After almost three years of historically low mortgage rates, many people are beginning to worry about recent and upcoming national rate increases and whether or not buying into this market is a good idea.
Let me tell you, there is no need to cancel your investment, refinance or home purchase plans anytime soon. Here’s why: As rates begin to approach pre-pandemic levels, they’re still going to stay within a record range. The Southern Nevada 30-year fixed mortgage rate averages 5.1%. The 15-year fixed mortgage rate averages 4.2% and the five-year variable rate mortgage (ARM) averages 3.5%. Compared to 15-20 years ago, we were seeing rates as high as 8-10%.
Let’s break this down using current market stats. Today, a single-family home costs on average about $400,000. Then we have our Federal Housing Administration loan which typically requires a 3.5% down payment on a 30 year fixed note with a 5% interest rate. After property taxes and closing costs, you’re officially a new homeowner for around $2,539 per month.
When we compare this mortgage rate to the average Las Vegas rental market rates for similar single-family homes, the monthly payments are in the same caliber of $2,400 or more. Yet there’s a big difference here – through leasing, you’re providing that money to a landlord, helping them increase their profits instead of yours. Whereas buying your own home is a direct personal investment that results in increased equity, profits, and tax benefits while paying down your bill.
If we look back five years, a $400,000 house was worth half that amount. Imagine if you owned your home then. He would have already appreciated it significantly. Even when we are going through a lull, the market continues to improve and proves that buying a home remains the best long-term investment.
Although there are always more components involved in the decision-making process besides interest rates, these rates are still low enough to work in the homebuyer’s favor for long-term investing and fairness. They may not look as comfortable as they once did, but the Federal Reserve plans to raise the national average several times this year to fight inflation.
These potential hikes have raised concerns about their impacts on purchasing power, which, while logical, are unnecessary, and I’ll explain why. Buying in today’s market is a win for everyone involved. Your property value, equity and long-term investment will only continue to rise as the market is expected to rise steadily.
Las Vegas is a continuously growing market, which means we’re on track to see gradual sustained growth, albeit not as accelerated as in previous years. Recently, we have already noticed a small increase in stocks and a stabilization of the market. In February, there were 2,161 homes available for purchase. Fast forward to March, there were 2,276 homes available. While this increase is small, it still shows signs of healthy adjustment and balance within our inventory.
The market is located in a very different environment than it was when we suffered the crash of 2008. The problem then was an abundance of inventory with no one occupying the houses. Many of these houses stood empty because much of it was built on artificial demand purely for investment purposes, which ultimately led to the financial crisis of 2008.
Today, we are witnessing a complete reversal of the situation. Market activity is only based on actual demand and does not overflow inventory. Las Vegas has a significant amount of inbound traffic and real people looking for homes. In 2021, a report by Updater ranked Nevada first for places with the most new residents.
A key factor positively influencing the market is that home buyers pay cash or have large down payments, which leaves little or no room for default. Values are solidified because if a buyer decides they no longer want the home or can’t afford it, they can easily sell it and more than likely make a big profit from the high demand.
Homeowners can maximize their wealth-building opportunities by turning their home into an income-generating rental property. If you’re looking to move or relocate, you don’t have to sell your home. Renting is an option for those looking to create an additional source of income.
Las Vegas has endless opportunities for growth in today’s market – if we continue to take advantage of what it has to offer. Since we are on track to reach pre-pandemic stabilization and interest rate levels, there is no better time to act in this historically low market.
Gordon Miles is President and Chief Operating Officer of Berkshire Hathaway HomeServices Nevada Properties, Arizona Properties and California Properties. The combined franchise is a wholly owned subsidiary of HomeServices of America Inc., operating 34 offices and 3,200 home sales managers across the tri-states. In 2021, the company achieved a record $9.3 billion in residential home sales in Nevada, Arizona and Southern California.