Why is the real estate market rising in Las Vegas?

A simple image depicting the rapid growth in Las Vegas

The Las Vegas housing market has hit another high! In October, the median price for a resale single family home hit $340,200 (according to Las Vegas Realtors)! What is causing prices to rise, especially now amidst a pandemic and suffering economy? And can these high prices be maintained?

Limited Inventory

One factor affecting prices is a limited inventory of resale homes available. However, certain aspects of the real estate market changed last month. For example, showings on tenant occupied homes are now permissible with certain restrictions. And late notices and eviction proceedings are now allowed (effective October 15, 2020). How this will impact homeowners who have been thinking of selling is yet to be seen. Homeowners may take the opportunity to list homes for sale that have tenants in place which may increase available inventory. Or homeowners who have experienced lost rent and now in the process of eviction may decide to cash in on their investments.

The real estate market is based on supply and demand. Typically, should supply increase considerably in a rising market, prices may get softer and there may be more room for negotiation between buyers and sellers. However, we also have an unbelievably low interest rate to take into consideration – one of the lowest ever! How does that play a role?

Low Interest Rates

Well, interest rates play a huge role in affordability. It can dramatically affect a house payment. So, even though home prices are rising, the current interest rate is providing for a very attractive payment. Granted, down payments go up when prices go up. However, in many cases, the increase is not so dramatic that it pushes buyers away. And with today’s low interest rate, the prospect of a lower payment, even with higher resale values, is hard to bypass.

Take for example a home currently listed for $350,000. A couple of years ago when that house was $325,000 the down payment would only have been $2500 less. However, consider this difference. 2-3 years ago, the average interest rate was higher than today.

2-3 Years Ago:

$325,000 – 10% down payment ($32,500) = $292,500 at 4% (approximately) interest is $1396 principal and interest only.

Today:

$350,000 – 10% down payment (35,000) = $315,000 at 3.25% (approximately) interest is $1371 principal and interest only.

Notice the difference! Even with a higher loan of approximately $25,000, the lower interest rate can actually result in a lower payment than two or 3 years ago!
When you look at the big picture, it really is not surprising that demand is strong for real estate. As long as supply stays below average and interest rates remain at record lows, the perfect combination will exist for a rising market.