Las Vegas Valley Homebuyers Face the Challenges (and Advantages) of the Local Market

As she maneuvered through the home buying process earlier this year, Lexi Reyes knew she and her husband had a tightrope to walk.

Already owners of their first home in North Las Vegas, the couple intended to cash in on the equity in their home in order to move into larger digs – to use the money from the sale of their home for the purchase of a larger property.

Luckily for Lexi and Anthony Reyes and their four children, everything worked out pretty much as planned. They now live in a 2,700 square foot home with four bedrooms in North Las Vegas. Price: $525,000.

“It was scary for a while, but I’m glad we did it,” says Lexi, a cemetery shift nurse at Sunrise Hospital. “We bought our old house for $310,000, which we thought was a lot of money for a house at the time.”

Like the Reyes, many local families are looking for a change of accommodation. In 2021, more than 50,000 homes, including condominiums and townhouses, were sold in the Las Vegas Valley, a record.

Total sales for this year are expected to be lower than that, but nearly 8,600 homes were up for sale in the Valley by the end of June, a 23% increase from the same month in 2021. According to the Federal Home Loan Mortgage Corporation – commonly known as Freddie Mac – the interest rate for a 30-year fixed mortgage hovered around 5.5% in mid-July, and it has risen more than three percentage points since early January. Borrowers who locked in their mortgage this month or last are paying a lot more, sometimes hundreds of dollars a month.

Today’s rates are a far cry from the all-time highs of nearly 17% seen in the early 1980s, but any increases, experts say, make it harder for first-time homebuyers or those looking to modernize, like the Reyes. — to lock in an achievable rate.

Interest rates have been on an upward trajectory in recent months as the Federal Reserve has attempted to fight inflation. The Fed was expected to raise its benchmark further when it meets on July 26-27.

“From June 10 to June 13, rates went from about 5.5% to about 6.5% in three business days,” said Jon Gedde, CEO of SimpliFi Mortgage and president of the Nevada Mortgage Lenders Association. “It shocked the market. Rates have actually come back down since then, but this increase has shaken things up a bit. »

In Southern Nevada, existing home prices have only recently begun to decline slightly after a long string of monthly increases.

In June, according to the latest report from the Las Vegas Realtors trade group, the median price of a home was $480,000, which was a modest drop of $2,000 from May.

It was the first time the median price fell month-over-month in more than two years. June’s median price rose 22% from the same month in 2021, according to the group.

With rising home prices, many potential single-family home buyers have already been pushed out of the market. As interest rates continue to climb, this will likely push more buyers away.

“We’re going to see more people sit down,” says Elizabeth Renter, data analyst for online personal finance company NerdWallet. “There are more homes listed now, which is good news, but Las Vegas has been one of the hardest hit cities during the pandemic. For those who can afford the higher prices and rates, there will be more homes there, but first-time buyers are going to struggle. »

For a 30-year loan at 5.25% on a $450,000 home, Gedde says, a monthly payment will be just under $2,500. That same loan at 6.5% would cost about $350 more per month.

Many industry watchers expect the 30-year mortgage rate to be around 6.5% by the end of the year.

“We had people signing contracts over that weekend in June,” says Gedde. “When they came back and said they were ready to go on loan, we told them about the raise and they told us to cancel their contracts.”

As Renter points out, more homes have come on the market in the Las Vegas area in recent months, providing buyers with a bit more balance. The Las Vegas Realtors group reports that more than 5,700 single-family homes, condominiums and townhouses were listed at the end of June without any type of offer.

This is more than double what was available at the end of June 2021.

“We still have a lot of buyers coming into the market, and the market is competitive,” says Tony Humphrey, vice president of mortgages for One Nevada Credit Union. “We are now seeing discounts from sellers, which we weren’t seeing a few months ago. In these situations, sellers often try to keep buyers in their contracts. Sellers start paying closing costs again.

Partly because of rising interest rates, but also because Americans have been paying more recently for everything from gas to eggs and bread due to inflation, mortgage activity has slowed in many parts of the country, including Las Vegas.

One of the nation’s largest mortgage lenders, Wells Fargo, announced in a quarterly earnings call earlier this month that fees collected from its mortgage banking operations fell by $1.3 billion in the second quarter. from 2021 to $287 million in the second quarter of 2022.

Matt Haugh, a Las Vegas-area real estate agent, has seen a sharp drop in the market lately. “A lot of buyers are on the sidelines waiting to see what happens,” he says. “We’ve even seen many institutional buyers and hedge funds buying properties with cash cancellation contracts.”

As everyone continues to wait to see where the market will go, Nadia Evangelou, senior economist and forecasting director for the National Association of Realtors, says there are things potential buyers can do to put themselves in the best possible position.

“I expect a sharp reduction in home sales activity over the next few months,” says Evangelou. “What we’re seeing now are people looking for low-cost homes. Buyers should try to find homes that are 25% cheaper than the current median home price. »

She says people can also look for homeownership programs and down payment assistance, or look to adjustable rate mortgages (ARMs), which offer lower rates at the start of the loan but eventually increase.

As always, adds Evangelou, the better the credit score, the better the loan rate, so it’s important to take care of your credit.

“Especially for first-time buyers, an ARM can make sense,” says Evangelou. “If they’re looking to stay in a home for five to 10 years, an ARM can save them up to $300 a month on their payment.”

The problem with this, of course, is that adjustable rates go up at some point. If a homeowner does not prepare for these pending changes, a noticeable increase in the monthly mortgage payment can cause a household financial crisis.

No matter how potential buyers seek to tip the scales in their favor, most experts seem to agree that the market will remain difficult for the immediate future.

“Specifically for these younger buyers, I would say take your time in this market,” says Renter. “It can be very difficult if you find something in your way after planning a purchase as big as a house, but people shouldn’t overextend themselves in the name of achieving that goal. You can reverse the decision to buy back a year or two and potentially be in a better position.

Due to its consistent position as one of the fastest growing cities in the west, Las Vegas is likely to stay busy.

As Evangelou said, Las Vegas “is a popular place for people who want to move.”

People continue to move here from more expensive places like California, and experts say the Southern Nevada crater market is unlikely to be as it did after the Great Recession began in 2008 .

In early 2012, the median price of a home in Las Vegas hit a low of $118,000, almost exactly a quarter of the current cost of a home in the Valley.

“We may see some depreciation, yes, but I don’t think the market is going to crash,” Humphrey says. “Prices are relatively stable. Rates are what’s driving most people out right now. I don’t think mortgage rates will hit 7% by the end of 2022, but we could definitely get close. »

Back in North Las Vegas, Lexi Reyes says she’s happy with the interest rate, around 4.9%, that she and her husband got on their new home.

“Of course, it’s not 2.9%, but we were able to take advantage of the equity we had in our old house,” she says. “I don’t think we felt like the market was going to crash or anything, but the time was right for us. It worked.

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