All real estate is local. But real estate markets are affected by both local and national factors. And in order to look ahead with any degree of confidence, it is important to start with a snapshot of where we are today, as well as to look at the trends of the fundamentals that typically shape the market moving forward.
This year, however, is undoubtedly the most difficult for me to foresee of all the years I have been involved in the real estate industry. The primary reason for these unprecedented uncertainties, of course, is the way that our political landscape has changed as of the last presidential election.
But let’s start locally: Las Vegas is on fire! All of the data and statistics are looking good right now, including population growth, travel and tourism, employment rate, urban infill, infrastructural improvements, consumer confidence, and strong growth in the commercial and retail sectors. Brands that have not yet established a presence here are discovering Las Vegas to be an exciting market of opportunity. And many companies that already have a presence here are expanding their footprint, willing to invest in the future potential of Las Vegas. For the first time in history, the procurement of professional sports teams has transitioned from hyperbole to actual reality. Las Vegas has finally taken its seat at the adults table, never to be relinquished, in my opinion, and no longer relegated to the fringes due to its gaming-centered reputation. Just let’s not overbuild, please, builders?
Therefore, on a local level, I have never been more optimistic about the incredible potential of Las Vegas. But please take particular note of my choice of the word “potential”.
On a national level, I do have major concerns, the first of which is interest rates. The Federal Reserve, chaired by Janet Yellen, raised interest rates last week. While a small bump in interest rates in and of itself would normally not be much of a concern, this is only the third increase in roughly ten years. Borrowers have been spoiled by and have gotten accustomed to such an extended period of low interest rates: the lowest, in fact, in five decades. In addition to last week’s action, it is a widely-held belief that rates will continue to rise, with two or three more Fed actions expected later this year, and perhaps another two or three increases expected in 2018. When interest rates rise, homes become less affordable for borrowers. And as homes become less affordable, competition decreases, and markets tend to cool. Could we see 6% mortgages by the end of 2017?
Another concern that I have is the talk of the repeal of the Dodd-Frank Act. If this happens, we could return to the day of exotic (read “irresponsible”) mortgage products. Dodd-Frank was enacted in an attempt to reel in Wall Street and the big banks, and to hold them more accountable for their part in the financial meltdown that ravaged the housing market almost a decade ago. If Dodd-Frank were to be repealed, we could also see the dissolution, or at least the gutting, of the Consumer Financial Protection Bureau, as well. That would make banks the winners (again), and consumers the losers (again).
Something else that troubles me on a national level, but something that could have specifically egregious ramifications for the Las Vegas market, is the pervasive feeling that the US is no longer rolling out the welcome mat for foreign nationals. I believe that without foreign investment in Las Vegas-area real estate, we would not have experienced the rebound in the market that we have, maybe not even close. The US needs foreign investment (and tourism, for that matter), and Las Vegas, specifically, would be in major trouble without it. If we keep talking about walls and travel bans, and if we keep picking fights with even our closest friends and allies, we are going to pay the price for it. And here in Las Vegas, the price could be devastatingly high.
So, as previously inferred, I find it both challenging and risky to predict where our market is headed. My optimism for the Las Vegas market is tempered by my grave concerns for us as a country. For the near term, our market may be strong, propelled forward by boomerang buyers (those returning to the market after experiencing short sales and foreclosures); buyers looking to lock in a mortgage at relatively low interest rates before rates inevitably increase; and the strong growth and power of the Las Vegas economic engine. But in the longer term, could we be adversely affected by overbuilding, higher interest rates, and a diminution of foreign investment?
If and when I feel that any clouds of uncertainty are starting to lift, I will be sure to update this blog. And in the meantime, I hope that we do not squander or fritter away the great potential that is Las Vegas.