The Las Vegas Housing Market During 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, prices have started to move up. There can be no argument that for 2020, the government policies of mortgage forbearance, artificially low-interest rates, and massive unemployment benefits have kept the housing market firm. What’s still left up for debate is how fast Las Vegas’s tourism-dependent economy will bounce back and what the withdrawal of government support will mean for future housing prices.
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 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 drop during the winter months and have large gains heading into spring. This year’s pending sales were strong going into March. Due to Covid-19, this strength faltered in April, with the full shutdown in place. The numbers fell to winter lows but rebounded nicely in May – only down 13.8% from the same period the year before. 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 2021, pending home sales are showing us that. Until the Federal government allows interest rates to rise, we will continue to see higher prices, even with the lockdown’s weak economy.
Inflation in the Las Vegas Housing Market
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 6% 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.
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 recently, 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. 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.
Here’s more information on the IMF Special Drawing Rights SDRs.
All of this fiat currency (government-issued currency unbacked by a commodity), over time 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, Monertist Theory has been replaced by Modern Monetary Theory. 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:
- Wait if you’re thinking of buying a home in Las Vegas as an investment.
- If you’re buying a home to live in, be prepared that you may be underwater on your purchase for a few years.
- Sell 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.
During these months of uncertainty, sellers can sell at all-time highs. It sounds crazy, but we are in a seller’s market. 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 in early 2022 causing more supply.
If interested in listing your property or for a home evaluation, please visit our selling your home page!