We're talking about the real estate market's recent growth and what its future might look like outside of the pandemic.

That's this week on Nevada Week.

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(Kipp Ortenburger) The median price for single-family homes in the Las Vegas Valley hit an all-time high at the end of 2020.

Now, that might be surprising for many looking back on the pre-recession housing bubble, and it might also be perplexing for many, considering we're in the midst of a pandemic.

Well, we're going to talk about the factors driving this growth and its connection to the pandemic and of course the greater economy.

Also, real estate and economic leaders are projecting a continuance of growth in 2021.

Well, is there a bubble forming?

We'll try and answer that question, and we'll also take a deeper dive into how much more or less affordable and profitable the current market really is for both the prospective buyers and the sellers.

To discuss all of this, please welcome Aldo Martinez, president of Las Vegas Realtors; Shanta Patton, regional vice president of the National Association of Real Estate Brokers, and Brian Gordon, principal at Applied Analysis.

Aldo, Brian and Shanta, thank you so much for joining us; happy to have you here.

You know, I think there's probably those, depending on what side of the market you're on, that are having a lot of anxiety right now, and there's probably a lot that are having maybe a lot of comfort of where the real estate market is right now.

We want to dive right into it and unpackage where we are, and Aldo, I want to go to you first.

Of course I think the biggest question is how much of what we're seeing in the real estate market right now is related to some COVID factors that, you know, we might see the bump now but get to the point where we're at herd immunity and some things in the future, we might not see this type of increase.

I mean, is this really kind of COVID induced?

(Aldo Martinez) Obviously, you can't say it's not COVID induced for the simple fact that you have less qualified buyers in the market.

If they're not at work or they're unemployed or whatever the case may be, that's going to affect the number of buyers in the marketplace.

You know, there's been a lot of talk about the inventory being low as well, but that's usually a supply and demand issue for us so it really works out to the benefit of the sellers.

It's been really good for sellers and for selling their homes and being able to get top dollar for it.

One of the statistics I read was they're receiving about 34% on their investments back, on average about $68,000 per homeowner.

So those are some good returns, you know, over their holding period on these properties, and I think that's what's moving the market.

-And as you mentioned supply and demand, if there's nobody that wants those homes, then the values aren't going up, and there seems to be a high demand also.

Is there, or is this just that the supply, as you mentioned, the inventory is so restricted?

-You know, when you look at the number of people that have moved into the valley, you know, we had a net gain of 740 as reported through Allied Van Lines.

We have a 1.8% growth in population, so that's about 44,000 people, and that's the state.

Those numbers don't say there's a huge demand, and there's just not a lot of homes on the marketplace.

We keep telling people there's not a lot of homes, so then the sellers that want to sell get a little bit skittish about putting their home on the market because they fear there's nothing available for them.

I look at it this way, and I've told my family members that are looking to move up as well, you know what, there may not be a better time in history to actually move up if that's what you want to do.

With the interest rates being so low, you know, it's a great time.

I just kind of wish the home builders would probably get more on board and rather than-- they love creating the supply and demand scenario where if their supply is restrictive, they get to demand more money for their inventory.

They relish when we have waiting lists for properties at the new home tracts and stuff because that just means as they're pumping them out, they just keep on being able to raise it.

You can't blame them because we do live in a capitalist society at the end of the day.

But they could really be helping out with the process and they could really get a lot more homes sold if they just ramped up their permits and started manufacturing more homes to meet the sellers that would love to take advantage and move up in this marketplace because they're going to miss out.

-That's interesting, and Brian, I want to get your perspective on that.

Is that where we're at with construction right now?

Of course we see a much larger, you know, growing housing market, of course that usually leads to more building, and more construction is one of our major economic drivers.

First off, is that the case or do we have limited homebuilding right now, and what are the factors that you're seeing that are related to either that growth or the restriction?

(Brian Gordon) Sure.

Thank you for having me.

Aldo makes a great point that there's just limited inventory on the resale market, no doubt about it.

I think from the new construction side, I think builders are trying to obviously respond to the market conditions that exist out there.

From the cost side of the equation, you know, they're facing elevated costs across the board when you think about the cost of land, and you think about the materials cost.

Labor prices have been through the roof, and then labor obviously has been a little bit tight in the construction market.

So you see some premiums there in terms of construction wages that are also affecting it.

You know, the cost side of the equation for it, you know, I think I do agree that we would like to see more homes coming on the market because there's just simply too few relative to the population growth that's taking place, but the reality is I think builders are also, you know, facing the crunch of a lack of, you know, qualified labor.

So I think they're actually throttling it back a bit just because they're not able to produce the volume of homes that they would have otherwise liked to just given the current climate in the labor market today.

-I want to talk a little bit about that, the labor market itself.

That might be kind of counterintuitive, as I think a lot of the economic indicators are related to the real estate market right now.

Being that we have such a high unemployment rate, you might just assume that means labor market costs would be down.

Obviously, that's not the case.

Why isn't that the case?

-Well, you recall back in March of 2020 when emergency orders were put in place, construction was identified as one of the essential businesses here in the state of Nevada, and the construction sector continued to move forward.

We had other major construction projects along the Las Vegas Strip like Allegiant Stadium, convention centers and other major projects that continued to move forward.

At the same time we've seen pretty significant demand in the housing market, so from a residential construction standpoint, we've continued to see development activity take place.

During the past year, during 2020, we had over 11,000 new home permits here in Southern Nevada.

Those numbers have continued to climb, so I do think the market is responding and builders' ability to gear up for that demand takes some time.

As a result of all those macroeconomic factors on the construction side of the equation, there just aren't as many laborers out there that demand is dictating.

-Other economic drivers from the real estate market of course, consumer confidence, consumer spending, we usually see those go up.

Of course on the flip side, we see the federal government putting in a lot of economic stimulus money and things like that that might be again counterintuitive to something like a housing market driving some of those indicators.

The wealth effect is a big part of this.

I mean, are you seeing indicators in the valley that the rising housing market is influencing and driving our economy in other ways?

-Look, I think it's an unusual time, no doubt about it, right?

We have an economic climate that's a little bit uncertain.

You have about 100,000 people that are out of work that were gainfully employed about a year ago.

We've made strides to recover some of those jobs.

We've got a 10% unemployment rate here in Southern Nevada, and that would suggest the economic climate is relatively soft and weak.

You know, at the same time, we have this housing market that continues to escalate.

We see prices jumping pretty substantially, and we are seeing pretty significant demand for housing units here in Southern Nevada.

So we have this little bit of a disconnect between the economy and the housing market.

Certainly the housing market has been a critical element of the local economy, and the homebuilding industry has continued to employ folks, so I think that's having some positive effects overall on the economy.

But again, this dynamic is a bit unique given the COVID-19 health crisis and the related response to that.

-It is unique.

Shanta, I want to go to you because something that isn't unique, something we've covered on this show, is how much homeownership is important, critical to wealth, and something that of course in more vulnerable communities, communities of color, sometimes immigration communities, even some of our young populations of course that aren't homeowners, could see a gap in wealth.

Can you talk specifically about why homeownership is so important to this wealth conversation?

(Shanta Patton) Oh, absolutely.

And I will say with the construction, they are really capitalizing on this market.

For example, I am one of those move-up buyers and I can't find a house to buy, so I went and got on the list.

I'm on the list and have been for 30 days.

When I got on the list, the home was 504, it's now 521, and that was in about four weeks.

I had to put $1,000 down to have a spot to bid on a lot, and then once that lot is available, the price is not set.

It's going to go to the highest bidder of that particular lot, and I won't even know what that looks like until February.

They're releasing two or three houses at a time, but they have 30 and 40 people on the list.

So they are definitely capitalizing on this ability.

And then as far as homeownership, we are in a really tough area right now for minority homeownership.

Our wealth gap is about 26 points away.

So in the black community, 47% homeownership; in the white community, 76% homeownership, and our 47% homeownership is only slightly above the 1960s when the civil rights movement and the fair housing came about.

So we've not even made a lot of great strides, and the strides that we did make during the recession, we lost them all.

So homeownership is the key way that minorities raise their assets, and so being where we are now where homeownership is on the cusp of being unaffordable for a minority family, it's really concerning.

We're really taking a good look at that and having to put some policy positions in place to try to fight that gap as much as possible.

-Let's talk about that affordability aspect.

As you mentioned we're reaching a point, and let's talk a little about that specifically.

Aldo, I want to go back to you.

How affordable is the market right now?

We're seeing prices go up, we've already talked about what construction might be doing to sales prices of course, and the resale prices we've talked about as well.

But then we have low interest rates, so monthly payments then might balance out or maybe they won't.

I know there's got to be a tipping point somewhere.

Give us an idea of where we stand right now.

How affordable is it to buy a home in the valley?

-It really depends.

So I was looking at some statistics of properties that were bought in 2018, 2017 or so where the interest rates were about 4, 4-1/2%, and for a person that owns a $350,000 home at that rate, they could actually move up into a $450,000 home and their payment would still be less than it was for that $350,000 property based on the interest rates that are out there.

You know, some of the things the CARES Act did was the CARES Act really increased personal incomes for Nevadans by about 15%, and when they looked at the statistics-- so the people that were home were able to utilize that and they basically did a really good job, and I think that's what's helped our economy sustain itself for a while is we found out that by putting that money back into the consumers, it's trickling up better than it trickles down, you know, surprisingly enough.

They do what consumers do, they spend.

When I look at the ability for people to qualify for loans though, that hasn't changed because they're not fully employed.

So if they're not fully employed, they can't meet the requirements for qualifying for a home or a loan, and we don't want to reduce that and go back into what we had in 2004 and '05, which is that hyperinflation, which we're not experiencing in today's market.

I mean, if you look at the year-over-year growth of 10%, that's not really hyperinflation.

We would love to see it in the 6% range, that would be great, 4 to 6%, because that's where it grew all through the late '80s, the '90s up until 2004 before it went into the crazy spinoffs, but it's sustainable.

The problem is, back to your original question, when I look-- I have a client that I picked up yesterday.

She's going to be purchasing a home through the culinary down payment assistance program.

She's qualified for about 250,000.

She says I want a single-family home, Aldo, and I want it in the southwest part of the valley.

I did a search for her, and there's only four properties available that met that criteria for her, right, not all in the greatest shape.

But she wants single-family residential, she doesn't want a townhouse, she doesn't want a condo, and I think what's going to happen is people are going to have to start adjusting, you know, to what their needs are going to be.

These new brownstone type homes that are condos type, I mean, they're very popular in the Midwest or the East Coast.

They have small yards and they are very community oriented because it brings homeowners closer together.

It's just we're not going to have the ability to have these homes with large lots at the lower affordable rates.

It's just an economic thing.

You know, even though the builders did a good job of buying homes during the decline-- not buying homes, buying land and acquiring it and storing it up for the day that they would start being able to benefit from it, I haven't seen incomes rise that much across the valley.

As far as the personal incomes, when I look at the statistics from Applied Analysis, they're flat line so there hasn't been any really personal or wage growth for homeowners.

-Shanta, I know that's a big part of this discussion again, especially with African American populations, immigrant populations and young populations too, that wages aren't necessarily keeping up with what the housing prices are.

I want to come back to the lending conversation, and of course a lot of first-time homebuyers get FHA loans, federal loans to help out, but I know there's tolerances and limits on those as well.

Are we reaching a limit on where our housing market is now that could potentially limit the amount of residents we have that can access those loans?

-We absolutely are, and we have to take into consideration that there is a large wealth gap between African Americans and white households.

So we're looking at a 40% lower median income in a black household than there is in a white household.

So when you factor that into purchasing homes, the issue that we have is the average home price is about 345, and the average loan-- so a black homeowner is more likely to get an FHA loan than a conventional, right, so the problem is in the state of Nevada, in our Clark County, our FHA limit is 362,250.

So that might seem like a good number if they did go up and there was an increase in December, so that is good.

But when you look at 345 being our median price range right now and the max for an FHA loan is 362, we're in a strong seller's market and typically those buyers that are first-time need closing costs so we have to factor that in as well as their ability to compete with possibly five to six other buyers for this one property.

That affordability line is very close to being unaffordable for minorities so we have to take that into consideration on what affordability looks like.

It looks different in a minority household than it does in a white household.

-Yes, and I think a great segue into talking a little about projections of what we're looking at in the next year and the somewhat medium long term over the next several years to reach those tolerances potentially if we continue to see the growth.

We'll get to that in just a second.

Brian, I want to go to you.

All of this, and a big question is of course a lot of people have the memory of what happened pre-recession and kind of where we were when the bubble finally burst.

Aldo already mentioned we're not in a scenario right now where we're seeing a considerable amount of inflation.

Can you kind of compare and contrast those main indicators there, and are there any indicators that this is some form of bubble that we need to be concerned about?

-Look, I think if you're looking back to the 2006-2007 time frame which led into the Great Recession, I think the fundamentals of the economy are much different.

I think back then we had about 38,000 new homes being built during that time frame in any given year.

The supply side of the equation was much greater.

We had a lot of mom and pop investors in the residential market that probably weren't well positioned to withstand any sort of downturn at all, let alone the steepness of the Great Recession.

And then as we saw this recovery come hold over the last decade or so leading into where we were, let's just say in February of 2020, a month before sort of the world fell apart, I think the dynamics were much different.

If we were sitting here talking in February of 2020, I probably would have said that we're under-supplied.

We're under-supplied in the for sale market.

We were probably under-supplied in the rental market.

We just simply didn't have enough housing units for the amount of people that were moving into Southern Nevada.

The economic climate was much more stable.

We had about 6% of jobs were in construction leading into this cycle where during the Great Recession we had about twice that amount, so about 12% of the economy was in construction.

That just wasn't sustainable.

So I think we're in a better spot as we've gone through this current economic downturn, so I would expect that we'll continue to see some of this, you know, measured recovery over the next several months as we move beyond the health crisis itself.

-Aldo, let's get your perspective then.

Let's talk about projections there.

If we do kind of see a measured recovery, how is that then going to translate to the real estate market?

Let's talk just about short term here.

Let's talk about the rest of 2021.

Are we going to see similar growth patterns that we've seen over the last maybe 10 months?

-You know, I figure right now we're in what I call the winter's decline, right?

So towards the end of December, everybody finishes making all their purchases.

January and February it slows down, and you're going to see those numbers probably coming out in the February reports over January because people are starting to get over the holidays, finally get their taxes and everything else in order.

And then about the end of February, first part of March, you see more people come back into the market and start making those purchases.

We probably project to see the same thing that we have through 2020 through 2021.

There's nothing out there really to say that it's not going to happen.

I figure when they open up the valley and we start getting back to employment, we'll probably be somewhere between 75% employed at that point.

The hotels aren't going to fill back to 100% employment until they're getting their occupancy rates back up.

They're also going to be, you know, kind of in a sense licking their wounds from what's happened and trying to recover some of their profits as much as they can and work as lean as possible.

But they're never going to sacrifice customer service because they know that their customers are the key to their business model.

So we probably see an 18-month recovery from that until we get to, you know, more stable unemployment rates.

You know, we're 11.8% right now, we're leading the country-- or not leading, but we're in that top category of unemployment rates throughout the country, but it's because we're a hospitality town.

-Let's just assume construction isn't going to increase drastically so we're not going to get a lot of newer homes on the market.

We've already talked about that.

Let's talk about resale a little bit.

I think it's a good point to talk about maybe who's not selling their homes right now.

In the resale market, why don't we have the supply?

Do you have any kind of context there?

-Yes.

I mean, think about it.

Even statistics are saying people are staying in their home longer, right?

So the average stay in a home has jumped up to over eight to nine years for a typical homeowner, so that's playing into effect.

You're seeing a lot of kids.

It says 54% of adults 18-26 are still at home with their parents, right?

You saw reconsolidation of the family units based on these types of situations where they're living together.

So there's a new look at the way housing looks like.

You know, they need to have "gen suites" where they can have the ability to have their families living together, so there's a lot of factors that have built this.

And then you look at the young kids, once they do move out, they want to go into major metropolitan cities.

You know, my daughter just graduated college.

She gets a job in San Francisco, her starting salary is $60,000 a year, right?

She's all excited and I'm all concerned because I know I'm going to be, you know, footing half of the expenses there.

You can't live in San Francisco with $60,000.

So fortunately she got promoted, she got a new job at $80,000 so it's going to be a little bit better.

She's moved in with three girls.

But they want to live in the city.

She came home for two months during the winter just to regroup, save and get the move done, but they want to go back out.

So this migration that you've seen to the suburbs is going to go right back as soon as the kids-- you know, the economy starts improving, they're going to go right back into the metropolitan areas.

-Shanta, I want to go to you.

For that first-time homebuyer out there, give us some recommendations, given everything we're talking about right here, and it doesn't sound like the market is going to decrease.

We might be reaching some of those levels we've already talked about related to the FHA loans.

What recommendations would you have for somebody that is still looking at buying in this market?

-I think that one, this is the time to buy.

Interest rates this low in an affordability factor, the interest rates are very affordable.

It's going to be more affordable now than it will be later on.

I think right now just as Aldo said, we have to adjust our expectations of what our first home is going to look like, right?

So it might not be that 350,000, five-bedroom-type home, it might be a 275 home but the difference is when you go into that 275 home, you have a home that you own, right?

So changing the mentality is a difficult thing, but that's what they need to do, right?

I understand that you're renting in Summerlin for $1,700, but you might need to move to a different area in order to maintain that $1,700 payment or you can stay in Summerlin but it's going to be a smaller house.

What they need to understand is you can't begin to build the wealth until you start playing the game of Monopoly, right?

But as long as you're still on the sidelines, you'll never be able to get in the game, and no wealth is built on renting.

So we have to make sure that we're looking at the bigger picture and understanding this is just a stepping stone that gets you there.

But when you build the assets there, the assets can take you in a lot of different directions, and that's kind of the opportunity for millennial buyers too, right?

So our data has shown there is over 1.7 million black millennials who make over $100,000, and the black homeownership that's accounting for 47% are coming from people younger than 45.

But they want an experience.

They want to live in these metropolitan areas, they want a true experience, and maybe they can't necessarily get that here in the northwest.

They want to be right next to the Strip.

So we really just have to change their mindset on where you start in the game of Monopoly and not necessarily where you want to end.

-Well, thank you as always for joining us this week on Nevada Week.

Now, for any of the resources discussed on this show, please visit our website at vegaspbs.org/nevada-week.

You can also find us on social media at @nevadaweek.

We'll see you next week.

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