Despite the uncertainty of the past year, one industry has seen a steady positive increase. In February, house prices in Las Vegas hit record highs. Stunning experts, the housing market has been described in recent months as, “weird.” With house prices going up and rent prices going down, that’s an apt description. So what’s happening, and why is it a seller’s market in Vegas?
House Prices in Vegas Going Up
Due to economic instability, fewer homes are available for sale. As a result, with low supply, demand has increased and house prices have followed. People looking to sell right now are at a distinct advantage. KLAS explains, “LVR reports a total of 3,489 existing local homes, condos and townhomes were sold last month. Compared to the same time last year, February sales were up 12.0% for homes and up 16.8% for condos and townhomes.
Since the pandemic started last year, LVR says the local housing market has been more in line with national trends, with a shortage of homes available for sale and historically low mortgage interest rates contributing to increasing sales and record prices.
Despite the coronavirus crisis and economic downturn, LVR notes the number of ‘distressed sales’ remains near historically low levels. Short sales and foreclosures combined accounted for just 0.6% of all existing local property sales in February. That compares to 2.5% of all sales one year ago, 2.6% two years ago, 3.8% three years ago and 10.6% four years ago.”
What this means is that more people are competing for fewer options, giving sellers a lot of leeway to move their prices. While long-term low supply can be destabilizing, a seller’s market can stimulate local growth.
With House Prices Going Up and Rent Prices Going Down Across Country, What’s Happening?
One odd hallmark of the late 2020, early 2021 housing market is that while house prices are going up, rent prices are going down. Usually the two fluctuate relatively in sync. The Atlanticreports, “In almost any other year, a weak economy would cripple housing. But the flash-freeze recession of 2020 corresponded with a real-estate boom, led by high-end purchases in suburbs and small towns. Even stranger, in America’s big metros, home prices and rents are going in opposite directions. Home values increased in all of the 100 largest metros in the U.S., according to Zillow data. But in some of the richest cities—San Jose; Seattle; New York; Boston; Austin; San Francisco; Washington, D.C.; Los Angeles; and Chicago—rent prices fell, many by double-digit percentages. In many cases, the gap was absurdly large. In San Jose last year, home prices rose by 14 percent (the sixth-largest increase in the country) but the area’s rents fell 7 percent (the sixth-largest decline).”
Some experts point to low supply and plummeting interests rates as reasons why there’s such an increase in house prices, but those do not explain the disparity in rent. The Atlantic continues, “Understanding this divergence begins with understanding the broader divergence of our ‘K-shaped’ economy, in which the K represents the forking fortunes of the rich and poor during the pandemic. While many hourly workers in restaurants and physical stores have been hit hard by lost wages and unemployment, millions of knowledge workers in white-collar industries such as tech and finance rode out the pandemic by staying (and staying, and staying) at home. They relieved their cabin fever with a heavy dose of online real-estate shopping.”
Wealthy potential buyers accelerated their home-buying plans, while low income families have been forced into tough decisions. Whereas wealthy families are buying new homes, families with fewer resources are moving in together and relying on family for house in many cases, opening up a surplus on the supply side of rental properties. Per The Atlantic, “Many young college graduates have waited out the pandemic at a parent’s house. And transient residents with the option to decamp temporarily to the suburbs have done so. It’s all there in the U-Haul data: Arrivals to New York fell 35 percent last year, according to the company, and no state saw more net emigration than California.
All of this has crushed demand for rented apartments in cities. But something else has accentuated this historic divergence between downtown rents and suburban housing prices: the quirky habits of the Millennial generation.”
Millenials with financial means have been opting to move out of their pricey and status-earning uptown digs and into more spacious, less expensive suburban and rural homes. Whereas Millenials struggled to move from the suburbs and into the city because the Boomer generation had firmly entrenched themselves uptown as a symbol of status, they are paving the way for an odd reversal of fortunes for the next generation. With Millenials intentionally downgrading to keep more cash in their pockets, uptown vacancies arise for Gen Z, some of whom are of age and poised to take advantage of the in-town spots being left by their older siblings and parents. By the time the last of Gen Z has come of age, the housing economy will likely have stabilized and they will be greatly advantaged in their ability to pick between multiple options with reasonable rent, an option denied their older peers who came of age in the Great Recession.
Will the Seller’s Market Continue?
NAR Chief Economist Lawrence Yun spoke with Washington Post about predictions on what’s to come with the housing market. “‘The Biden presidency could bring several impactful changes to the housing market,’ Yun said. ‘The home buyer tax credit he proposed as a candidate would help Americans cover their down payment costs and is likely firmer assurance of government guarantees to mortgages backed by Fannie Mae and Freddie Mac. In addition, new appointees at the Federal Reserve are likely to pursue an expansionary monetary policy for a longer period, which should keep interest rates stable over the next few years.’”
The downside of a seller’s market means that housing affordability is down for buyers. However, the housing bubble is driving wealth in unexpected places and keeping at least one industry in a healthy boom as others struggle. As long as the topsy-turvy conditions of the pandemic continue, house prices will likely remain high in urban centers across the country. Eventually, the housing market should self-stabilize itself. Whether it will return to pre-pandemic conditions or stay high remains to be seen. But it certainly has been a weird year.