May 2022
Well, it’s finally happened. Our local real estate market is showing some signs of leveling off. Don’t get me wrong, this is still a very strong seller’s market. However, for the first time in a couple of years we’re seeing our active inventory build in a meaningful way. Most of us believe that the acute shortage of available homes has been a key factor in the big price run-up of the past 24 months. The simple fact that there’s more to choose from always leads to an overall slowing of the “pace” of the market.
The logically ensuing discussions revolve around the odds of prices dropping this year, or as some say, the potential for a real estate bubble. I don’t think Northern Nevada is a good candidate for either of those scenarios; here are a few reasons why I feel that way.
• We’re still seeing a lot of “cash”: Going back to the first of this year, the percentage of “all-cash” transactions has remained steady at around 25%. One might think this trend would be isolated to lower priced homes and their investor buyers but the 25% number is actually pretty consistent across all price ranges.
• Our feeder markets and their reasons for moving are still robust: As has always been the case, Nevada attracts California residents with our forgiving tax structure and easy access to the great outdoors. Regardless of the rapid appreciation locally, most of the California home prices have grown similarly and we still seem relatively affordable in their eyes.
• What the experts are saying: Fannie Mae, Freddie Mac and aggregators such as Zillow have revised their forecasts downward, but all are still projecting an upward trend in prices through the end of the year, albeit at a slower rate than the recent past.
That said, what risks might we face? Rising interest rates tend to hit the lower end of the market hardest. A $500,000 mortgage will cost the homeowner almost $600 per month more than they would have paid just a couple of months ago. Fortunately, or unfortunately for some, there seems to be enough investor traffic to pick up the slack in that market segment.
Still smarting from the Great Recession, most builders remain very concerned over holding too much finished product and likely are cutting back a bit now. That won’t help us longer-term with any ongoing inventory shortage.
In my mind the biggest threat to our real estate values lies in the stock market and the potential for a recession. Steep drops in stock market values tend to affect our luxury market more acutely than other price points. A slowing of sales in the $1,500,000 plus range will drive the overall median price calculation down a bit, giving the appearance that all prices are dropping. Should we stumble into a recession, all bets are off but who’s to say what the long term effect of that will be. If you had told me 25 months ago that we’d soon be experiencing the greatest home price appreciation rates in history during a pandemic, I would have thought you were crazy.