May 19, 2021

May 19, 2021

Will the Housing Market Crash in Las Vegas?

With how the housing market is currently looking, is a crash inevitable? Let's look at the facts.

The housing market has been blazing hot for months now. In fact, Redfin reports that the median home prices are up by 20%, with properties selling within a few days or weeks of hitting the market. Plus, buyers are willing to pay 10-20% more than the asking price, with many of them offering to pay in cash.

Las Vegas’ housing market is no different. Homes are selling at a hyper speed, sellers are fielding multiple offers at a time, buyers are getting more competitive, and builders are holding lotteries in their selection process.

Home buyers and the general market fear that we're headed for another Great Recession. This period of real estate crash saw properties remaining offer-less for months, a rise in foreclosures, abandoned construction sites, and a stagnant industry as a whole.

But are we really headed in that direction?

The short and promising answer is this: A crash is highly unlikely to happen in the near future. While it does show some resemblance to the events of the Great Recession, there are particular factors that show we’re heading down a different path.

Let’s dive into what the industry experts are saying.

Las Vegas Real Estate and a Potential Housing Marketing Crash

In discussing a potential housing market crash, there are a number of factors we want to look at.

Factor 1: Low Inventory

The 2007 real estate crash was largely driven by poor lending practices and unqualified buyers. Back then, individuals who couldn’t actually afford to purchase a house were empowered to do so, at least in the short-term, because of loose regulations.

Today, the market is experiencing low inventory of properties for sale and high market demand, which in turn are driving the sky-high prices and causing the market to heat up. On one hand, owners are hesitant to bring potential buyers into their homes amid the pandemic. On the other, builders are still constructing properties and unable to keep up with the demand.

Fortunately, with the increasing vaccination rates throughout the country, owners are more likely to feel comfortable listing their homes and having people come in for inspections. This change is expected to bring in more options for homebuyers, minimize the bidding wars and extreme competition, reducing the demand, and ultimately balancing out the market.

Factor 2: Low Interest Rates

The existing interest rates, consistently lowered by the Federal Reserve during the height of the economic downturn, also play a significant role in today’s housing market conditions. With all-time low rates, more people are encouraged to enter the market.

Moreover, the governing body is most unlikely to adjust their strategy for the interest rates anytime soon. As such, demand will remain strong with buyers continuously shopping for great home deals, leading to no market crash.

Factor 3: Demographic and Lifestyle Changes of Homebuyers

A report released by the National Association of Realtors notes that the current median age of first-time homebuyers has dropped to 33-years old. This shows that more millennials are taking advantage of the low rates to start homeownership early.

Similarly, buyers today are better prepared to financially handle the competitive housing market. Amid the global crisis, the average credit score of the country has gone up to 710. In part, this indicates that Americans are generally ready to shell out large down payments and start out with higher home equity while enjoying affordable monthly rates.

In addition, with home equity increasing as prices rise, owners have an incentive to stay longer in their current homes. For some, high equity provides better cushion from default when property values fall. Others, particularly the move-up buyers, are leveraging on the equity they’ve gained to upgrade their homes as work-from-home is becoming a norm.

man working from home on laptop

Factor 4: Tightened Lending Practices

Loose mortgage lending practices is the biggest culprit in the housing market crash of the early 2000s. Back then, just about anyone could purchase a property. That fallout caused the government to adjust and regulate the policies. And since then, the standards have been raised.

Today, lenders are strict when qualifying buyers and require proof of financial capability to pay for the property now and in the future. Appraisal laws have been tightened, borrowers go through asset and income checks, non-compliant lenders face severe penalties, and buyers have become somewhat cautious.

As a result, there are fewer risky mortgages and the housing market is better protected by the tightened regulations – making a crash less likely to happen.

Factor 5: Forbearance Programs

According to the Federal Reserve, foreclosures during a period of crisis and high unemployment could dampen property prices and negatively impact homeowners’ equity. However, with the forbearance programs, homeowners have been permitted to postpone their monthly mortgage payments if needed without acquiring penalties.

With the economy slowly recovering, people are resuming working and those in forbearance plans are able to settle their home payments. In effect, mortgage delinquencies and past due payments have declined significantly.

What is More Likely to Happen, Then?

Anything can impact the housing market. But to date, there is no evidence that proves that a crash is going to happen any time soon. While the price appreciation and growing demand are not sustainable, experts note that the worst that could happen is a sharp drop or correction. Essentially, when bids drop, sellers will be prompted to adapt and lower their prices.

Still, other industry experts believe that if, for some reason, lending standards become loose again, that’s when a crash is most likely to occur. But again, people – both buyers and sellers – have overwhelmingly learned their lessons from that period.

Ultimately, no one can predict what will really happen in the housing market. Real estate experts are certain that a market dip is likely to occur, but not a crash like what we’ve previously experienced. Still, it’s vital to stay up to date with market trends and expert insights before making plans.

If you’re looking to buy or sell your home at this time, it’s best to first consult with industry experts who can guide you on the next best move. That’s where our team at The Brendan King Group comes is. Contact us today to learn more.