The Las Vegas Housing Market

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The Las Vegas Housing Market Since Covid-19

Since the 2011 housing crash, the Las Vegas housing market has been strong. Prices rose until October 2018, and from then until June 2020, we saw fairly stable prices even when demand dropped in the midst of the lockdown (see pending sales chart two). Since June 2020, prices have jumped. There can be no argument that for 2020-2021, the government policies of artificially low-interest rates, and massive government stimulus have kept the housing market moving up.

Live Charts of the Las Vegas Housing Market

The charts below update monthly and give you the most up-to-date information on prices and pending home sales. As you can see, Las Vegas home prices are now well above the all-time highs set in 2006. One could argue the Federal government’s plan to stabilize the housing market after Covid-19 is working too well.

This next chart shows average sale prices on a monthly basis. A dramatic rise in prices from the housing crash started in January of 2012 and stabilized at a slow rising pace around April of 2019. As of April 2020, a new jump has begun. Arguably, the current jump in prices is due to government stimulation.

This chart shows Pending Home sales.

Pending sales usually drop during the winter months and have large gains heading into spring. Since June 2020, the poor economy seems overlooked in the eyes of buyers; pending home sales are now at all-time highs. At least in the short term, this shows us that prices will continue to trend up. To view this chart properly, look at the monthly changes year over year. Since June 2020, pending home sales have been the strongest ever recorded.

Where Do Housing Prices Go From Here?

Ever since the run-up in prices back in 2005-2006, one of my clients’ top questions is “What do you think of the market?”. Las Vegas’s volatility as a housing market makes this an interesting ask. Back in 2006, I would tell people: I can easily see a 20% drop in prices given how quickly they’ve risen.

I’ll admit, my estimate was a bit off but the direction was correct. Now in the days of blogs, websites, and clients with the same uncertainty, I’ve decided to put in writing my gut market feelings. My thoughts are we’re going to continue to have higher prices through the first half of 2022 pending home sales are showing us that. Until the Federal government allows interest rates to rise and cuts government printing we will continue to see higher prices.

Inflation in the Las Vegas Housing Market

Cost of a home

The last three administrations have decided to artificially keep interest rates low. The logic of this policy is up for debate, but the fact of the matter is: the lower the interest rates, the higher the housing prices. In my opinion, this is the main reason for the sharp price inflation worldwide since 2011.

With the Biden administration, I am 100% sure this market manipulation will continue providing price support. My opinion is that given the huge federal deficits this is the wrong long-term policy, but that’s for another discussion.

It’s easy to see how lower interest rates affect Las Vegas prices, especially when thinking of investors.

When comparing over 5% returns on investment properties, versus less than 1% in banks, or taking the risk in the stock market, investors snap up properties and cause higher prices. Also, the cost to borrow money is so low there is a logic to leverage properties. Which, in turn, creates even more demand. If rents did not go up the market would find a new equilibrium. But during an inflationary period, rents also go up leading to new rent over return on investment ratios. So as long as rents continue to go up, housing prices can continue an upward trend.

That is not to say the Las Vegas housing market is only a good buy because of the worldwide inflation in real estate. The State of Nevada has constant population growth outpacing the rest of the country. This growth is fueled by California migration, fairly low taxes, and until the Covid lockdowns of 2020 strong job growth.

Modern Monetary Theory

It’s become very apparent that the monetary policy of the United States is now Modern Monetary Theory (MMT). Simply put MMT is a theory in which printing money and the amount of money in the economy don’t correlate with higher prices. As The Federal Reserve Chairman likes to say, the reserve acts to control prices with their ‘Tools in the toolbox’. These tools are draining the money supply out of the economy through taxes, manipulation of prices through the futures and derivatives markets, and finally through the direct purchasing and selling of bonds by the Fed itself. This policy allows the Federal government to run huge budget deficits without having to raise taxes. For more information about this shift, a good starting place is Wikipedia.

My personal belief is this policy won’t work in the long term. In fact, the inflation we are having today is showing the weakness in this policy. We are no longer on a gold standard. That was lost in the 1960s during the increase in spending for the war on poverty and the Vietnam war. What came after the gold standard was the fiat currencies of today. The US dollar is the world’s (current) predominant reserve currency, helped and supported by the Petro Dollar. The last twenty years have seen a vast over-printing of dollars, too many of which now reside outside the United States. As a consequence, a new basket IMF (International Monetary Fund) currency is taking the dollar’s place. I believe this switch will cause even more inflation as the markets adjust to even more fiat currency (government-issued currency unbacked by a commodity) being distributed in developing countries.

Here’s more information on the IMF Special Drawing Rights SDRs.

Monertist Theory

All of this fiat currency (government-issued currency unbacked by a commodity), overtime is unfortunately overprinted. I believe fiat currencies can work very long term if the governments have restraints on printing. This is known as Monertist Theory. From the 1970s until the early 2000s, central banks used this theory. Today, most governments of the world ignore Monertist Theory and instead believe the spend and print Modern Monetary Theory is correct. Here’s a very good video on the subject by Dr. Milton Friedman.

Sell, Buy, or Wait?

Different steps forward exist depending on how you’re looking to involve yourself in the market. The question is what kind of buyer or seller are you?

My advice is:

  • Investors prices aren’t cheap in Las Vegas. If you see the government allowing interest rates to move up close to the inflation rate, that is probably a good warning sign of a top. And remember as mentioned earlier, keep an eye on pending home sales.
  • As for people looking for a property to make their home, compare the cost of renting a similar property verse the monthly costs of owning. Also remember that a portion of your mortgage payment does go towards principal.
  • Sell a part of your real estate investment, if you’re an investor that bought from 2010-2016. It’s probably a good time to take profits.

Sellers, prices are at all-time highs. This may be the best time to sell. 2022 may be the year the Federal Reserve allows interest rates to rise. Also, the forbearance period should end this year causing more supply.

If interested in listing your property or for a home evaluation, please visit our selling your home page!

4 thoughts on “The Las Vegas Housing Market”

  1. After the demise of Bretton Woods in 1971, the FED’s ability to create unlimited fiat money out of thin air is the root cause of all our problems and without the mindless interference by the FED (which does not know the relation between monetary inflation and price inflation), all the bubbles (including real estate) would have burst a long time ago before they assumed their current monstrous proportions.

    However, since sanity is only a temporary disruption of the accepted behavior of today’s financial markets manifested by the Madcap Monetary Theory, I feel that any sign of a return to a free market-driven normalcy will only re-ignite the FED’s attempt to keep the hyperinflation going until we disappear into a black hole . . .

    Reply
  2. The next time I read a blog, I hope that it doesnt disappoint me as much as this one. I mean, I know it was my choice to read, but I actually thought youd have something interesting to say. All I hear is a bunch of whining about something that you could fix if you werent too busy looking for attention.

    Reply
    • I see the page as informational. As for fixing something, it’s not in my power to fix it. I simply explained my logic on why prices have been going up. But thanks for reading and for your opinion.

      Reply

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