Real estate investors, who were a driving force behind our real estate recovery, have been pulling back from the market. The main reason? Deals are shrinking up and return on investment (ROI) is more difficult to realize these days here in Las Vegas. This is not surprising given our strong appreciation over the last few years both nationally and locally.
When you look back at 2009, you’ll see that one third of the houses for sale nationwide were foreclosures. At the same time 25% of the buyers were also investors. Individual investors as well as hedge fund backed corporations purchased homes on the cheap and rented them out. (I did numerous deals during that time period, which represented both groups-some with one another.) Near the end of last year the National Association of Realtors reported that investors now make up less than one fifth of buyers. Turning a profit has become more difficult and subsequently investors have become much pickier.
Cash buyers here in Vegas have also dropped down to roughly 20% of the market, down from their peak of nearly 59% of market share!
Generally, investors have gravitated towards single family homes and condos under $200,000. Often times this squeezed out the first time home buyer who couldn't compete with all cash transactions. With the investor pool leaning down, is this good news then for first time home buyers? Well it depends on how you look at it.
Nationwide housing is still up from last year. Similarly Las Vegas is also up 12% year-over-year when compared to 2014. At the same time mortgage rates are inching up and the Federal Reserve has said they will be raising rates soon (Although they’ve been hinting at this for years.) While this will have little effect on cash investors, it may make it more difficult for the average family to afford a home.
Some economists have argued that homes are a bargain when compared to the bubble era. I don't think that is a realistic comparison however, since prices were completely outside of anything I'd deem normal back then. I base affordability on a variety of factors, such as median household income, employment opportunities and local economic factors.
Investors obviously, are different than your everyday-garden-variety home buyer. They are in the market to make money, while you're in the market to find a place to call home. (IE, a place to live, possibly raise a family and build memories.) For the majority of people, a home is not an investment. Emotionally speaking it is an asset perhaps, but unless it is providing cash flow, it's simply a tax deductible place to live.
With investors pulling back and the median home price for Las Vegas holding steady over the year, 2015 and 2016 will hopefully provide a more level playing field for first time home buyers.