Economy & Real Estate Updates

home for sale in under developed community

Home for sale in developed community – Las Vegas

Its no secret that most investors and owners of rental property are curious to know what to expect with their properties during this year – whether it’s the value of their property or rental rates. And it is with good reason they are curious. Economic experts continue to express concern that due to inflation, higher interest rates and generally rising costs of living, the economy is poised for a correction. The signs are already appearing as the real estate market slows down, property values decrease and more supply in the rental market appears. This, coupled with news of layoffs at major companies, is something that is hard to ignore. Predicting anything economically, including rental rates, can be difficult as unexpected events around the world and locally can seriously affect the global economy.

According to Realtor.com:

“There are some signs indicating that it might be getting easier for many folks to buy a home. Inventory levels are still low, but there are more homes coming on the market; the bidding wars and mind-boggling offers over the asking price have died down; and buyers can once again insist on inspections, contingencies, and repairs before the deal closes.

Homes are sitting on the market for longer, so buyers can sleep on it rather than submitting an offer in the middle of an open house. Prices even dropped more than 10% in December from their peaks over the summer.

While that’s all welcome news for most first-time homebuyers, the Realtor.com® economists expect home prices will rise 5.4% year over year in 2023. (That’s on top of some already lofty prices.) And mortgage interest rates remain uncomfortably high, in the mid-6% range at last count for 30-year fixed-rate loans.

Even if prices fall, those higher rates will inflate monthly mortgage payments substantially. Those monthly housing bills are now about two-thirds larger than they were just a year ago.* Those payments are 92% more than they were just two years earlier. In other words, today’s buyers will pay about double what they would have for the same house in 2020 if they take out a mortgage.”

(Article: https://www.realtor.com/advice/buy/on-the-house-is-2023-the-year-to-finally-buy-a-home/)

Thus, it is expected that the cost to purchase a home, due to interest rates and high resale values, will continue to remain that way.

What about rental rates? Rental rates typically will follow suit with resale values, since increased real estate values mean increased costs to maintain a rental property, such as higher property taxes maintenance costs. That has been the case over the last 3 years. Rents increased significantly, keeping up with higher real estate values and putting pressure on tenants. However, as the market continued to push upwards, it does eventually plateau and perhaps even soften some. That has been the case in Las Vegas. While rents were climbing to new records this past summer 2022, the market has seen a pullback. More properties came onto the rental market, increasing supply, as sellers struggled to sell properties for peak values they were accustomed to seeing. This trend continued between fall 2022 to present. According to Realtor.com:

“The rental market appears to have hit an inflection point—and not a moment too soon for many Americans who have been squeezed tight by record-setting price increases over the past few years.

Finally, the steady drumbeat of steep and often untenable increases in leases across the U.S. is slowing, and rents have even begun falling in many of the nation’s hottest real estate markets. Those declining prices are welcome news for renters who have been through the wringer. Rental prices have risen more than 20% over the past three years—while their earnings increased by only about 10%, according to Realtor.com® and U.S. Census Bureau data.

While Realtor.com economists predict that, nationally, rental prices will continue climbing in 2023, they expect the days of double-digit hikes are likely over.”

(Article: https://www.realtor.com/news/trends/rent-prices-are-declining-in-these-cities/)

All in all, stability is expected in the real estate and rental market, though, values may adjust throughout the year some, with an overall increase projected, though modest it may be.

 

House and growth chart with arrow. Increasing demand for buying and renting real estate.

It’s no secret that homes are renting for record breaking rates. Over the last 10 years, many properties have appreciated 50-75%, forcing many renters to downsize or combine households to make their rent payments. More recently, inflation is getting the blame for much of the price hikes that are consumers are facing. How does all of this affect rental properties? What has caused rental properties to increase dramatically?

  1. Supply and Demand: Much of the rental rate appreciation in the rental market occurred because of high tenant demand and lack of supply. As a result, Landlords were and are able to raise rental rates because tenants simply do not have much choice. Inventory remains slim and rental rates high. As a result, moving to a new property will only incur more costs, such as supplying a new security deposit and moving expenses. Thus, many tenants are staying put in their homes and absorbing increases in rent unless it is absolutely impossible.
  2. Increased costs of ownership: When property values go up, so do property taxes. As a result, owners of rental properties are now faced with this increased expense. These can be considerable, especially since property values have increase drastically, some 25% just during 2021. As a result, property taxes are recalculated based on these increased values and owners assessed a higher tax bill.
  3. Inflation leads to higher costs of maintenance: It doesn’t take a rocket scientist to figure out that nearly everything has increased in price, from gas to paint and tools to common household supplies. As a result, owners are now facing higher costs of maintenance. As a result, these higher costs are offset with increased rent.

The end result? Higher costs all around and increased rent prices. As the current situation continues, we can only expect more of the same. This situation is forcing many to re-evaluate their situation. Rental assistance resources are being utilized more today than ever before. Yes, a new era has arrived that appears to be here for the foreseeable future.

Another year. Another rising real estate and rental market. 2021 ended on a strong note, with rental prices at an all time high and the median sales price of an existing property approaching $450,000. The year defied expectations and appeared to set the stage for another year of appreciation. So, what can we expect with the rental market during 2022?

As much as we experienced steep appreciation during 2021, we anticipate a strong market, strong demand and more stability. Rental prices should remain at current levels with modest appreciation. Of course, much depends on the general economy, unemployment and inflation. Inflation leads to higher costs of goods, such as building materials and goods. As a result, maintenance costs rise for an owner of rental property. Fuel also rises, which contributes to rising costs of labor. As a result, both the cost of building homes and maintaining them rise, leading to rising real estate prices. This combined with strong demand, leads to higher rental prices, which we have seen over the last couple of years. Also, HOA expenses can also go up, such as monthly or quarterly dues.

Additionally, when real estate prices rise, so do property taxes, since they are typically assessed based on value. Owners of rental properties have to now pay out more, sometimes considerably, based on these new assessed values.

As a result, rental rates have seen considerable appreciation as they offset these higher costs and as demand continues to be strong.

 

Aerial view of Las Vegas Lake, Nevada.

It may appear that with thousands of residential properties built every year within the Las Vegas valley, land – or the lack of – may become an issue. However, builders have gotten creative in recent years to accommodate the demand for new housing.

For example, one nationwide builder embarked on purchasing smaller parcels of land and then subdividing them into smaller lots to build, for example, only 20 homes within a community. Because the lots were in more of a rural area of the city, requiring a specific minimum size, the builder was able to provide semi-custom homes for a premium price point. They took advantage of smaller parcels that perhaps other builders had passed on created a niche for themselves. And with great success.

Though Las Vegas has experienced significant growth and residential density, we can say that land is still readily available. While large parcels may be less common within city limits, a number of builders have decided to go into the suburbs, offering uniquely crafted communities for those willing to live a little ways from the hustle and bustle of the city.

For example, Cadence in Henderson is off Lake Mead Pkwy, a mere 10-15 minutes away from Lake Mead yet a fair distance from downtown and the Strip. However, with shopping available within a reasonable distance, community parks, pools and playgrounds within the community, multiple builders have embarked on building over 13,000 homes within the master plan. And thus far, they are not having difficulty selling them – for a premium!

In the far Northwest and edge of the city, Skye Canyon is currently in progress, with thousands of homes already completed and occupied. The appeal? The community prides itself on its close proximity to the northwest mountains which offer outdoor activities and winter skiing. The community itself offers parks, playgrounds and a recreational center, all designed to reflect a mountain type lifestyle. Homes are selling well, also for a premium.

So, while building large communities in the central part of the city may have slowed down, developments in the suburbs are rapidly gaining popularity as they offer numerous amenities, all contained within the development itself. As Las Vegas continues to expand and grow, we can only expect builders to develop more master planned neighborhoods as they look for ways to accommodate demand in housing.

Aerial view of residential neighborhood in northwest Las Vegas, Nevada.

September was another record setter in the Las Vegas valley! Both resale and rent values increased on average, adding to an already record setting year. The median price of a home rose to $406,500 according to Las Vegas Realtors. Rent values rose on average between 3-9% (Zumper).

Though Las Vegas saw an increase in resale values between August and September, the fact is, it’s a far cry from the appreciation seen thus far in the year. As a matter of fact, the median sales price remained at $405,000 the two months prior, barely making an increase during September.

In essence, the market is taking a much needed break. Constant and significant appreciation can lead to over inflated prices which is not healthy for a market. Already, many individuals are out priced of a home, compared to just 6 months or a year ago. Fortunately, interest rates are remaining low, allowing many to to still qualify for high mortgages. And for the time being, rates should remain that way.

However, what does this slow down mean for the market? At this time, it is simply means that the market is pumping its brakes a little due to significant appreciation over the last year. Additionally, as the end of the year approaches, a seasonal slow down is typically expected.

Of course, a real estate market is based on many factors – economic climate, jobs, consumer confidence and interest rates, to name a few. These can affect a real estate market in a positive or negative way. For the time being, indicators appear to point to continued appreciation, though modest. Inventory continues to remain low, both in homes for sale and for rent. And most buyers are still in the game.

Aerial view of residential area and park of Las Vegas, Nevada with clear skies

The Las Vegas housing market continued a hot streak throughout August leading into September. The median sales price of a single family home was $405,000 (Las Vegas Realtors), matching the prior month. The median list price was $422,000 according to Realtor.com, a possible indicator of continued price appreciation. More and more buyers from out of state, such as California, have been relocating to Las Vegas, investors are purchasing properties and first time home buyers are trying to eek their way into home ownership. This heavy demand has caused a strain on an already reduced inventory. As a matter of fact, the available inventory of resale homes is down 34.6% from August 2020 according to Realtor.com.

As discussed in prior blog posts about the real estate market, a low interest rate combined with low available inventory has driven prices up as this has stretched many home buyers budget. As a result, home buyers are willing to pay more while saving on monthly interest charges. All the while, homeowners are putting more cash in their pockets when selling their properties.

The rental market has also seen it’s fair share of appreciation. Rental rates are skyrocketing within the Las Vegas valley, allowing many single family homes to rent between $1.25 – $1.50 / square foot or more. These are significant gains, especially when compared to just a few years ago when many properties were leasing far below that. Again, a limited inventory combined with increased demand is causing landlord’s to raise rents. For landlord’s, this is a prime time to capitalize on their investment properties and raise rents. For investors looking to enter the market, the increase in rental rates is good news. It allows for higher returns against higher resale values.

While it may be tempting to sell a property that has much appreciation, it is also good to consider what your property may rent for in today’s market. Some landlord’s have decided to sell because they weren’t aware of the rent potential of their properties. So, before selling, consider all of your options.

While it is difficult to predict how things will go long into the future, the Las Vegas real estate market has proved resilient and even surprising. It has caught many homeowners and landlord’s off guard – in a good way! As a result, investment properties today are doing what many have wanted for a long time – providing a solid return on their investment.