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Can This Hot Market Go On Forever?

A few weeks ago I wrote a blog about not fearing another bubble in the Las Vegas area real estate market (“Don’t Fear A Bubble Burst”). Basically put, there are actually very few similarities between the explosive growth in the market we saw about 10 years ago and what we’re seeing today, with the exception that prices are going up, as is demand. That may sound like enough common ground, but it really isn’t.

However, another issue we’re seeing in many real estate markets is a bit of cooling off. Prices are slowing down their meteoric month-to-month increases, and buyers are hanging back a bit. This news is making a lot of people edgy, but it really shouldn’t.

Our sister city, Phoenix, is experiencing this right now; prices and sales have stalled a bit. As Phoenix is considered by many to be the bellwether for national real estate and the fortunes of Las Vegas and the Valley Of The Sun often seem intertwined, it might not be a bad idea for us to see what’s going on there.

When demand outstrips supply, prices tend to increase. This is what we’ve been seeing in Las Vegas. Price increases have the effect of pushing out buyers, who see their ability to buy a home in their price range decrease as prices go up. Interest rates, although still at quite low levels, have gone up as well. Borrowers are seeing their spending power decrease as more of their monthly payments go to paying off the interest.

As you can see, there is a delicate balance between the amount of money buyers have to spend and the price of homes. An increase in the number of homes is a great thing, but ever-increasing prices simply does not make for a long-term sustainable real estate market.

Watching our real estate market rise out of the ashes left by the bubble burst and mortgage fiasco has been immensely satisfying, but it may be time for things to slow down a bit so we can all catch our breath.

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