Nevada Homeownership Part One: 2017 Supply and Demand

Real Estate Markets are cyclical.  Whether you are a Las Vegas real estate broker or agent, throughout your career you will be subject to the cyclical impacts of Supply and Demand.  When the local market enters either a Supply or Demand cycle, acknowledging this transition is only half the battle.  Understanding how to conduct your business and properly address a client’s homeownership goal(s) is the other priceless half.

Basics of Real Estate Supply and Demand Cycles:

Real Estate professionals generally have experienced at least one Supply and Demand cycle in their market.   Nevertheless, as with many industry market trends, the principles that define those trends are not always clearly understood.

Even in 2017, Supply and Demand is a cyclically occurring event that directly impacts homeownership. It represents the market sentiment that buyers and sellers create in response to the availability of a product that they desire in a market – in this case, residential property.

It is true that some homes are bought as investment properties, but more often than not the market is driven by single-family home buyers or sellers who wish to either transition from renting or want to upgrade/downgrade their primary residence due to an increase/decrease in their annual income.

How Transactions Drive Supply and Demand

As a Real Estate Broker (Agent) in Las Vegas, Nevada, you see an extremely diverse clientele.  On any given day you may engage with a local member of the community, an international client, or an investment company looking to acquire multiple properties.  The key to addressing any of these potential clients’ goals is focusing on understanding those goal(s) through the eyes of the current market cycle.

A real estate transaction, as we all know, has two distinct participants: (i) a buyer, and (ii) a seller. Furthermore, each side brings a unique point-of-view to their side of the transaction.

Although brokers and agents understand the basic roles of buyers and sellers, too often real estate professionals first focus on commissions and forget the importance of acknowledging the type of market cycle that exists and how that relates to their client’s point-of-view.  The negative reality of this choice is seen in the resulting loss of negotiation power, of either the buyer, seller or both in a transaction.

By not acknowledging who has the upper-hand at the onset of a transaction, a successful completion of the client’s needs or goals is commonly not achieved.  Moreover, when a broker or agent cannot determine the correlation between the market’s current trend and a client’s needs or goals; the result is inherently negative.  A client’s transaction then either: (i) begins and fails due to poor diligence, or (ii) unnecessary negotiations occur due to the lack of proper market knowledge regarding price, inventory, and/or prominent market participant’s influence (e.g. sellers or buyers).

Three Types of Market Conditions Effecting Homeownership:

Generally, three primary types of market conditions contribute to a Supply and Demand cycle: a Seller’s Market, Buyer’s Market, and at times a Neutral Market.  Before moving on let’s take a moment to define each:

Seller’s Market – Home prices increase (appreciate) in response to demand for property 

Buyer’s Market – Home prices decrease (depreciate) in response to increase in supply

Neutral Market – Home prices increase (appreciate) due to inflation

In attempting to measure how homeownership is determined by one of these types markets, you must first focus on the correlation of market inventories to homes prices at a given period of time.  Specifically, you need to understand what drives each side of the comparison.

When there is an increase in property demand from potential buyers, sellers are afforded the joy of allowing these buyers to compete through submitted offers.  As the number of offers increase, the correlative effect for sellers is the realized in their ability to raise the selling price to an amount that provides greater benefit to their side of the transaction – a Seller’s Market.

With the opposing side of the cycle, a transition of those potential buyers is realized when they begin leaving the market and resending their offers. Generally, this is due to the median price of the market reaching a level higher than they are willing to pay.  When this happens, the market’s median price eventually declines to a level that most often falls below the original asking price that began the Seller’s Market. This market reversal is what’s known as a Buyer’s Market.

Sometimes during the transition between a Seller’s and Buyer’s Market, participants and professionals conducting business in the market experience a leveling-off point. In this buffering part of the Supply and Demand cycle, there is an equilibrium that occurs for a short or sometimes extended period of time.

In this period typically, neither sellers nor buyers have the upper hand in influencing price or supply.  Instead, they are both subject to a [trend] event that pushes the market back to a Supply or Demand-driven market.  In some cases, this event is inflation, which results in a slight or small continued increase in prices from the fluctuations in the purchasing power of the dollar.

Nevada Real Estate Supply & Demand Trends for 2017:

With the first 6-months of 2017 in the books, Nevada real estate brokers and agents are beginning to analyze the potential impact of future trends calendared for the second half of the year.

According to Zillow, the current median price in Nevada is at $246,000, while the current national median home price stands at $346,000.  At an estimated 30% discount, when compared to the national average, potential Nevada homeowners currently have a great incentive to enter the market.

Not forgetting the pending increase in employment opportunities from the upcoming Las Vegas Raiders stadium project; Nevadans will certainly see a move in the median home price, costs of building (new housing starts), and the influx of new businesses that contribute to this new addition in Las Vegas.

Remembering that real estate markets are cyclical, experienced brokers and agents in Las Vegas, are already considering where the current median home price discount and stadium project places potential clients on the current Supply and Demand cycle.  Using this proactive approach, these real estate professionals are preparing for both buyers and sellers points-of-view as well as how to implement plans of action during the next market transition.