The Nevada real estate market is no novice to change. From the impact of the Great Recession that resulted in an influx of foreclosures, to the effects of the COVID pandemic that are being felt throughout the country, the housing market in Nevada has proven to be resilient.
Currently, the Nevada market is experiencing a significant lack of supply in the face of overwhelming demand. As people from other states are moving to Nevada in record numbers, there just simply isn’t enough homes. This lack of inventory, paired with unavailable land to build on, rising interest rates and staggering inflation, is testing the Silver State once again and resulting in a shifting real estate market.
The Shift
The increase in property values is being felt in both northern and southern Nevada. According to a May 2022 market report from the Reno/Sparks Association of Realtors®, the median sales price for an existing single-family residence in northern Nevada in May 2022 was $615,000. This is a 23 percent increase from May of last year. Comparatively, The Las Vegas Association of Realtors® reports the median sales price to be $482,000 in southern Nevada for a single-family residence, which is an increase of 25.2 percent from 2021.
While homeowners have been steadily gaining equity the past few years, research suggests that the number of home sales is starting to decline. “Over the past few years, we’ve had an increase in prices and every month it has been record prices,” said Brandon Roberts, president of the Las Vegas Association of Realtors®. “In both ends of the state, sales are down compared to last year at this time. But keep in mind that we are coming off a record year of home sales. In 2021, the Las Vegas Association of Realtors® reported we had an all-time record of most existing homes sold in a single year, where we sold over 50,000 local properties. We are seeing an increase in housing supply, which is good. And we are shifting towards a buyer’s market, but we are still a long way from that. We have just over a month of supply. Whereas a healthy market is about a five to six month [supply] to shift into a buyer’s market, which would really drive prices down.”
Rising interest rates are also taking a toll on the market. “Right now, inventory is still low, but we are starting to see properties stay on the market a tad bit longer with interest rates rising,” said Sarah Scattini, president of the Reno Sparks Association of Realtors®. “The Feds raised the interest rates [recently making] the interest rate for a 30-year fixed rate was 5.78 percent (as of press time). It’s bringing the buying power down a little bit for buyers because of the affordability. It adds on about $450 dollars to $500 extra to their payment with the higher interest rates.”
The Challenges
Lack of inventory is presenting the most significant challenge for the Nevada housing market. “There is about a 5 million unit deficiency in our housing inventory in the United States,” said Dan Morgan, CEO of the Builder’s Association of Northern Nevada. “The demand has been off the charts. You’ve seen 20 to 25 percent price increases in the cost of newly constructed homes. At the same time, the home builders are seeing an equivalent price increase in materials and supplies. Whether it’s lumber, concrete, fixtures, appliances or labor costs, they have all increased. And given the inflationary times we are in, whether it’s the Fed and their monetary policies, there’s just a lot of things going on right now. But people want to live in Nevada. Companies want to relocate here, and it’s a chicken and egg [situation]. They come here and they bring employees, or they recruit employees from our pool. They all must have some place to live, or do they have some place to live before they can come here to go to work for the new companies? It really is a symbiotic chicken and egg relationship.”
Building more homes appears to be the most obvious solution for the lack of inventory in Nevada. However, despite the large amount of open land in both the northern and southern part of the state, there is a significant lack of developable land for builders. “Currently, the United States government owns 87 percent of Nevada, said Doug McIntyre, president of The Nevada Association of Realtors®. “At the rate Vegas is building, they are going to run out of available land to build on. In Reno, I think the number is three to four years. In Vegas, it’s five to seven years because the government owns all the land.”
Lack of available land is also driving up the land prices. “The land auctions are over a million dollars an acre now,” said Nat Hodgson, CEO of the Southern Nevada Homebuilder’s Association (SNHA). “Five years ago, you got a raw acre for about $300,000 an acre. That should tell you why the house prices are so much higher. You [need an] act of Congress to get a simple boundary increase.”
This presents a significant challenge for Nevadans, especially in light of the population growth Nevada is currently experiencing. “I think the pandemic added to [Nevada’s supply being reduced] because a lot of people on the coast of the United States made the decision that they didn’t want to live in highly dense urban areas,” said Morgan. “They started moving to areas like Reno and Las Vegas, Boise and Salt Lake and even to some degree, other markets in Idaho, Montana and Wyoming. All of a sudden, you create this demand, and housing appreciation has done so well for many years. Everybody had a lot of equity and the prices were lower here than they were in San Francisco. When you don’t have a good equilibrium or balance between supply and demand in almost any product, you get in the situation we are in now. And then when the federal government pumps so much money into the system, you get the inflationary state we’re in.”
Home builders are especially feeling the pressure of rising demand paired with unavailable land and inflation. “We can’t stop the demand,” said Hodgson. “The migration of people is still happening. I’m hoping that nobody overreacts, because then we are going to have a deficit of a huge shortage and that will bring another set of problems. I’m hoping everybody’s methodical on what they’re doing. Even if the buyers are lined up to buy dirt, I’m hoping that our builders have a reasonable percentage of speculative homes that they still put in the ground so that everybody can say, ‘Let’s wait to see what’s happening with interest rates [and] inflation. Let’s see what happens in the next few months.’ But they still need a home to live in, and we’re still under supply with apartments and houses. That’s not going to change. The population is growing. Californians are still moving here, and that’s not going to stop because as bad as our inflation is in pricing, California is worse.”
Rental Market
The COVID pandemic and the mass exodus of people from other states who are now calling Nevada home has had a significant impact on the rental market in Nevada.
“Rent [increases] have been in the double digits, especially in southern Nevada,” said Susy Vasquez, executive director of the Nevada State Apartment Association. “Northern Nevada was a little better insulated from the pandemic simply because they were heading into an 18-month period where there was going to be a bit of oversupply. We didn’t know how we were going to fill the units that were coming online in March of 2020. We knew that rents were going to probably start falling a bit or move-in specials were going to become really lucrative for people that were moving. But we didn’t see that because the entire Bay Area in Silicon Valley relocated to Reno-Sparks.”
The cost of homes is also affecting rental rates although they are expected to stabilize by the end of 2022.
“I think with mortgage rates increasing, it will slow movement for home buyers so they will stay in their rentals a lot longer, which will put more strain on the rental market because you won’t see rents increasing,” said Vasquez. “There is a possibility that kids graduating from college or wanting to get out on their own will venture into the housing market. And that’s where we’re going to see a crunch, because they are going to want to move out of their parents’ house. There might be a little bit of a pinch on the rental market until we see a little more stabilization in the home sales side of the world. And who knows whether the boomer generation will continue to migrate back to rentals because they’re tired of maintaining their home. But again, if people aren’t buying homes, then they’re more likely to stay put. I can tell you that movement will slow down and that will probably put a more significant crunch on the rental market because of it.”
The Million Dollar Question
There is no definitive answer when it comes to the future of the housing market in Nevada. It’s the million-dollar question that everyone wants answered. But research suggests that the market is shifting away from extremes and becoming more stable.
“We cannot sustain the growth we’ve seen over the past few years,” said Roberts. “I agree with most industry experts that we’re going to see a stabilization of pricing. I still think we are going to see an increase until we solve the inventory problem; we just don’t have enough homes. We need to get more homes built in our market and across the country. But I see more of a gradual healthier increase in pricing.”
For new home builds, prices are also expected to begin to stabilize, “[The future of the housing market] is still a crystal ball,” said Morgan. “I think that the new home market in Nevada, and northern Nevada in particular, is going to continue at a solid pace. A lot of people want to live in northern Nevada and continue to relocate to northern Nevada. From an economic development perspective, we still have good velocity of new companies moving here and their workforce needs places to live. There are some little hitches in the market and we are seeing that from a national economy standpoint. Obviously, interest rates going up and the Feds policy to ease inflation is going to affect the velocity of the absorption of the sale of homes.”
Hopeful Future
All eyes in Nevada are on the housing market. As more people migrant to both northern and southern Nevada, the challenges of the Silver State’s housing market have become pronounced. Yet, despite the significant obstacles including lack of land, rising interest rates, inflation and shifting market, the future of the Nevada housing market appears hopeful.
“Local and state governments are highly focused on housing right now,” said Vasquez. “Many solutions are beginning to come to fruition and that is in part due to lawmakers starting to put a higher focus on the housing issues that we have now. We didn’t get here overnight and it is going to take some time to correct, but all hands are on deck. It’s refreshing to see everyone at the table working together and making significant changes towards improving our housing situation across the state.”
