During the first half of 2023, Las Vegas has seen a noteworthy shift in its real estate market. Home prices are dipping, a change that has potential buyers sitting up and taking notice. With median home prices trending lower and fewer homes selling above their listing price, the market in Las Vegas is becoming more balanced. 

This shift is making it a potentially opportune time for prospective home buyers to consider making their move. But there is a catch; while prices may be stabilizing, interest rates are considerably higher than they were a couple of years ago.

So, how does one navigate this mixed bag of circumstances? The strategy could be surprisingly straightforward: buy now, and refinance later. Despite the higher interest rates in the short term, there may be an opportunity to capitalize on the current price dip. 

The Current State of the Las Vegas Market

Here are some of the most recent trends in the Las Vegas real estate market as reported by NASDAQ. As of May 2023, the median sales price for a single-family home was $495,000, down 5.71% from a year ago. Furthermore, the S&P/Case-Shiller NV-Las Vegas Home Price Index reported a price index of 270.45 in April 2023, down a significant 6.78% from the previous year.

But it is not just about lower prices. The dynamics of the market are changing in other significant ways as well. Take for instance the percentage of listings experiencing a price drop. 23.3% of listings had a price drop in May 2023, indicating that more sellers are reducing their initial asking prices. This reflects a shifting market and gives potential buyers an upper hand during negotiations.

Another factor adding to the strength of the buyer’s position is the reduced number of homes selling above their listing price. Just 26.5% of homes sold above list price in May 2023, a substantial 32.7% year-over-year decrease from a peak of 58.7% in April 2022. This is indicative of a more balanced market, which benefits both buyers and sellers.

It is also worth noting that active listings in the Las Vegas-Henderson-Paradise metropolitan statistical area are remaining on the market for longer durations. The median days on the market in May 2023 was 46 days, nearly double the post-pandemic low of 23 days in April and May 2022. This increase in the time homes are listed before selling further suggests a shift from a seller’s market to a more neutral one.

What all this adds up to is a housing market that is increasingly favorable for buyers. The confluence of dropping home prices, less competition from other buyers, and longer listing durations provide a promising opportunity for those considering purchasing a home in Las Vegas.

Why It May Be a Good Time to Buy into the Las Vegas Market

Investing in real estate always involves timing, and the current market situation in Las Vegas seems to be creating an opportune moment for potential buyers. One of the key factors that play into this is the current drop in buyer demand.

As we touched on earlier, the decrease in demand is significant as it contributes to a more balanced, less stressful market. Gone (for now anyway) are the days of countless bidding wars, hasty decisions, and the rush to secure a home before another buyer steps in. Instead, potential homeowners now have the luxury of a little more time to think about what they want.

The lower competition also changes the dynamics of negotiation. Sellers, seeing their homes remain on the market for longer periods, may be more open to negotiation and willing to accept offers below their initial asking price. This development not only opens the door to better deals but also shifts some control back to the buyers.

In the less competitive market, buyers can take more time to thoroughly assess their options, carefully consider their choices, and negotiate from a more neutral position or even from a position of strength. 

Strategies to Overcome Higher Interest Rates 

High interest rates are often seen as a deterrent for potential homebuyers. However, with a well-thought-out strategy, it is possible to navigate this challenge and even turn it into an opportunity. In the short term, high interest rates do lead to larger mortgage payments, making the initial stages of homeownership more costly. However, these initial costs must be viewed in light of long-term benefits, specifically the potential for refinancing when rates drop.

Refinancing is a strategic move that allows homeowners to swap their existing mortgage for a new one with a lower interest rate. When rates do eventually decrease, homeowners can refinance their mortgage to reduce their monthly payments, pay off the mortgage sooner, or potentially even extract equity.

But what if the rates remain high for longer than anticipated? Here is where an alternative strategy could be more attractive: an adjustable-rate mortgage (ARM). 

ARMs typically offer a lower interest rate for an initial period (usually 5, 7, or 10 years), after which the rate adjusts based on market conditions. This strategy allows buyers to take advantage of lower initial payments, freeing up funds that can be invested elsewhere or used to afford a higher-priced home.

In the context of Las Vegas’s high-end real estate market, using an ARM might just be the key to securing a property within some of the city’s most sought-after communities. Places like Summerlin, a master-planned community located at the edge of the Spring Mountains; The Ridges, known for its luxury custom homes and world-class amenities; Ascaya, nestled into the McCullough Range and renowned for its modern architecture; and Lake Las Vegas, a tranquil oasis offering resort-style living.

These communities offer luxurious, high-end living options, and using an ARM could potentially put one of these homes within reach, despite the current interest rates. And as an added bonus, buyers are likely to see a major appreciation in value once interest rates go down sometime in the future. Historically, home values increase steadily year-over-year, but when we enter another period of low interest rates and high housing demand, this has the potential to drive values up even faster.

Average Homeownership Duration Favors the Adjustable-Rate Mortgage (ARM) Strategy

As we navigate the various strategies for dealing with high interest rates, it is crucial to understand the typical length of homeownership and how this might impact your approach. On average, Americans tend to stay in their homes for around 5 to 7 years before moving. This trend, influenced by factors such as changing family needs, career transitions, or the desire for a change of scenery, has significant implications for your mortgage strategy.

If you fall within the typical homeownership duration, you may find that an adjustable-rate mortgage (ARM) perfectly aligns with your timeline. As mentioned earlier, an ARM offers a lower initial interest rate for a defined period, often 5, 7, or 10 years, after which the rate adjusts according to market conditions.

If your plans align with the average duration of homeownership, the initial lower rate period of the ARM could cover your entire time owning the home. This means you could benefit from lower monthly payments (while living in the home) without needing to worry about the future adjustment of the rate. 

Of course, everyone’s situation is unique, and homeownership duration can vary significantly from person to person. Therefore, it is essential to consider your personal circumstances, future plans, and financial comfort when choosing between a fixed-rate and adjustable-rate mortgage.

The Risks of the ‘Buy Now, Refi Later’ Strategy 

As with any financial strategy, the ‘buy now, refinance later’ approach carries certain risks. It is important to understand these potential pitfalls to make an informed decision and plan for all scenarios.

One of the primary risks involves the uncertainty of future interest rates. The strategy relies on the assumption that interest rates will decrease in the future, making refinancing a likely future option. However, interest rates are influenced by a myriad of factors, including inflation, economic growth, and monetary policy decisions. For this reason, there is no guarantee that rates will drop significantly in the years following your Las Vegas home purchase.

Despite the risks, it is important to realize that economic cycles usually have an ebb and flow to them, which can impact interest rates. In periods of robust economic growth, central banks like the Federal Reserve often raise interest rates to keep inflation in check. Conversely, in periods of economic downturn or recession, these institutions typically lower rates to stimulate borrowing and inject activity into the economy.

At present, we are in a period of high interest rates, primarily designed to counter inflation. However, history suggests that at some point, there is likely to be a pivot to a new economic cycle that will drive rates lower again, either to stimulate growth or to stave off a recession or both. This is where the ‘buy now, refinance later’ strategy can pay big dividends. 

Nonetheless, it is important to remain aware of the inherent risks and to plan accordingly. You should consider all possible scenarios, be prepared for different outcomes, and always make decisions within your own financial comfort zone. Consulting with a seasoned Las Vegas real estate professional can also provide valuable insights that are based on your unique circumstances.

Questions About Buying into the Las Vegas Real Estate Market? The Knoch Group is Here to Help

Las Vegas’s real estate price dip presents a strategic opportunity to buy in despite higher interest rates. With the potential to refinance when rates drop or by opting for an adjustable-rate mortgage, you can navigate this market in a way that gives you the best of both worlds. Remember, however, that each approach carries its own set of risks and rewards, shaped by personal circumstances and the inherent unpredictability of economic cycles.

If you need personalized guidance navigating the Las Vegas real estate market, the Knoch Group is ready to assist you. Ryan Knoch is a leading expert in Southern Nevada’s luxury home market, and he can provide advice that is tailored to your unique needs. Reach out to Ryan today and let him help you secure your dream home in Las Vegas.