Las Vegas Real Estate: Why Now Really is the Best Time to Sell
I’ve read the complaints online over the years: A Realtor is always going to say it’s a great time to buy or sell. Sure, some of that statement has merit, I’ll agree. And I’m actually saying that today too, but for a much different reason. Let us look at what has been happening.
Las Vegas has experienced explosive appreciation over the last couple of years. Historically low inventory, cheap money fueled by the Fed, an influx of cash investors and rock bottom prices rallied this market. On the other hand median household income has not increased to account for such appreciation. Wages have not gone up, and while unemployment has gone down, we are still above the national average (currently under 5.9%). This phenomenon is not exclusive to Las Vegas of course, this is happening in cities all across the nation.
Inventory hasn’t increased much, although the median price for a home in Las Vegas has crept sideways the last couple of months. We still remain in a seller’s market, with the exception of micro markets inside the city.
Many signs point to a market that is cooling off, and when it’s said and done, I tend to believe valuations are a bit inflated. I also believe they are out of whack with basic economic principles, such as median household income, unemployment numbers and the types of jobs being created locally.
Historically speaking, the median home price in the U.S. is 2.5 times the median household income. Larger, more expensive cities have bucked this trend obviously, but as a general rule this is what we look for. The U.S. Department of Commerce shows the Las Vegas median household income hovering around $54,000 per year. On the other hand, the current median house price in Las Vegas is $200,000. This is roughly 4 times the median household income. I find it highly unlikely that incomes are going to play catch up over the next couple of years. A more plausible scenario is that home values correcting locally here in Las Vegas, and across the country.
Where does this leave buyers? This is a ALWAYS a household economics question. The value of a home may vary over time. It doesn’t always go up and it doesn’t always go down. Nothing is guaranteed when you purchase a place to live. And that is the key phrase “A place to live.” Financially, does it make more sense for you to buy or rent right now? Do you plan on moving anytime in the next five years? Can you purchase your home on a 15 year mortgage as means to gain equity quicker? Do you have enough in reserves? As a buyer, these are questions you should be asking first and foremost regardless of what may or may not happen to the market.
What about sellers here in Las Vegas? I talked to a gentleman last week who wanted to wait longer to lock in some more appreciation before he put his home on the market. I don’t think that is going to happen and I told him so. Likewise, by 2015-2016 I suspect the market profile here in Vegas will be an entirely different animal. Sellers had a great run with low inventory, cash investors and high demand. Today, we’re seeing less cash investors, and multiple offer scenarios aren’t nearly as common.
Home sellers sitting on the sidelines now, should understand this will not last indefinitely. It will probably continue to hold for a while, but eventually the Fed will raise rates and this story will wind down. Because of this, if you’re thinking about selling, 2014-2015 would probably be a wise idea.