State of the Real Estate Market Update July 21
Hey, Jordan Dove here.. I wanted to thank you for supporting my business. Because of you, we have been able to grow year-over-year, helping hundreds of people, families, service members, and more, and I am extremely grateful for your support. I believe real estate is the number one key for generational wealth, and can be passed down to heirs tax free – without probate – through a trust.
As your real estate professional, I want to give you an update on what is going on in our local Southern Nevada real estate market. The market is shifting, and it’s shifting fast.🏡🚀
It’s actually shifting faster towards a buyers market than any point in recorded united states real estate history, and I’ve had conversations with people who have been in the business for decades – and they concur.
One of the biggest reasons why we had an absolute boom, with home prices appreciating at unprecedented numbers was due to the extremely low inventory and low interest rates or cheap money, which created a bidding frenzy. One of the biggest factors in that price appreciation was wall street hedge funds, private equity & foreign investment syndicates.
Up until the overnight mortgage rate hike that essentially doubled mortgage rates happened in June,, hedgies were purchasing single family residential homes up to $500,000, in cash, and paying higher than comparable sales.. This essential “set the market” and traditional buyers were competing against these buyers and these recorded sales.
Blackstone ALONE had a $20 BILLION DOLLAR real estate fund which drove this last boom. But guess what, they just raised ANOTHER $30 BILLION DOLAR FUND, and they will be holding onto this to create another crazy cycle one the dust settles, rates come back down, and they will take an even larger market share and turn those into rentals. Wall Street owns 25% of all apartments and 15% of all residential real estate. Their goal is to monopolize residential real estate, push out first time homebuyers so they are renters forever – eliminating the opportunity to build wealth – and play residential real estate like a stock market. Up 20%, down 20% then pump it back up again, which they will do after this next price correction. The good news is, we know what their game-plan is and we can adapt accordingly.
Fast forward to about a month ago, and the hedgies with virtually unlimited funds changed their buying parameters to up to $400,000 purchase price of single family homes.
As the rates went up, that $482,000 median price became unaffordable for most Buyers.
For example, a $500,000 purchase price with 5% down at today’s rate of 5.75% is an estimated monthly payment of Principle, Interest, Taxes, insurance and private mortgage insurance is just north of $3,500 per month.
For context, at a 3% interest rate, that payment is just north of $2,700, a difference of $800 per month on the same priced home.
So with the hedge funds in a price discovery mode, changing their buying parameters, and with home sellers using those sold homes as comparables – when rates were much lower and affordable – this is causing massive price reductions across active listings.
The month of June saw a slight decline in the median price after the record setting month of May. The median price dropped $2,000 in June to $480,000. Albeit very modest, we are waiting for the July numbers to come out because we will see a better trend of where the market is heading.
Not to mention that the United States GDP has two consecutive quarters of negative growth, inverted yield curves – meaning the 2 year treasury bond yield is HIGHER than the 10 year bond yield, are signs we are currently in and have been in a recession. It is my belief that things are going to get rocky for a bit.
But don’t worry, there are some things you can do the prepare for this changing environment:
#1) If you are considering selling your home – DO NOT WAIT. I believe we will continue to see price reductions in the LAs Vegas market and a lowering median price. It is my opinion that interest rates will continue to rise, as the Fed is expected to hike rates another 75 basis points next week. We are at extremely high levels of home prices, and many homeowners are sitting on a ton of equity – which is the majority of wealth for Americans. Now, Homes are sitting on the market longer and those days of multiple offers and homes selling in a day or two are gone. We are moving back to a more normal market. We have had clients cash out and sit on the side lines by renting for a year or two to see where things go. We have also had clients cash out and downsize or upsize, and using the proceed to Buy down rates.
#2) If you are considering Buying – there are going to be many opportunities. I am advising my clients to. Begin asking for concessions from Sellers – who are now becoming more motivated to sell their properties and learning that the greatest sellers market in history is over. One strategy that can be implanted is a Seller Buy Back – in which I can negotiate several thousands or even tens of thousands of dollars for you to use to buy down your interest rate to make payments more affordable, and/or use that for closing costs.
To piggy back on that a bit, I want to explain something.. Experts are predicting a more normal appreciation of homes in the low to mid single digits. The average price appreciation of a home is 3-5% per year, and they are expecting to see those levels return very quickly.
#3) If you are falling behind on payments or know somebody who is struggling to meet ends meet, the good news is … unlike 2008, many homeowners now have much more skin in the game and equity. You can sell your home on the open market and in most cases be able to walk away with much more money than you could in a short-sale or foreclosure sale. I would not recommend not paying your mortgage for a year or so and trying to quote live for free unquote but rather cash out your equity so you can get ahead financially.
Remember, you only lose if you sell your property at a loss. You have to live somewhere, and if you stay in your home long term, historically, real estate has ALWAYS appreciated over the long term.
Here is an example of how purchasing at a higher price with lower rates results in a lower payment versus purchasing at a lower price with higher rates, and why basing your decisions off of payment is better than making the decisions based on price:
Let’s take the median price of a home of June at $480,000 — The average homeowner puts 5% down conventional financing – With a Seller buy back, let’s say you are able to buy down you rate to 3.5% at no cost to YOU – this results in a payment of approximately $2,783 including PITI and PMI. If you put 20% down or have at least 20% equity in your home, you can get rid of your private mortgage insurance, which would save you between two and three hundred dollars per month.
Now, if we take that same price of $480,000, and let’s say there is a 10% market correction, bringing the price of the home down to $432,000, but with higher interest rates, and I believe they will be steady in the 6s soon, so let’s say 6 and a quarter, that payment is almost $3,200, a difference of $400 per month. If prices do correct just 10%, which is HALF of what they appreciated in 2021 alone, sellers will NOT be offering large concessions, you can see how purchasing at a higher price is a better result in terms of monthly payment.
So if you plan on staying in the property for several years, that may be a better option for you. It’s better to look at monthly payments LONG TERM versus price of home.
So there are a few options:
If you are comfortable with where you are at, in terms of payments, and are not looking to cash out your equity, that is great. Stay put. I believe there is going to be some opportunities on the horizon, so I’d recommend to keep that credit clean, minimize debt, live a bit more frugally through this recession and look for some opportunities in the future. You want to keep your powder dry because you will not want to miss out on these opportunities.
If you are looking to cash out your equity and sit on the sidelines, do not wait, because it’s going to get very difficult to sell properties at these levels very soon, and the price levels have already decreased. The peak of this cycle was May.
If you’re looking to cash out and upsize or downsize, there are many more opportunities then there were just a couple of months ago, and we can negotiate with the Seller to buy down your interest rates.
This is not a time to panic.. Once inflations starts to come down, and that could be in months, that could be in a year, we don’t know, but once inflation does start to come down, we will see rates start to come down.. And if the market does correct, and rates do come down where homes are much more affordable in terms of monthly payments, that will be the time to take advantage of the opportunities, and I will make sure you are informed.
I sent out a Monday Market Pulse e-mail to all of my clients, so I hope you receive it. You can also signup for the substack newsletter at jordandove.substack.com
If I can be of help to you or anybody who might be in the market to make a move soon, please send me their contact information. Your referrals are greatly appreciated.
If you have any questions for me, you can call me, text me, e-mail me, whatever. I will do my very best to respond as promptly as possible, and if there is something I do not know, I will find somebody who can get that answer for you.
Take care & be well.
