September 30, 2022 - 2:47 pm
While the Las Vegas real estate market has been through some dramatic changes so far this year, most notably rising interest rates and supply of available homes for sale, there are still various creative strategies to accomplish what you want by dusting off some tools that have helped navigate markets of the past with similar dynamics.
Here are three key strategies we’re leveraging to help people buy and sell homes in a higher interest rate and higher supply market environment.
First, let’s look at where the Las Vegas market stands from a supply and demand standpoint. In February 2022, the Greater Las Vegas Multiple Listing Service had approximately 2,500 single-family properties listed for sale and about 4,000 to 4,500 were selling monthly. This means there were almost two buyers for every single home on the market.
As of Sept. 23, there were 10,808 active and coming-soon single-family properties listed for sale and 5,072 sold in the 60 days prior (2,536 per month).
At this volume of availability, it is more important now for sellers to separate themselves from the rest of the inventory and pro-actively offer solutions to key buyer challenges that they may not even know are possible.
Let’s also consider the impact of the rise in interest rates. The national average 30-year fixed mortgage rate according to Freddie Mac on Feb. 10 was 3.69 percent, and as of Sept. 22,it is 6.29 percent.
For a buyer purchasing a $550,000 home with 5 percent down, this difference alone will increase the mortgage payment by about $829 per month on the same purchase price.
In terms of payment affordability, for a buyer to have the same mortgage payment at today’s rates versus January’s rates, the purchase price of the home would need to be about $410,000 (a $140,000 or 25 percent price reduction).
Here are some strategies to counteract these market changes and challenges:
1. Offer financing incentives to buyers
What if there was a way to offer a buyer a mortgage payment of the past without having to reduce the price by 25 percent?
By creatively advertising and including financing incentives for buyers into the sales process and negotiations, it’s possible for the seller to offer as little as a 2 percent concession toward the buyer’s closing costs to yield a 1-1.25 percent interest rate reduction. For example, on that $550,000 home
with 5 percent down, at 6.29 percent, the principal and interest portion of the mortgage payment would be around $3,231 per month.
Should the buyer desire a payment under $3,000, they could offer $510,000 for the home, which yields $40,000 less in gross proceeds to the seller.
Knowing the buyer is trying to accomplish a lower payment, a savvy seller could offer the buyer an $11,000 credit to buy down their interest rate.
With a 1 percent rate buy-down, the buyer can pay $550,000 for the house and have mortgage payment lower than if they bought it for $510,000. The seller now nets around $29,000 more in sales proceeds and the buyer benefits from a lower payment than if they purchased at the lower price.
2. Leverage new business models
The real estate industry has evolved dramatically since the last time we faced market dynamics like this.
There are now companies offering creative solutions such as instant access to your current home equity to customize your housing transition any way you’d like.
These companies offer solutions that allow sellers to purchase their next home, first using equity from their current home, while living in their current home.
Such solutions can remove the uncertainty and the timing challenges that a higher supply market presents. Homeowners looking to make a lifestyle transition can go shopping for the next home, negotiate, purchase, improve and move into their next home before having to deal with selling their current home.
Once that’s complete, they can improve, stage and market their current home with these costs simply coming out of their net proceeds at closing once the home does sell.
There are “lease option” or “rent-to-own” deals out there that do not require the property owner to carry the risk associated with the lease option deal.
This allows owners to sell their home now and access a larger pool of demand for their house to those who want to buy the home but are just not quite ready yet due to interest rate levels, down payment requirements, credit repair issues or uncertainty about market conditions.
These solutions allow “soon-to-be buyers” to pick the home they want to live in now. They can purchase any home on the market — without requiring the seller to wait for their equity payout. Ask your real estate professional how they leverage these businesses to deliver the results you want now despite these market changes.
3. Focus on your personal math vs. market projections
There are a lot of scary headlines out there, and most people feel that if the market softens, or prices come down, it means they made a bad decision on their purchase or are getting less than they could have gotten on a sale.
Timing is everything in real estate. How long you plan to own and/or live in a property matters more than the price and terms you pay today.
It is entirely possible that renting and waiting for prices to fall could ultimately cost you more even if you do pay less for the house in the future.
It is also possible that your net equity grows despite price declines in the market.
Before making any decisions to buy or sell in today’s market, partner with a real estate professional, and run your personal numbers on what the decision means to you, personally, instead of trying to predict market movements. What are your goals and priorities?
For many homeowners, objectives such as lifestyle, location and longer-term equity growth are more important than waiting for unknown future market movement to occur.
What we’ve experienced in the housing market for the past two years was not normal.
As the market adjusts and normalizes, keep in mind that there are many solutions out there now that didn’t exist last time our market experienced these conditions.
Before deciding on your personal real estate goals, make sure to consult experts that have been through this before to see what could be possible for you.
Matthew Mullin is a Las Vegas native, graduate of Princeton University with a degree in economics, and for the last 19 years has been helping buyers, sellers and investors of real estate in reaching their goals as Leader of The Mullin Group at Berkshire Hathaway HomeServices, themullingroup.com.