Whether you’re on the hunt for the perfect Las Vegas property, are thinking of listing your land for sale in Las Vegas, or are simply curious about the real estate market in general, there’s one question that’s on everyone’s mind right now: Are we headed for another recession? While there’s no question that things have turned around since the 2008 housing crash, we know that the real estate market is a cyclical one—and we’re currently seeing some signs of a shift. So does history really repeat itself? Read on for our then-and-now analysis of a handful of telling market indicators.
- Rising Interest Rates:
- Then: Beginning in June 2004, the Fed started rising its benchmark interest rate. By the time housing sales had peaked before the 2008 crash, the rate had risen 9 times. Long-term interest rates eventually responded to the Federal rate and rose dramatically.
- Now: The Fed began raising interest rates again in December of 2015 (after a rate that was at a near-zero as a result of the ‘08 crash)—and, since then, has raised the rate seven more times. Long-term interest rates, like the 30-year-fixed mortgage, are rising in response to the increasing federal interest rate.
- Unaffordability of New Homes:
- Then: Before the 2008 crash, we saw builders raising home prices aggressively to capture better margins. But this strategy—combined with rising mortgage rates—eventually meant housing became unaffordable for the everyday buyer.
- Now: As of November 2018, housing affordability had increased from the month prior but decreased from a year ago. While all four national regions saw a decline in affordability from one year prior, the West Coast in particular saw some telling numbers—home prices saw a larger increase than those in any other region, and the West Coast currently has the highest house-payment-as-a-percentage-of-income rate. Locally, Clark County has an affordability that’s lower than the national average—and home prices in Las Vegas have increased more so than in most other big cities. That being said, entry-level homes are more affordable and still seeing strong demand—the affordability issue is mainly with move-up housing.
- Investors Stop Buying New Homes:
- Then: Before the 2008 crash, investors were buying homes in bulk at an incredibly fast rate, with the sole purpose of flipping them and earning solid margins off the sale. Once it became clear to investors, however, that new-home sales were slowing down as a result of unaffordability, they stopped buying new homes all together and cancelled homes in their backlog.
- Now: We’re seeing more investors buying homes to rent out as opposed to buying homes for the purpose of immediately flipping them. This means developers are practicing a bit of patience instead of going for the immediate satisfaction of the buy-and-sell-for-more model.
- Slowing of Sales Pace:
- Then: With investors no longer buying new homes—and the everyday buyer no longer able to afford new homes on the market—builders saw an inevitable slow in sales. But because they’d planned for and expected a high demand, they were forced to continue opening new communities and releasing the inventory they were holding. This led to an excess in supply at a time when demand was reaching an all-time low—ultimately creating the perfect recipe for a housing crash.
- Now: As of September 2018, home sales had fallen for the sixth straight month, resulting in the lowest sales pace since November of 2015. A slowing sales pace eventually leads to an excess in supply.
- Decline in Developer Stocks:
- Then: Builder stocks began falling in the fall of 2005, after their peak in July 2005. Builders then bought back shares to defend their stocks—which helped to settle the market for the time being and eventually led to stocks hitting another high. But that was the last high of the cycle: stocks soon took a sharp decline that began in the fall of 2006 and lasted for the next five years.
- Now: From their peak on January 22, 2018, we saw stocks fall again by February 2018. While they’ve so far bounced back, this might not last if mortgage rates continue to rise and affordability continues to decline.
Overall, there are some clear parallels between where we’re at in the current cycle and what we saw happening in the last cycle. But that doesn’t necessarily mean we’re headed for a crash of the same magnitude. Recessions are an inevitable part of the market cycle, but keeping an eye on trends and indicators is a proactive way to ensure you’re empowered with the industry information you need before you list your land for sale in Las Vegas or purchase Las Vegas property.
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