Current Las Vegas Real Estate Market

Since hitting its low of $64 per square foot in January of 2012, by last month the median price of homes sold in Las Vegas had risen to $126 per square foot. Although we are not quite there yet, that 97% increase has gone a long way to bring the Las Vegas real estate market back to its pre-recession levels when the median sales price per square foot of Las Vegas homes hit its high of $191 in May 2006.

Although the rate of increase has slowed in recent months, the price increase trend has been fairly steady. (Although there are seasonal dips.) To illustrate this point, I have provided a chart below of the trend from January 2012 to August 2016, and, to focus on more recent data, a chart of sales during the last year.

In the last 30 days, 2,841 homes listed on the Greater Las Vegas Association of Realtors® MLS have sold in the Las Vegas area. Today, there are 8,069 homes on the market. This means that the absorption rate (the number of months that it would take to sell all of the homes on the market at the current pace of sales) is a little under 3. As a rule of thumb, any absorption rate under 6 is considered to be a sellers’ market. When I wrote about the trend of the market in September of last year the absorption rate was 3.5. During that same period prices have increased about 6%. So, if anything, the Las Vegas real estate market has gotten a little stronger over the last year.

Another indicator of the strength of the Las Vegas real estate market is that the median days homes are on the market has dropped from 32 days in September 2015 to 22 days last month.

Although house prices are not likely to rise at the pace of the early years of the recovery when from January 2012 to January 2013 prices rose 27%, with demand remaining strong it appears likely that a generally upward trend will continue.

To some extent this trend is supported by historically low mortgage interest rates and an increase in rates may dampen demand for homes to some extent. However, since its quarter point increase in December of last year, the Fed has again and again put off its next rate increase. The Fed is set to meet again on the 20th and 21st of this month and may make a move at that time. Although, even when they make their next interest rate move, they have indicated that they expect further increases will be slow and deliberate. Interestingly, after the Fed made the move to increase rates last December, rather than increasing in tandem with the increase in short term rates, mortgage interest rates actually declined.

Another factor suggesting at an interest rate increase will not have a dramatic effect on home prices is that 20% of homes purchases in Las Vegas last month were cash. Although this is not as high as the 54% of homes purchased for cash in February 2013, it demonstrates that there are still a lot of buyers in the market who won’t feel the impact of a rate hike.

GLVAR sales since January 2012
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GLVAR sales since August 2015
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Greater Availablity of Mortgage Loans

Bloomberg news reported today that according to a Federal Reserve survey of 98 banks there has been a “continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand.” Many potential home buyers have complained that it has been difficult to obtain mortgage financing even in cases where they clearly have the income to repay the loan and have generally good credit. This easing tread should make it possible for objectively qualified buyers to obtain financing.

Fed Says U.S. Banks Eased Loans Amid Broad Pickup in Demand

The article notes that the easing has been predominately with regard to prime residential real estate loans. This is a definite positive, since we don’t want to go back to the times when anyone whose breath could fog a mirror could get a mortgage. In any event, the real estate market clearly will benefit from the greater availability of financing for quality borrowers.

July 2014 Las Vegas Real Estate Market Trend Report

Here is a video that my assistant prepared illustrating how the market for single family homes in Las Vegas has performed since it hit bottom in January 2012. The report cover all of the properties sold through the Greater Las Vegas Association of REALTORS® MLS system, however, most neighborhoods have exhibited similar trends. If you would like information on any particular community, send me a text or email or give me a call.

Will the 3.8% Medicare Tax Apply to the Sale of Your Home?

You may have heard rumors that the Patient Protection and Affordable Care Act (often referred to as Obamacare) imposes a 3.8% transfer tax on all real estate sales and may be concerned that you will incur the 3.8% tax if you sell your home.

The origin of this rumor is the 3.8% tax on some investment income that was added to the legislation at the last minute to help shore up Medicare. Beginning on January 1, 2013, the new tax will apply to certain investment income, e.g. capital gains, dividends, interest payments, and net rental income, received by individuals with adjusted gross income of more than $200,000 and married couples with adjusted gross income of more than $250,000. All of the revenue derived from this new tax will be paid into the Medicare Trust Fund.

In examining the application of this tax to real estate sales, it is important to note that $250,000, in the case of individuals, and $500,000, in the case of married couples, of gain from the sale of a principle residence remains excluded from taxation under the federal income tax law and is excluded from the new 3.8% Medicare tax as well.

If you file your federal income tax return single, the tax will only apply with respect to the sale of your principal residence if both (a) you sell your home for at least $250,000 more than you paid for it (i.e., you have more than $250,000 of gain on the sale of your home), and (b) your adjusted gross income is more than $200,000. If you and your spouse file a joint federal income tax return, the tax will only affect you if (a) you have more than $500,000 of gain on the sale of your home, and (b) your combined adjusted gross income is more than $250,000. (If you are able to sell your house in this market for $500,000 or more than you paid for it, please call me and let me know your secret.) Even then, only that portion of your gain that exceeds the excluded amount of gain will be subject to the tax.

For example, let’s say you and your spouse bought your home for $1,000,000 and sell it for $1,525,000 (after the expenses of the sale) for a $525,000 gain. The maximum amount of gain that could be subject to the 3.8% Medicare tax would be $25,000, the amount by which the total gain exceeds the $500,000 exclusion. In this case the maximum amount of the Medicare tax would be $950. The final determination of the amount of the tax would also take into account the amount and type of additional income that is includable in your adjusted gross income.

Of course, you need to consult your accountant or tax advisor concerning the tax consequences of your real estate dealing. It is clear, however, that the 3.8% tax is not a general transfer tax on real estate. Although the tax may apply to gain on some real estate investment transactions, in today’s real estate market it will apply only to a small portion of the gain on a limited number of sales of principal residences.

The NATIONAL ASSOCIATION OF REALTORS has prepared a brochure that explains how the 3.8% Medicare tax applies to a variety of situations, both those involving gains from real estate sales and those involving gains from other types of investments. If you call or email me I will be happy to email that brochure to you.