It didn’t take long after the last mortgage interest rate hike that all the real estate gurus and pundits across the country put on their Chicken Little hats and started planning for the onslaught of a bleak real estate market. . We can read almost any newspaper and read about sellers cutting prices as if to infer panic selling and a rapid decline in market prices.
We really don’t see anything like it in Las Vegas or Southern California. Yes, there was a slight increase in the number of price cuts in Las Vegas this month, but this market has endured massive overvaluation for several years. The average amount of overvaluation for a single-family residential listing remains around $65,000 for properties listed under $1 million. Thus, a price reduction of $20,000 or $30,000 may still be above market value for at least 25% of these properties.
Are the price reductions simply the result of an increase in interest rates? Or does the behavior of buyers and sellers have more to do with the resulting price declines? Maybe both, but it’s not just determined by mortgage interest rates. For example, if a seller reduces their prices shortly after listing, that says more about their motivation. It makes sense that if a seller is already in a buy-to-buy contract (potential swap), then they should protect that buy-to-buy contract, especially if they are not already locked in with the home they are selling. They have a contingency to sell their home which may expire soon.
This generates a motivation to protect both transactions. Imminent increases in mortgage interest rates should create a sense of urgency to ensure prices match the market.
Sellers retain the advantage of the initial negotiation with less than six weeks of inventory available. On the other hand, I would expect to see more price reductions if we increase to three months or more of available inventory. More available inventory is the market’s natural remedy against excessive pricing! But will the dramatic hype of real estate seers — rather than the market itself — fuel market change?
The Las Vegas real estate market captivates and intrigues us, in part because it never gets boring! Currently, the market is benefiting from the confluence of continued strong demand, job creation and business diversification. Those who claim that prices will go down simply because mortgage interest rates have gone up are ignoring the continued contribution of job creation and economic diversification.
No variable – including increases in mortgage rates – will be the sole determining factor that will shape the future of real estate in Las Vegas. What about the recent and alarming downtrend that is overtaking Wall Street and the stock market? Some investors may already be liquidating some of their equity positions and looking to real estate for future returns. The remarkable increase in rental markets in the United States makes the real estate market attractive to these people. Inflation and soaring gas prices already have more than a few homeowners looking for a home closer to work and schools! Each individual buy and sell decision encompasses factors unique to that transaction.
Finally, all real estate is local, if not hyperlocal. What happens in one community or subdivision does not necessarily happen in the adjacent community. Market developments are much more complex and dynamic in nature. We’re only halfway through 2022, which leaves plenty of time for market, economic, political, and even social forces and values to shape the future of the Las Vegas real estate market in 2022. A point or two data is not a trend, so I prefer to let future market data and statistics tell us what the market is doing or saying.
Forrest Barbee is Berkshire Hathaway HomeServices’ corporate broker for Nevada, Arizona and California.