Las Vegas’ housing market is turning that old economic theory of "demand high-prices high” on its head.
Even though home sales are declining, home prices in Las Vegas and through the state keep going up.
Prices have gotten so out of whack, bankrate.com recently ranked Las Vegas as the second-worst city in the country for first-time home buyers.
The reported median price of a home in Las Vegas is more than $482,000, 25% higher than a year ago. In Reno-Sparks, it’s $615,000.
And this is all happening as we hear economists nationwide now saying that we might be on the verge of a recession—and some predict pretty drastic price declines in the year ahead.
Shanta Patton-Golar is the director of the National Association of Real Estate Brokers. Over the past year, the group has teamed up with the city of Las Vegas to help close the gap of Black homeownership in Southern Nevada.
She said the data is still in favor of homeownership, pointing in part to interest rates still lower than before.
In a game of Monopoly, the best way for you to win is to at least get your piece on the board.
She said the market is starting to stabilize. They’re still seeing multiple offers, about 10 to 20, on each home, but not the 50-plus we’ve seen recently.
Though, with current interest rates, it’s a struggle for first-time homebuyers, she said. “It can be detrimental for downpayment assistance and borrowers who need that.”
Patton-Golar said this market is “devastating” for Black homeowners. She said even when the market is going up, Black homeownership is declining.
“With interest rates being so high, even downpayment assistance can be out of reach to them. And so it's definitely devastating for the community,” she said.
So how much does someone need to make to be able to afford a home now? Jon Gedde with Simplifi Mortgage said it depends on a person’s entire debt level.
“You're going to need a significant amount more income today than you would have a year ago. Because the rates are significantly higher, your mortgage payment is significantly higher,” he said.
In 2012, Gedde said you could buy a palace with today’s median home prices. Today, the amount gets a typical three-bedroom home. “Not a lot of bells and whistles.”
Why is the emphasis on first-time homebuyers? Gedde said if you already own a home, you’ve acquired equity that can be used to pay down the balance on a new loan or buy the interest rate down.
While he agrees that we’re heading for a recession, he said it looks very different today than in 2008 – “There is not going to be a financial crisis.”
“The problem with that situation was that we had trillions and trillions of dollars worth of bad loans out there that no one was ever going to be able to repay,” he said. “We don't have that situation. Now, what we have is a normal economic cycle where we've had a little bit too much cash pumped into the system.”
Tom Blanchard, the president-elect of Nevada Realtors, said he thinks rent control will be brought up in the Nevada Legislature next year.
“I mean, North Las Vegas has a housing stabilization petition that they're passing around right now. And that's just a sexy way of saying rent control,” he said. “Sounds really nice … but you got to look past that, because it just doesn’t affect the root cause of what’s the issue, right?”
He said the root cause is not having enough homes to meet the demand. The label of rent control, he said, will stall out builders coming to Nevada to develop.
“So we want to make sure that we don't kill the messenger of the fact that we have a problem with demand,” he said.
The cost of building materials has also been a large factor, according to University of Nevada-Reno’s Brian Bonnenfant. Construction costs have gone up 19% year over year, he said, and that’s being passed on into rents.
“You’d have to call it luxury apartments because of the price tag you have to put on it just to cover the construction and other costs,” he said.
In Reno-Sparks, Bonnenfant said “FOMO (fear of missing out) is officially over. What we are seeing now up here is price reductions. And this has been a long time coming.”
I think we finally hit that apex. The crazy train finally reaching the end.
The area added 11,000 jobs year over year in April, mainly in electric vehicle production and tech. But as long as those jobs are created, the demand for housing will stay high.
Corporate investment purchases haven't been as big a problem in Reno, Bonnenfant said, but Blanchard said that’s been a big issue in Southern Nevada.
“That's probably one of the biggest reasons we have a lack of inventory because normally a homeowner comes in, they live in a house maybe five to seven years and then sell it and buy another one,” Blanchard said. “Well, those corporate investors, they're buying and holding, taking those homes that would normally have come through and turned, for a better word, and kept them, keeping other homeowners – that first time homeowner, a move-up homeowner, a second homeowner – they're all squeezed out of the market because there's nothing for them to buy because those corporate investors have come in and purchased all those homes.”
Eileen from Summerlin called in with a question on everyone’s mind: We’re in a water crisis. Where is the water going to come from for all these new subdivisions?
Blanchard said it’s a tricky situation. California, he said, is using most of Lake Mead’s water, but has access to desalination efforts.
In my opinion, the waters on my border right here, I should be able to use all of it. But instead we open up the dam and give it to everybody else, which I think is completely wrong.
KNPR recently spoke with former Southern Nevada Water District leader Pat Mulroy about desalination efforts in relation to the water crisis. In short, there’s no silver bullet, but desalination plants could help ease the West’s water woes.
But Nevada’s housing market remains much different than the rest of the country. Gedde said long-term relief could come with diversification.
“Maybe it's because of the glitz and the glamor down on the Las Vegas Strip that the housing market here seems to be a little bit more of a casino at times than it does in the rest of the country,” he said, but “as we have [diversification] happen, I think we're going to we're going to normalize our housing market a little bit over the long run.”
Jonathan Gedde, CEO, SimpliFi Mortgage and chair, Nevada Mortgage Lenders Association; Tom Blanchard, president-elect, Nevada Realtors; Shanta Patton-Golar, director, National Association of Real Estate Brokers; Brian Bonnenfant, project manager, Center for Regional Studies, University of Nevada-Reno
