The U.S. housing market shows signs of transitioning from a seller’s to a buyer’s market, with some key trends emerging. Here is my take on the current housing market.
HOME PRICES & AFFORDABILITY
Home prices have reached record highs due to rising construction costs, supply-demand imbalances, and increased investor activity. Despite rapid new home construction, shortages persist because of limited skilled labor, higher land costs, and homeowners holding onto low-interest mortgages. These factors constrain supply and drive prices up.
As a result, homeownership has become unaffordable for many, pushing more people into long-term renting. A healthy housing market typically sees at least 50% of residents able to afford the median home. However, in Q4-2023, over 85% of homes sold in Las Vegas were unaffordable, according to a National Association of Home Builders study.
To further this point, historically, Las Vegas homes were priced around 3.5x the average household income, but today, it’s over 6.0x—a dramatic increase!
OPPORTUNITIES FOR SELLERS
Housing prices are high, but economic pressures, new inventory, and fewer buyers will likely push prices down. Once the Fed lowers rates below 4%, new buyers will enter the market, but likely at lower prices. I anticipate a 10-15% drop before that happens.
If you’re holding off selling in hopes of higher prices, you could be missing a key opportunity now. In the short term, prices may rise due to supply issues, but I expect a mid-term decline as buyers dwindle, followed by long-term increases as supply bottlenecks persist.
OPPORTUNITIES FOR BUYERS
The housing market has been seller-friendly for the past 4-5 years, but I believe that will change in the next 4-8 months.
With economic headwinds on the horizon, I believe opportunities will arise if you are financially prepared. Financially speaking, look for interest rates below 4% and new buyer incentives before jumping into a new home.
Some new home builders offer low-interest-rate incentives to purchase higher-priced homes. Depending on your financial situation, this may or may not be a good move. You should evaluate the pros and cons before taking advantage of this.
My recommendation is to (1) identify what you can afford to pay (typically, a mortgage payment below 30% of your take-home pay), (2) save towards a down payment of 20%, and (3) wait until the right home and opportunity arise.
CONCLUSION No one can predict the future with certainty, but I expect a shift to a buyer’s market within the next year. Consult your real estate agent to assess your options for buying or selling in the next 12 months.
