It’s hard not to feel a little bit of déjà vu with today’s Southern Nevada housing market. Prices are leaping higher by the day, with median closing prices setting record highs month after month. New listings are being flooded with offers, with homes selling almost as fast as they get listed. Potential buyers are being left disappointed as they lose the home of their dreams in an increasingly competitive market.
These signs may evoke reminders of the overheated housing market 15 years ago that ended when the bubble burst into a full-fledged housing crisis. While the two periods share similarities, the underlying fundamentals driving today’s market are far different than in the mid2000s, when demand was fueled by lax lending standards that saturated the housing market with easy money and unqualified buyers whose untenable finances eventually gave way.
Today’s housing market, like most things in economics, can be explained by the laws of supply and demand from Economics 101. If the demand to buy something is outpacing the supply of that thing, prices rise. At its most basic level, that is the dynamic that is driving housing prices higher today even while our community is recovering from the pandemic-related recession.
Many factors are driving demand for homes in Southern Nevada, perhaps none more so than record-low interest rates that have been historically low for a decade and have only gone lower during the pandemic. Low rates increase homebuyers’ purchasing power, allowing them to buy more house without increasing monthly payments. This has been especially key during the pandemic as we have spent more time at home working, schooling and recreating. At 3 percent or lower, interest rates are so attractive that buyers who might have planned to buy a home months or years from now are pushing up plans to take advantage of the low rates before they head higher, which is fueling demand even more.
The continued influx of new residents is also adding to the demand for housing. Despite the pandemic, Southern Nevada has continued to attract incoming residents by the tens of thousands, with the largest group hailing from California. These incoming Californians are often bringing liquid equity after selling their homes, giving them a leg up in the Southern Nevada housing market where, even with the rising price trend, homes are still far more affordable than comparable properties in California. Further still, some Californians are acquiring homes in Southern Nevada while continuing to work remotely and earn California wages.
Demand is just one side of the housing price equation. On the supply side, the number of homes on the market has not been able to keep pace. The effective inventory of resale homes for sale has plummeted to less than one month. For comparison, that figure has hovered closer to two or three months or more for most of the past decade. Current homeowners just aren’t selling much, which may be a factor of broader uncertainty and the recovering economy as much as the unappealing prospect of becoming a homebuyer in the highly competitive market. New home builders have responded to greater demand by significantly increasing building activity over the past year, but rising labor and materials costs, notably the skyrocketing price of lumber earlier this year, have added a layer of uncertainty to the bottom line even as new home prices have also reached record highs.
Looking ahead, the era of double-digit home price appreciation rates is not sustainable over the long term. A correction is inevitable, whether that’s related to interest rates going back up, the economy recovering or a host of other factors that have contributed to current conditions. But that correction shouldn’t be anything as severe as the bursting bubble of the mid-2000s and could very well take the form of sustainable stabilization. Today’s housing market is a symptom of the pandemic in one way or another. As we get back to normal, it will too.
Members of the editorial and news staff of the Las Vegas Review-Journal were not involved in the creation of this content.