Is Southern Nevada experiencing a summer bump this year?
No, we're not seeing a spike in sales like we usually do, and we can attribute this to a couple factors. Home prices have been increasing steadily over the last four years and we've finally hit an affordability plateau. Couple that with an abundance of inventory (new and resale) and it's the perfect storm for a slow down in sales.
How are the inventory numbers looking at the moment and how does it compare to last year?
We're nearly double. This time last year, we were sitting around 4400 SFR's on the market, and today, we have roughly 7500. There's more inventory for buyers to choose from, and at the same time, less buyers that can afford today's prices. At this rate, we're looking at 6 to 9 months of inventory.
"Most families need two incomes to be able to get into the new home market."
Are current wages levels a concern when we consider the implications over the long-term?
Yes and no. Las Vegas is incredibly dynamic in nature and is growing and diversifying. This will bring new opportunities and wage increases along with it. However, where I am concerned is when it comes to new housing inventory. Homebuilders are facing some serious challenges at current land prices. Based on recent data, in order for a builder to stay in business, new home prices need to start in the $350,000 to $400,000 range. The conundrum is that an average wage earner here in the valley can't afford homes in that price range. Most families need two incomes to be able to get into the new home market.
How are new home prices remaining stable, and how is inventory moving under current circumstances?
Prices remains unaffected because builders stack their pricing. When it was a seller's market, builders would charge a lot premium, which would range anywhere between $10,000 and $100,000. On top of that there's the cost of the home, as well as any upgrades. As the market started cooling off, in order to maintain a sense of value, they started reducing and, in some cases, eliminating these lot premium. This doesn't ever get advertised, thus leaving the home price untouched. As the market continues to soften, homebuilders will throw in incentives in order to attract buyers. Again, this doesn't affect the home price, therefore, creating a false sense of stability.
"The plateau in the market that we are currently experiencing
may be a very healthy thing for Las Vegas."
Should we be ringing the alarm and heading for cover?
For the first time in seven years, we recorded our first decrease in value in May. It's not to say that it's a cause for concern, but something worth paying attention to. In a traditional real estate market, it takes around 6 months to move inventory. The fact that we have 6 to 9 months of inventory is, by no means, alarming. The plateau in the market that we are currently experiencing may be a very healthy thing for Las Vegas. Prior to the boom in the market, we ran a very healthy rate of appreciation year-over-year, with anywhere from 5,000 to 7,000 houses on the market at any given time. And that was with a smaller population. What does concern me is that agents may be so accustomed to the recent fast pace, that they may have false expectations when it comes to prices and days-on-market. This false perception may cause them to panic or to not set realistic expectations for their clients. As a result, they may hastily reduce the price of the home, thus creating a deflationary domino effect across the market.
What does the 12-month outlook for residential look like to you?
Many people who cannot get into the home market today are forced into renting. That particular market is red hot. In addition, we have people moving into Southern Nevada from al over the country. Some of them are here temporarily and are part of the reason why rentals are in such high demand. I believe that we are shifting towards a more traditional market. As long as agents can adjust to this shift and educate their clients, we will continue to experience a slow and steady appreciation in value like we did prior to the boom and consequential bust.
"Historically, the commercial market has followed the path
of the residential market with a two year lag."
Why should commercial property brokers pay attention to the trends in the residential market?
Historically, the commercial market has followed the path of the residential market with a two year lag. What is difficult to predict is whether this correlation will continue. This is because the use of commercial real estate is evolving - from industrial to retail. If we see a break in this correlation, it means that commercial agents will need to find other benchmarks to track the periods of growth and contraction in their space. A strong possibility is that this evolution of commercial space could make that market take on a life of its own, regardless of what happens in the residential market. This would add a whole new layer of depth to the Southern Nevada property market.