When the housing market began its decline in 2006, and then came to a deafening crash two years later, Las Vegas found itself at the center of the crisis.
The city has since rebounded and is flourishing with an influx of new residents and jobs, increased commercial development, and professional sports teams. But with this prosperity comes rising home prices, and all eyes are on Las Vegas again: Are we about to enter another housing bubble?
Not quite, says Dr. Vivek Sah, director of the Lied Institute for Real Estate Studies at UNLV.
“It’s not a bubble, but there is likely going to be a correction because prices have appreciated so much,” Sah said. “I believe we’ve become a little bit unaffordable now, especially at the entry level, where there’s a big mismatch between median income and the price of an entry home.”
We caught up with Sah to get a glimpse into the current housing market, and the key factors that any soon-to-be homebuyer should consider when searching for a permanent place to call their own.
What does the current housing market look like in Southern Nevada?
I think the biggest concern right now in Southern Nevada is that we’re progressing from a city that was affordable to one that’s less so very quickly, within the last two years. Income is around $60,000, but the median new home price is close to $500,000. That is a concern because it will decrease home ownership especially among first-time homebuyers, or among those who are between the ages of 30 and 40.
Over the next few months I think we’ll see a modest increase in home prices, but there is no concern right now about a housing bubble. A housing bubble is controlled not only by demand, but also supply, and currently supply is very, very low. Homebuilders have been able to slow down the process of delivering in the market because they saw what happened when they flooded the market with a lot of supply back in 2007.
Should you buy a home now?
The decision to buy a home is a long-term and emotional process; therefore there is no right time or wrong time to buy. Housing markets move in cycles and, overall, they are very difficult to predict. If the choice of the neighborhood and home is based on strong fundamentals, then timing of purchase least impacts your decision.
The cities where you reside also matter to a degree. Cities on the West Coast, for example, are in a perennial housing boom and prices will continue to flourish.
No matter where you live, it is recommended to buy as soon as households have the financial resources to do so.
If you have no constraints in terms of moving, buying a home in the winter might be the best option because home prices nationwide are 6 to 7 percent lower in December and January. People usually don’t move during those months because of holiday vacations and winter breaks. Moving is usually linked to the school year. Therefore, summertime prices are much higher. In July, home prices peak, and are 4 to 5 percent higher than the rest of the year.
Are interest rates predicted to increase?
The cost of borrowing may change based on what the Federal Reserve does in the next few quarters; however, they recently announced that they won’t increase the rates this year. At present, mortgage rates are still relatively low and that could be an advantage to the buyer. How those rates will move up or down is very difficult to predict and will depend on the economy and other macro factors.
What data should homebuyers consider when making a purchase?
Follow the local housing market reports offered by real estate associations and universities to examine the strength of the market, and to gauge zip codes in your area where prices have appreciated the most.
Soon-to-be homebuyers should examine the fundamentals that are driving economic growth, which largely dictate the housing markets. Some common indicators are job growth, wage growth, expanding sectors, net-in migration, and housing supply.
Homebuyers should also consider the quality of the school or school district in their preferred neighborhood, amenities in the community, crime rate, new construction supply, average new home price vs. average resale price, growth in home values, and owner-occupied to rental home ratio in specific neighborhoods they are interested in.
What should I consider when financing a home?
Banks and lenders prefer 20 percent down, which also allows a homeowner to avoid paying for private mortgage insurance. There are unconventional loans that allow for very low down-payment amounts, but qualification standards differ.
Overall, it is always a good decision to save for the down payment and then buy the home. The larger the down payment, the lower the risk and the lower the monthly payments. A down payment lower than 20 percent is a risky choice, because it means that you may be overextending yourself by borrowing more.
A larger down payment also allows you to apply for a shorter-term loan (15 years vs. 30 years), and will help you pay off the loan earlier.
Homebuyers should shop as much for a loan as they do for the home itself, which can minimize upfront costs. For example, homebuyers are generally not aware that in most cases, if they shop around, a lender will waive their application fee.
Another misconception is that banks are the only financial institutions that provide home loans. However, buyers have many more options including mortgage brokers, mortgage companies, and credit unions.
Are there any hidden costs to consider?
Homebuyers need to consider not only the down payment and their monthly mortgage, but they should also be mindful of property taxes, home insurance, maintenance costs, and homeowner association (HOA) fees. Many of these additional costs do not exist while renting, and it’s important to be prepared before you buy.
If you provide a down payment that is less than 20 percent of the price of the home, you will also need to factor in the cost of private mortgage insurance, which may add upwards of $200 to your monthly costs.
About the UNLV Lied Institute for Real Estate Studies
Established in 1991, the Lied Institute for Real Estate Studies is part of UNLV’s Lee Business School and was created to foster real estate education and research, and to advance real estate knowledge in Nevada. The institute produces relevant and timely real estate research, supports educational programs in real estate for students and professionals, and provides community outreach. This includes a monthly Nevada housing market report, which provides zip code-specific housing data and tracks market trends statewide on home prices, sales, foreclosures, and more. You can access the latest report here, and can also learn more about the institute by visiting unlv.edu/business/lied-institute.