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Las Vegas home prices continue to rise. If anything, the trend seems to have strengthened in recent months. For example, during the first half of last year prices per square foot rose 4.35% from $115 per square foot to $120 per square foot. During the first half of this year prices per square foot rose 7.26% from $124 per square foot to $133 per square foot.
It remains to be seen if this trend will continue, but it has remained intact since January 2012 and we will still need to move up over 40% to reach the home price heights of May and June 2006 when prices were $188 per square foot.
One thing encouraging the home price increases is the steady drop in inventory from November 2014 when there was a 5.3 month supply of homes on the market to the end of last month when the supply had diminished to 2.2 months.
Of course, even if the trend continues upward, there are likely to be some pull backs and not every home or neighborhood will participate with the same vigor. Every neighborhood has its own characteristics. For example, while the overall price per square foot of Las Vegas homes has more than doubled since January 2012, prices in MacDonald Highlands have risen only by 68% and prices in The Ridges only 23%. The reason for this is that homes in those communities are quite expensive and so a relatively small number of homes is sold in any given month. Also, because each of the homes in those communities has unique qualities, the price of any home sold is specific to that home. These factors result in price movement in those communities to appear erratic when looked at on a grand scale.
If you are planning to buy or sell a home in the Las Vegas area, please give me a call. I have broad experience. I have sold a $130,000 townhouse, multi-million dollar custom mansions, a $2.6 million lot, and everything in between. I assure you that I can help you.
Since January 2012 when the median Las Vegas home price was $118,000, home prices have risen until at the end of last month the median price of Las Vegas homes was $243,000. A 106% increase in just five years!
The following chart shows that although the trend leveled in the period between June 2015 and March 2016, the trend in Las Vegas home prices continues upward.
To add some insight, it is pertinent to note that during the same five year period referred to above, there has been a corresponding increase in the median price per square foot of Las Vegas homes.
Early in 2012, rumors were swirling that banks and hedge funds were going to sell out their inventory of homes, flood the market, and drive home prices down. Based on those rumors many potential buyers elected not to buy at that time. They ended up left behind and many of them were priced out of the market. On the other hand, investors and other home buyers who ignored the rumors and bought into the Las Vegas home market at the time profited handsomely.
In March 2012, I wrote a post suggesting that if you bought a home then for $200,000 there was a good chance that by 2020 that home would be worth $500,000. Based on the data outlined above, that $200,000 home is well on its way to that goal. With three years left, that home is already worth somewhere in the neighborhood of $425,000.
Overall, the US economy appears to be strengthening and there is no reason to think the upward trend in Las Vegas home prices will be interrupted. With the Las Vegas economy continuing to become more diversified and the city becoming more cosmopolitan, there is likely to be strong and sustainable growth.
There was an interesting article in the Los Angeles Times last week concerning Las Vegas casinos moving to charging for parking. Here is a quote:
“The removal of free parking was seen as yet another blow to the image Las Vegas had cultivated over earlier decades — free booze, cheap food and low-cost rooms in exchange for big profits at the casino.
But since the evolution of The Strip in recent years emphasized high-end clubs, restaurants and live entertainment and broadened the visitor profile to include nongamblers, revenue sources have broadened as well — with parking fees being the latest and most controversial.”
I think this emphasizes that Las Vegas is no longer just the sleepy “sin city” that had been its image since the 1930’s, but it has become an increasingly sophisticated city that will continue on it path of growth and maturity. Another sign of its growth is that, with the Raiders moving here, we will now have a major sports franchise. Every day there is more and more to attract people to move here. Low taxes, plenty of dining and entertainment, sports, and, of course legalized gaming. What is not to like?
If you would like to move from elsewhere to get in on the growth, or to sell your current home and move up to a larger, more luxurious home, give me a call. I can guarantee that I will help you and do as good a job as anyone could possibly expect or better. My goal is and has always been excellent customer service. You can find my contact information and lists of homes on the market in the more desirable neighborhoods in the Las Vegas area on this web site, LVelegance.com.
Since hitting its low of $64 per square foot in January of 2012, by last month the median price of homes sold in Las Vegas had risen to $126 per square foot. Although we are not quite there yet, that 97% increase has gone a long way to bring the Las Vegas real estate market back to its pre-recession levels when the median sales price per square foot of Las Vegas homes hit its high of $191 in May 2006.
Although the rate of increase has slowed in recent months, the price increase trend has been fairly steady. (Although there are seasonal dips.) To illustrate this point, I have provided a chart below of the trend from January 2012 to August 2016, and, to focus on more recent data, a chart of sales during the last year.
In the last 30 days, 2,841 homes listed on the Greater Las Vegas Association of Realtors® MLS have sold in the Las Vegas area. Today, there are 8,069 homes on the market. This means that the absorption rate (the number of months that it would take to sell all of the homes on the market at the current pace of sales) is a little under 3. As a rule of thumb, any absorption rate under 6 is considered to be a sellers’ market. When I wrote about the trend of the market in September of last year the absorption rate was 3.5. During that same period prices have increased about 6%. So, if anything, the Las Vegas real estate market has gotten a little stronger over the last year.
Another indicator of the strength of the Las Vegas real estate market is that the median days homes are on the market has dropped from 32 days in September 2015 to 22 days last month.
Although house prices are not likely to rise at the pace of the early years of the recovery when from January 2012 to January 2013 prices rose 27%, with demand remaining strong it appears likely that a generally upward trend will continue.
To some extent this trend is supported by historically low mortgage interest rates and an increase in rates may dampen demand for homes to some extent. However, since its quarter point increase in December of last year, the Fed has again and again put off its next rate increase. The Fed is set to meet again on the 20th and 21st of this month and may make a move at that time. Although, even when they make their next interest rate move, they have indicated that they expect further increases will be slow and deliberate. Interestingly, after the Fed made the move to increase rates last December, rather than increasing in tandem with the increase in short term rates, mortgage interest rates actually declined.
Another factor suggesting at an interest rate increase will not have a dramatic effect on home prices is that 20% of homes purchases in Las Vegas last month were cash. Although this is not as high as the 54% of homes purchased for cash in February 2013, it demonstrates that there are still a lot of buyers in the market who won’t feel the impact of a rate hike.
After steadily declining in the past few weeks, yesterday thirty year fixed mortgage rates reached 3.58% (some lenders were even offering rates as low as 3.55% to top tier borrowers). The lowest rate since May 2013. Over the last 52 week rates have ranged between 3.55% and 4.20%. It should be noted that these rates are so called “best execution” (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers with no loan origination or discount points).
If you are going to finance a home purchase, now might be a fabulous opportunity to buy. Although rates have followed an increasingly narrow range since February, there are a couple of things that you should know. One is that the Federal Reserve Bank is going to meet next week and will announce any change in the Federal Discount Rate on Wednesday. Fear has been increasing that they will announce an increase after next weeks meeting. However, it is still generally thought that Fed will hold off on any rate hike at least until July. The other item to be considered is the July 23rd vote regarding Britain’s possible exit from the European Union. The possible impact of that vote on US mortgage interest rates is uncertain, however, I think that regardless of the outcome of that vote the impact will be muted. The greater impact would be a Fed rate increase.
Here is a chart of the median sales prices per square foot of Las Vegas single-family residences from the bottom of the market in January 2012 to the end of last month.
Now that the month is over let’s take a look at what happened in Las Vegas.
In September, 2,715 single family homes sold at a median price per square foot of $119.44, just a smidge higher than the $119.18 per square foot of homes that sold the month before. Over 86% of those September sales were regular equity sales with bank sales and short sales accounting for just under 7% each.
Although cash sales reached as much as 54% of the market in February 2013, last month on similar sales volume only 21% were cash sales. I think a couple of factors account for this change. One is that as prices increased the “deals” that enticed investment funds and other cash investors into the market disappeared. Another is that as the economy improved owner-occupant buyers became more readily able to obtain mortgage financing.
There has been speculation that at some point investors who bought at market lows will “flood the market” with properties driving prices down. I just don’t think that is likely to happen.
Although individual investors may have purchased properties to “flip”, sales here and there by such investors are unlikely to have any significant impact on market prices. Indeed, such flip transactions have been occurring on a regular basis for at least the last couple of years with no perceptible effect on the rise in Las Vegas home prices. The only way these transactions could significantly impact the market would be for hundreds of these small investors to coordinate their sales.
The only real way that home prices could be catastrophically damaged by a flood of properties would be for the big players to take action. This is unlikely to happen.
First, many of these investors are looking to make profits through increasing rents on properties they own not by selling those properties. For example, one of these big players, American Homes 4 Rent, a publicly traded real estate investment trust that as of June 30 owned 37,491 single-family properties in 22 states, articulates their goal is to be “focused on acquiring, renovating, leasing, and operating attractive, single-family homes as rental properties.”
Second, the individuals who manage investment funds with this volume of real estate are sophisticated businessmen who are well aware that if they “flood the market” it would be shooting themselves in the foot. Flooding the market would drive prices down to the extent that they could not sell their inventory fast enough to realize gains. If they make sales from their investment portfolios, they are likely to make them in small increments so as not to detrimentally affect the market.
Indeed, for these big players driving prices up would be more lucrative than driving them down. In addition to getting more for the trickle of homes they sell, higher prices means more families that are priced out of the market and forced to rent. Increased rental demand means higher rents and greater profits.
Together these factors indicate that, although there might be some seasonal flattening in home prices, at least in the near term the Las Vegas residential real estate market will continue to recover with an overall upward price trend.
I haven’t written for a while and wanted to do a summary of where the Las Vegas real estate market stands today. Today there are 8,711 single family residences on the market. Over the last 30 days the sales of 2,520 residences closed. Given those numbers, at the current pace of sales it would take about 3.5 months to exhaust the current inventory. This number is called the absorption rate. As a rule of thumb, when the absorption rate is greater than 6 months it is considered a buyer’s market where the buyer has the advantage in negotiating price. When the absorption rate is less than 6 months the advantage goes to the seller and it is considered a seller’s market. Accordingly, the numbers suggest that we are in a fairly strong seller’s market. This has been the case since at least January 2012. Since then price action in the Las Vegas residential real estate market has confirmed its seller’s market status.
During January 2012, 2,930 homes sold at a median price per square foot of $64. Last month 2,863 homes sold at a median price per square foot of a little over $119 per square foot. Accordingly, since January 2012 the median value of homes listed on the Greater Las Vegas MLS have risen an astounding 86%! We are still a long way away from the $191 median price per square foot at which homes sold in May 2006, but unquestionably home values have made a healthy recovery. Many people whose homes were underwater, valued less than the amount owed, are now in the black. The portion of the market represented by short sales, sales where the sales price of the home is insufficient to pay all of the debt secured by the home, has decreased from 47.9% of sales in December 2012 to 6.6% of sales last month.
Of course this begs the question of where the Las Vegas real estate market is going from here. The upward trend, although not quite as steep, still seems to be in place. Much of the 86% increase in Las Vegas home prices was between January 2012 and June 2014 with a 72% increase from $64 to $110 per square foot during that 2 and a half year period. The market then went flat and ended 2014 with homes selling at roughly the same $110 they went for in June. It looked like the party might be over. However, prices again began to rise and went up a little over 8% from December 2014 until last month. The increase over that period was fairly steady. However, in the next few months we may see some seasonal flattening in price increases which often occurs in mid to late summer and continues until early spring.
Although one can never know for sure, I don’t see anything to suggest that the general upward trend is coming to an end. The only significant event on the horizon is an increase in interest rates when the Fed decides it is time to move. Presumably this would have an affect on home demand as buyers who need mortgages to purchase find they are going to have higher monthly payments. It is hard to say how significant that impact will be, but the Fed has suggested that its rate increases will be slow and gradual. If that is the case, those rate increases should not derail the home price recovery.
In the next few days, I will post a chart of the overall trend of Las Vegas home prices that I have discussed above. The price trend, however, although generally similar throughout the Las Vegas valley differs from neighborhood to neighborhood. If you would like to see the change in your neighborhood, send me an email.
Bloomberg news reported today that according to a Federal Reserve survey of 98 banks there has been a “continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand.” Many potential home buyers have complained that it has been difficult to obtain mortgage financing even in cases where they clearly have the income to repay the loan and have generally good credit. This easing tread should make it possible for objectively qualified buyers to obtain financing.
The article notes that the easing has been predominately with regard to prime residential real estate loans. This is a definite positive, since we don’t want to go back to the times when anyone whose breath could fog a mirror could get a mortgage. In any event, the real estate market clearly will benefit from the greater availability of financing for quality borrowers.
Here is a video that my assistant prepared illustrating how the market for single family homes in Las Vegas has performed since it hit bottom in January 2012. The report cover all of the properties sold through the Greater Las Vegas Association of REALTORS® MLS system, however, most neighborhoods have exhibited similar trends. If you would like information on any particular community, send me a text or email or give me a call.