If you aren’t aware, most of the U.S. is seeing a sharp rise in the cost to buy a home, and in many cities, buyer’s find themselves in one bidding war after another until they finally win (or give up). Some have commented to me that it is reminiscent of 2006… so is a housing crash around the corner? Now I don’t have a crystal ball, but…
I say unlikely.
Now let me explain my answer.
I’ll speak specifically about the Las Vegas housing market, because I know it intimately, however from what I have gleaned from professionals I know around the country, what is happening in Las Vegas seems to be true in most cities in the U.S.
In 2006, home builders were building as fast as they could in Las Vegas, with a sort of “Field of Dreams” mentality that “if you build it, they will come”, and the buyers bought… (until they didn’t anymore). When the Las Vegas market screeched to a halt, there were roughly 50,000 completed vacant residential units (single family homes and condos) with no buyer, and thousands more in some state of incomplete. To put that in perspective for you, (not counting 2005, when the most units were sold in Las Vegas) approximately 3,000-5,000 units sell in our valley each month on average – literally 3,708 in the past 30 days. In economics we learn that when the supply goes way up – even if the demand does not change, then more sellers are competing for the same number of buyers, so most of them begin to lower their prices… and they lowered them and lowered them.
Additionally, in 2006, you also had money that was super easy to borrow, so very few buyers had any “skin in the game” when they bought a property. In 2006, you could buy a $300,000 house with zero down payment and zero proof of income… in fact, just before the crash, there were loans that let you buy a house and actually walk away with cash in your pocket!
So, when the number for sale properties went up sharply, and sellers were dropping their prices to attract the buyers, the owners that had recently purchased with no down payment, saw the prices of their properties begin to go down. Those people had no down payment to lose… so they just walked away from their new homes, leaving them to be foreclosed on, and add more units for sale to an already over-supplied market. Then prices dropped more and more units went up for sale and priced dropped more and (well, you get the idea).
Builders stopped building almost completely (a few were built here and there) until around 2012, when the inventory finally dried up and houses started to go up in value again. Between 2006 and 2012 a lot of people also consolidated households out of need. The economy was bad so people shared homes with parents, friends or whoever they could to keep expenses down… causing there to be very little need for new homes anyway.
Around 2011, a ton of cash began flowing into the Las Vegas real estate market and in 2012, close to half of the houses purchased in our valley were paid for all in cash by investors scooping up bargains. Many of them had seen the writing on the wall in 2005 and sold their assets and putting their cash “on the sidelines” to wait for this. Wall Street got involved too and hedge funds like Blackstone started buying properties to rent out. Since 2012, close to 1/3 of the houses in the valley have been purchased with all cash, and now, (unless you are a veteran of the armed forces), you pretty much have to have at least a small down payment to buy a house… plus, builders, who learned their lessons, are only building if you give them a down payment, and even if they wanted to build them faster than they could sell them, according to a Wall Street Journal article this past April, we also have too few home builders in the US.
So, with the economy recovered (pre-Covid), combined households, began to realize they wanted their own space, so builders began to build again. But remember, for 6 years, our population grew at a normal rate, but the number of new houses built, stagnated significantly. So now we have a lot of people wanting to own a home, but not enough homes to own.
Then came Covid… along with a moratorium on evictions and foreclosures. Sure there were plenty of people out of work, but believe it or not, there were a fair number of essential workers who had good income and wanted to own their own place, but there were very few for sale because many people who may have thought about selling, just didn’t want a stranger in their house, so they waited… and you did not have people “forced out”, so those did not come on the market.
[January, 2020, just before Covid hit in the Las Vegas valley, saw 23% more homes sold than January 2019 with 23% less homes on the market, and this has actually got worse since then. January 2021 saw 28% more homes sold than the year before and 40% less homes on the market.]
According to a Wall Street Journal article this past June, the U.S has 5.5 million too few homes, currently, and I read another that says if we double the number of homes built from last year, and kept that pace, it would take until 2050 to catch up based on current demand and estimated population growth.
Wow that’s a lot of information and if you didn’t follow it too well, I’m not surprised, so I will sum it up. We need a lot more houses in this country than we currently have (make that a lot more than a lot… actually a lot more than that), so it is highly unlikely based on the laws of supply and demand that the Las Vegas or U.S. housing market is going to crash anytime soon. Individual small markets could certainly be an exception here and there, however that is the overall outlook.
Do you have a need for commercial / industrial / retail buildings or land? Are you ready to buy or sell a home? Do you want 3 cash offers? We can help you with all of that… just call us at 702 SELL NOW or click on this link to my website http://www.702SellNow.com
Choose to have an amazing day… Jeff