Low supply, high mortgage rates strangling Las Vegas real estate market

When interest rates bottomed out during the pandemic, many people took the opportunity to get into the housing market and access historically low mortgage payments, said Shay Stein, a Las Vegas real estate agent with Redfin, but now the average rate for a 30-year fixed mortgage is back above 7 percent, the first time since December.

Even before the pandemic hit in early 2020, mortgage rates were dropping. Rates initially started dropping in 2018, from around an eight-year high of just under 5 percent. They fell below 3 percent for the first time during the pandemic and did not get back up to 5 percent until April 2022.

Stein said this fueled a buying frenzy, but also brought us to the current reality facing the residential real estate space.

“The interest rates affect home sellers’ decision to sell as well which has many of them locked into a home that may not fully suit their needs anymore, but it’s cost-prohibitive to try to sell a home with a 3.5 percent rate to move into a home, even less expensive, at a 7 percent rate,” she said. “Barring the constant life changes that require buying and selling, ancillary reasons for listing or buying are largely tethered to rates right now.”

The Las Vegas Valley has seen a dramatic drop, 34 percent, in home listings from January 2023 to January of this year, according to Multiple Listing Service data. But the average home price in the valley increased $20,000 during the same time frame to $445,000.

Home sales in the valley hit record highs in 2021 during the pandemic, when more than 50,000 units were sold. That number dropped to around 35,000 in 2022 and just under 30,000 last year, which was the worst year for sales in the valley since 2008.

Tim Kelly Kiernan, branch manager of Realty One Group’s Summerlin office, said this appears to be the new reality not only for valley real estate but across the nation. He said real estate agents are having to be “patient” in helping buyers and sellers navigate the market right now.

“I think today we had around 3,500 single-family homes listed on the MLS and around last January we had about 5,400,” he said. “And so that is a dramatic decrease in homes that are available. And inventory is low but prices have increased a little bit, so it’s kind of an odd dichotomy.”

Kiernan said the sentiment locally among real estate agents is that a new reality has sunk in, and the industry must adapt and wait until rates begin to drop.

“You know joking around when I talk to other Realtors, we say everything is in half right now, half the amount of listings, half amount of closing, everything is about 40 to 50 percent less than what it used to be.”

The Federal Reserve has a widely publicized goal of bringing inflation down to 2 percent, and with inflation still around 3 percent, many analysts think expected rate cuts this year might be pushed back. Fed Chair Jerome Powell recently said that a March cut in interest rates, currently at 5.25 to 5.5 percent now looks unlikely. This has spooked some markets as worries of a full blown recession still linger large over the U.S. economy.

Matt Hennessy, a Las Vegas-based mortgage adviser said the Fed had forecasted several rate cuts in December that were slated to start early 2024, which kicked off a chain reaction.

“On that news, mortgage rates trended lower to the mid-6 percent range,” he said. “As a result the markets overreacted and fellow Fed members walked back the bullish tone of rate cuts were imminent. Over the past few months mortgage rates have again trended higher after several surprise economic reports indicated the economy was resilient and it was unlikely the Fed was going to cut rates until mid-2024.”

Redfin noted in its latest market report this is also the national story when it comes to residential real estate, high interest rates continue to have a stranglehold on the home sales market, pinching supply.

“Many buyers are still sitting on the sidelines. Mortgage-purchase applications dropped 10 percent from a week earlier as daily average mortgage rates surpassed 7 percent for the first time since mid-December, and pending home sales are down 7 percent year over year, similar to the declines seen since mid-January.”

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.