Developers are seeing record sales of homes in Las Vegas and home prices hit an all-time high in June because of a surge in resales.
Some experts say the coronavirus pandemic is at the heart of it, but it could also just be lower interest rates.
Jonathan Gedde is the CEO of SimpliFi Mortgage. He said the surge in sales is a combination of factors but one of the most important is the historically low-interest rates.
Interest rates are determined buyer to buyer, he said, but someone with great credit and a lot of money to put into a down payment could get an interest rate in the 2 percent range and those with a few dings on their credit report and smaller down payment could get something in the 3 percent range.
Beyond interest rates, the attractiveness of living in Southern Nevada is bringing people here.
“We’re growing as a population,” Gedde said, “In 2019, I believe, it was just over 10,000 people per month net population growth, which is a huge number.”
With those factors, plus efforts by the government to keep money flowing in the economy and people in their homes with expanded mortgage forbearance programs, he does not see a reason for a dip in home prices.
“I don’t see any kind of downturn happening in housing,” he said, “We’re not going to have massive numbers of foreclosures.”
John Benedict is a lawyer and an adjunct professor for UNLV’s Lied Center for Real Estate. He agreed that population growth and good interest rates are driving demand.
“I think that more retirees are also coming online just by the demographics of the Baby Boomers,” he said, “Our health care system has gotten stronger and stronger so there are a lot of positive reasons to move and to live here.”
But he disagreed that Las Vegas might not see a drop in housing prices.
“I think the economic indicators are mixed,” Benedict said, pointing to the massive number of layoffs the region has suffered, “I personally expect some correction but nothing like we saw in 2008, 2009, 2010, when it was just a free fall.”
The Great Recession still lingers in the minds of most Southern Nevadans. The housing crash caused thousands of people to lose their homes to foreclosure and forced thousands more to short sell.
However, neither Benedict nor Gedde believe the market is headed for a housing bubble and bust like the Valley saw in the recession.
For one thing, Gedde noted that some of the loan options that got people into financial trouble aren’t available anymore.
“The rates we’re talking about today are on 30-year fixed-rate mortgages that are fully amortized, government-insured, government-backed,” he said, “These are the bread and butter standard loans that have been around for many, many decades.”
In addition to that, Benedict said the government is doing more to put money into the economy this time around than it did when the Great Recession hit.
“You have Congress not waiting to act this time, allowing for the forbearance program, putting a lot of money into circulation to kind of prop up the economy and let it go directly to the average worker so that person can meet their obligations,” he said.
Benedict said the forbearance program, in particular, is helping keep the economy running and keeping people in their homes.
Under the program, people who have been affected by the coronavirus pandemic can negotiate with their mortgage lender to put off payments for six months and if they are still impacted after that time period, they can ask for another six months.
The mortgage obligation doesn’t disappear, but homeowners can tack those payments onto the back of the mortgage time period.
One thing a homeowner can’t do while they’re in forbearance is refinance their home, which Gedde suggests people who can – do - with a caveat.
“It’s really about the combination of how much you’re saving in correlation to the expense of the loan,” he said, “The break-even point, meaning the monthly payment savings, the cost of the loan divided by the monthly payment savings tells you how long it takes to make up for the refinance that’s what they really should be looking at.”
He said homeowners should have the loan for at least as long as it takes to break even from the process. Gedde said generally people are seeing a break-even point of about 12 months, which makes it worth for a lot of people.
No one knows how long interest rates will remain low, he said, but they won’t be at 2 percent in 10 years.
“Timing the market is a little bit of a fool’s errand when it comes to both the real estate market and the interest rate market. You are never going to get it perfect on the exact lowest day on either,” Gedde said.
He said if you like the home you’ve selected and are comfortable with the lender then buy the home.
Because there is so much uncertainty right now, Benedict said homebuyers should talk to developers about what is known as a force majeure, which is the legal term for an act of God.
“It is a fair ask to say to a builder, ‘Can we have an understanding that if I can’t get financing or can’t complete this sale or I lose my job all due to a force majeure that I get relieved from this contract,’”
He said he has seen that type of language in all kinds of contracts because of pandemic and its effects.
John Benedict, Adjunct Professor, UNLV’s Lied Center for Real Estate; Jonathan Gedde, CEO, SimpliFi Mortgage
