MAY 2022 MARKET REPORT FOR CLARK C.

CLARK COUNTY HOUSING MARKET

MONTHLY REPORT

The Effect of Rising Rates

You won’t read this in the paper.

The  RMLS stats for April are in. Let’s get started.

INTRO:  It is not news at this point to say the market is in the early stages of a major change and that this change will move us away from a seller’s market and toward a buyer’s market. But a more interesting revelation is evidence that we are or are not headed for a huge market crash. Isn’t that the real question on everyone’s mind? How bad is this market going to become?

Are we headed toward market conditions like after the crash of 2007? or

Will we see a huge increase in bank foreclosures? or

Will rents and property values drop dramatically?

After talking with a few veterans of the market and having a bit of my own history, I want to share with you my opinion on where the market is likely headed. Since in hindsight we may find I am wrong, here is my disclaimer right up front. My opinion will be based on current conditions and knowledge, meaning that in the months ahead market conditions and knowledge will likely change so I reserve the right to change my opinion.

The stock and mortgage markets prior to 2007 had some serious flaws. Speculation was allowed on derivatives and lenders were allowed to make home loans without proof of income. As far as I know, there are now regulations discouraging such speculative practices. It seems much less likely we would experience a crash like in 2007. So that is good news. If there is a crash coming, it will be due to other reasons than what caused the 2007 crash.

Naturally, there could be other causes for a crash. Foreseeing a new cause to a market crash seems really challenging. Sure- you can say that, for example, the climate crisis will affect our market. That seems safe enough. But accurately predicting how our market will be affected seems almost impossible. Human behavior is totally unpredictable. 

Take the 2020 Covid pandemic. As far as I know, it was a complete surprise that Covid would cause a huge decline in the number of homes on the market while at the same time cause a huge increase in buyers. It is this double-whammy effect that has caused the current shortage of homes and over 18% annual rise in home values (in Clark County) the past 2.5 years. The last two+ Covid years have caused the highest rate of home value increases in decades and perhaps ever.  As I recall the period of 2000-2006 was well below 18%. So, sure it is easy to say the climate crisis will affect the housing market and much more difficult to say just how because no one really knows how people will behave under unusual conditions never seen before.                 

The point is that if climate change is the next cause of a market change, it is nearly impossible to say how buyers and sellers will be affected or predict the decisions they will make. Will the climate change cause more folks to want to buy and fewer owners wanting to sell like Covid did or will it be different?

ARE WE HEADED FOR A MARKET CRASH?

Based on current knowledge:  Last month I reported rising interest rates were causing a reduction in the number of buyer showings. Buyer showings were and still are at around 85% of where buyer activity was at this same time last year. It is very likely that buyer showing activity will decline again as rates continue their rise. We are expecting 4 more rises before the end of 2022 so hang onto your seats. 

The stats this month show a significant decline in pending sales; down almost 14% from the previous month and down over 12% from last year. These numbers look very much like the Sentrilock buyer activity numbers reported from last month. The point is that the Sentrilock lockbox numbers are an accurate reflection of buyer activity. Buyer activity in April drops 15% from 12 months ago and then the May RMLS stats show April buyer activity levels dropped over 12%. Soon we should see sold numbers next month reflect this slowing market. Once the sold numbers fall then the news hits the papers and it is official the market is slowing. Until then it seems a secret. No one tracks the Sentrilock numbers as an accurate predictor and few consider pendings a valuable statistic. Only the sold numbers are the official pronouncement of a slowing market. But in reality, the pending numbers announce the slowing a month sooner and the lockbox numbers announce a slowing market weeks before the pending numbers.

But these statistics are only part of the story.

In this early stage of a changing market we are also seeing serious changes in buyer behavior and there are no statistics to reflect this. Of those buyers that are looking, many of them have become hesitant to commit. These buyers do all the things a serious buyer would do. They tour homes, make verbal offers and they write offers but many of them will back out before the inspection period ends. I propose that, based on my latest sale, if there are 10 buyers looking for homes today, 10 buyers who think they are ready to actually write an offer, 7 of them will back out of a written offer before the inspection, or at least that is what I recently found. Let me explain.

I just put a deal together a few days ago on a home where we had 4 buyers with offers. Two were written and two were verbal.  But when we responded to the first 3 offers, the buyers walked away. It turned out that only the 4th offer, which was written, was from a buyer ready and serious enough to sign and consummate the deal. Odd. In my 31+ years in business I have never seen so many hesitant buyers. It seems something has them spooked. Was this an outlier or an accurate and new sign of buyer reluctance? Is this just another initial clue of a changing market?

I suspect this occurrence was an early sign that buyers are nervous about where the market is headed. We did end up in good shape though. $25,000 over list price, but I suspect we will see more of this buyer nervousness as interest rates proceed their steady rise. We will also see the number of buyers continue to decline to the point that multiple offers will be a thing of the past. I suspect multiple offers will disappear in just a few weeks.

So again, are we headed for a crash?

A 15% decline in buyer activity (showings) does not seem like much, and it isn’t, but having 75% of buyers saying they are willing to write an offer yet will back out, is huge. No stats track this kind of market data. 

On the other hand, we continue to see listings and homes for sale at record  lows. I am sure we will continue to see reductions in the number of buyers but unless listings start increasing dramatically we are a long ways from shifting to a strong buyer’s market with dropping home values. Baring new information, we are not headed for a crash and we will not see major home value reductions in 2022. But a shift from multiple offers to only one offer at a time will eliminate the “offers over list price” conditions we have enjoyed the past 2+ years. My example above shows that we are within just a few weeks of the disappearance of multiple offers. Perhaps the next interest rate jump will make that happen. However, from the Feds comments yesterday it sounds like the current thought is that the solution to today’s inflation is to continue raising interest rates and intentionally slowing down the economy. So 2023 could bring us into a strong buyers market if the Fed comments prove accurate still in 2023.

Graphs for Clark County – April 2022



Leave a Comment

Your email address will not be published.