appraised value. This has been making it a challenge, not impossible, but definitely a challenge for the Buyers who have limited cash resources. As Californians sell their homes and relocate, most of which have seen significant value appreciation in their California home allowing them to downsize in price for a larger home in Nevada. I interviewed several top selling agents in California, asking if the state is seeing an exodus then who is buying their homes? I was surprised to hear that a large percentage of the homebuyers in California are from the northeast.
There are some critical economic figures that should be affecting the housing market. This includes lower occupancy rates on the Strip, that is down by 45%. Visitor volume is down by 57% and cancelled conventions and unemployment. But for the last six months, housing demand has outpaced the impact of these factors. Good news is that unemployment reduced in September to 12.6% but recovery to pre-Covid numbers, 3.7%, are not likely to come back until conventions return. The speculation as to why the housing market has been rising with such a high unemployment number, is sadly because the unemployment is at a higher rate for lower income levels.
What does the Graham Team see on the horizon for 3rd quarter 2021?
Inventory Levels: A key factor to inventory is demand — will demand keep on pace? One of the leading indicators we track is mortgage applications for home purchases. Mortgage applications are the 30 to 60% forecast of Buyer activity. In June, new mortgage applications dropped nationally by 7%. This could be a one month hiccup, however, we feel the amount of buyers with the cash resources we have seen this year will reduce. Many buyers, without the cash resources, put their home purchase on hold as they wait for the multi-offers to settle down some. We expect to see a slight gap between cash buyers dwindling and the mortgage buyer feeling confident to re-enter the market. That being said, institutional investors may pick up the gap quickly.
Will Price Appreciation Continue? With inventory levels at record lows, demand will stay ahead of supply. We expect home price appreciation to be more moderate from the 14% year to date increase, however, we still expect the price to increase above 5% for the last six months. As a comparison from our boots on the ground perspective, in March & April our $300,000 to $350,000 homes received over 20+ offers in two days of being on the market. In June, that same price point range received 10+ offers in two days. A reduction but still a significant number and still very competitive for Buyers.
Will foreclosure be a factor? The Simple answer is no. In the last 12 months in all of Clark County, there were a total of 278 foreclosed homes. This is only .03% — lowest foreclosure records for the last 16 years. For a comparison, foreclosures were at 0.46% in 2019.
Where Are the Experts on Real Estate Trends? Blackstone, the world’s largest private equity firm according to Forbes, bought $6 billion in existing single-family rental properties through the purchase of Home Partners of American Inc. In addition, they announced the additional purchase of equities that support new home construction. They reported being bullish on new home construction for the next 10 years.
Interest Rate Est.: 3.25 % to 3.75%. The Federal Reserve (Fed) does not directly set mortgage rates, however their actions on the 10-Year Treasury and the purchase of mortgage back securities does directly affect mortgage rates. From all indications from the Fed, they intend to keep interest rates low and have not indicated they will reduce their purchase or mortgage back security for the remainder of 2021. Most economist and mortgage experts expect rates to remain relatively flat for the remainder of this year, in the mid range.
Buyers: Is this the right time to purchase a home?
- Today’s market does require cash resources or a lot of homebuyer patience and endurance. It will take making offers on multiple homes. Our team does the work for our clients, making the most attractive offer and presents with a really big bow, but it still comes down to competing with those who do have the cash resources. We have placed many buyers in homes this year without the large cash reserves, but it does take a couple of swings at bat to hit a homerun. So if you have patience and endurance then yes. If it gives you anxiety or stress then this may not be the right time for you to purchase.
- If you can accept the potential that prices may fluctuate over the next 2-3 years. If you are looking at the 5 to 10-year return and not the 2-3 year hold.
- You want to take advantage of these low term interest rates where your purchasing power is increased. The difference between a 3.25% rate and 4.25% is $35,000 in purchasing power. For many buyers, this is the difference for them to be able to afford the home in the neighborhood they wanted, versus the one they could afford.
- Substantial Increase in Rental Rates: In December, the median lease rate was $1,695 for 1,782 sf single family homes. In June, that same home’s median lease rate was $1,950 with days on market at 8. This is a 15% increase in rental rate year to date. If your lease is renewing be prepared for a couple hundred dollar increase.
Sellers: Timing and Quality of Offers
- Relocating here in So. Nevada: Timing is critical for you. Purchasing your replacement home will be the biggest challenge, even if it’s new home construction. We have solutions for this challenge.
- Quality of Offers: Not all cash offers are the best offer, and not all over-appraisal offers are equal. Buyers and Buyer’s agents are desperate, they are throwing anything and everything out there to secure a home. However, our Sellers want a committed Buyer — one that is committed to their home, not just any home, and one that has the proven ability to perform on their offer. Our team does an exhaustive investigation into each offer presented.
- Appraisals: There is a likelihood that the home will not appraise for the offer price. Prices are rising faster than appraisal trends will account for. This year, we have been working with many appraisers providing the factual data they need to increase value to the maximum potential. Then, the qualified buyer’s amount of appraisal picks up the difference. We have not lost a home over an appraisal value so far this year (knock on wood!!!).
- Supply/Inventory: As mentioned above, inventory is starting to rise from record low levels, and Buyers are making less mortgage applications indicating a slow down in demand on the horizon. If selling is definite for you in the next year, sooner than later may be the best for you.
What repairs or remodel items will bring you the greatest return when it comes time to sell? What items should you focus on when getting your home ready to sell? To the Buyer, not all repairs & home improvements bring the Seller the same value. We have put together a guidebook that helps you prepare your home to sell, outlining those home improvements that will bring you the greatest return. Click here for free guide.
Sell with our 10X My Home Program
Ask about our 10X My Home Program where we handle updating and remodel your home, including the upfront costs, which allows your home to in its best presentation and obtaining for your multiple offers to select from. Our program has put an average of $14,400 additional profit in our Sellers pockets. That’s no chump change!!
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