As the summer heats up and temperatures continue to rise; so are mortgage interest rates. As July wrapped up with very minimal changes to the interest rate environment to start the 3rd quarter, August has not seen such tranquility. Week to week, mortgage rates have continued to rise. Rates in the 3’s were great, 4’s were good, 5’s were nice, 6’s were reasonable but the current normal is heading to 7’s and 8’s. Is it too early to say that we may see rates as high as 9% or possibly in the double digits? Not at all.
Current mortgage rates are at the highest point that our country has experienced over the past 25 years, with no ceiling in sight. Mortgage applications have also continued to decline week over week, over the past 4 weeks. Less homes are becoming available on the market as inventory begins to stagnate. The urgency to find a new home before school begins has come to an end; thus, the summer sizzle of family relocations has also ended as families welcome their children back into their new school year.
Consumers are seeing little to no incentive to sell their homes and buy a new home. If a family sells their current home that they have a 4% interest rate on and buys a larger home at a 7% interest rate, even if they finance the SAME amount on their mortgage, they would be paying approximately $800 more monthly (based on a $400,000 loan). Realistically, in order to get a bigger and better home, the typical consumer would be financing a larger amount on their mortgage for a more expensive home. This is where the stagnation begins. Consumers are more willing to stay in a home simply due to the fact that they will not increase their financial overhead. This does not mean that there are no homes available and that no one is willing to buy.
With the growing cost incurred in owning a home, we also see that rents begin to rise across the board. The average rent has increased 2% in the Las Vegas valley in 2023 alone. The average 2 bedroom apartment median rent is currently around $1600 in Las Vegas. The rent increases between Fall 2020 through Spring of 2022 were between 25-40% (depending on region) and have stabilized at the higher rate. The median market rate, as of August 2023, on home rentals is hovering around $2000 within Las Vegas. This number is slightly lower than at this same time last year (approximately $150 lower than August of 2022). But remember, paying rent is the equivalent of paying 100% interest.
As of June of this year, Las Vegas home prices are down around 5.2% from last year while sitting at a median sales price of $412,000. On average, homes are receiving two offers and sell after being listed for around 38 days. Last June, these same homes were selling for more while only being on the market for 18 days on average. In June of 2022, 1,326 homes were sold whereas only 1,146 homes were sold this June. As many Americans look to relocate out of their current cities, 2% of the nation’s searches were for homes in Las Vegas. The number one location for Los Angelinos was also Las Vegas over other big cities such as San Francisco and Seattle.
The Las Vegas real estate market is one of the most dynamic and constantly changing markets in the U.S. A major factor contributing to the growth of the Las Vegas valley is the strong job market. There are many industries that drive the Las Vegas job market but the constant growth in gaming, entertainment and hospitality seem to be the major players for the Entertainment Capital of the World. With the growth of the city and the influx of more residents, the natural demand for homes also continues to grow, which in turn, also causes an increase in the value of homes. The state of Nevada is also a no income tax state which automatically provides a little more “bang for your buck” in the Silver State.
All in all, Las Vegas is still growing and will continue to grow. The rate of growth is slowing down but in reality, it does not feel that way. If you drive around town, regardless of the neighborhood, you will see new construction throughout the valley. Turn the corner, a new restaurant; drive 2 miles, new model homes; drive the strip, another casino breaking ground. With new attractions, such as the future Las Vegas A’s Major League Baseball team and the hosting of the Super Bowl and F1 Racing, the valley will continue to grow. Consumers will continue to need housing and rates are only one obstacle in the purchasing process. People will continue to buy, builders will continue to develop new neighborhoods and the Las Vegas Valley will continue to grow.
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