While maneuvering through the home buying process earlier this year, Lexi Reyes knew she and her husband had a tightrope to walk.

Already owners of their first home in North Las Vegas, the couple had plans to cash in on the equity in their home in order to upgrade to more spacious digs—to use the money from the sale of their house toward the purchase of a bigger property.

Thankfully for Lexi and Anthony Reyes and their four children, everything worked pretty much according to plan. They now live in a 2,700-square-foot home with four bedrooms in North Las Vegas. Price tag: $525,000.

“It was scary for a while, but I’m glad we did it when we did,” says Lexi, a graveyard shift nurse at Sunrise Hospital. “We bought our previous home for $310,000, which we thought was a lot of money for a home at that time.”

Like the Reyes, many local families have been looking for a housing change. In 2021, more than 50,000 homes—including condominiums and townhomes—were sold in the Las Vegas Valley, a record.

The sales total for this year is expected to be less than that, but nearly 8,600 homes were listed for sale in the Valley at the end of June, a 23% increase from the same month in 2021. According to the Federal Home Loan Mortgage Corporation—commonly referred to as Freddie Mac—the interest rate for a 30-year fixed mortgage hovered around 5.5% as of mid-July, and it’s up more than three percentage points since early January. Borrowers who locked in their mortgage this month or last are paying a lot more, sometimes hundreds of dollars per month.

Today’s rates are a far cry from the all-time highs of close to 17% seen in the early 1980s, but any increases, experts say, make it more difficult for first-time homebuyers—or those who want to upgrade, like the Reyes—to lock in a feasible rate.

Interest rates have been on an upward trajectory in recent months, as the Federal Reserve has made attempts to battle inflation. The Fed was widely expected to raise its benchmark further at its scheduled meeting July 26-27.

“From June 10 to June 13, we had rates go from around 5.5% to about 6.5% in basically three business days,” says Jon Gedde, CEO of SimpliFi Mortgage and chair of the Nevada Mortgage Lenders Association. “That shocked the market. Rates have actually come back down since then, but that increase shook things up a little bit.”

In Southern Nevada, prices for existing homes have only recently started to drop slightly after a long run of monthly increases.

In June, according to the most recent report from the Las Vegas Realtors trade group, the median price for a home was $480,000, which represented a modest $2,000 drop from May.

That was the first time the median price had declined month-to-month in over two years. The June median price was up 22% from the same month in 2021, according to the group.

With the higher prices for homes, many potential single-family homebuyers have already been priced out of the market. As interest rates continue to climb, that will likely push more buyers to the sideline.

“We’re going to see more people sitting it out,” says Elizabeth Renter, a data analyst for online personal finance company NerdWallet. “There are more homes being listed now, which is good news, but Las Vegas was one of the cities hit hardest during the pandemic. For those who can afford the prices and the higher rates, there will be more homes out there, but first-time buyers are going to find it difficult.”

For a 30-year loan at 5.25% on a $450,000 home, Gedde says, a monthly payment will be just under $2,500. That same loan at a rate of 6.5% would be about $350 more per month.

Many industry onlookers expect the 30-year mortgage rate to be in the neighborhood of 6.5% by the end of the year.

“We had people get into contracts over that weekend in June,” Gedde says. “When they came back in and said they were ready to proceed with their loan, we told them about the increase and they told us to cancel their contracts.”

As Renter points out, more homes have been on the market in the Las Vegas area in recent months, which provides a bit more balance for buyers. The Las Vegas Realtors group reports over 5,700 single-family homes, condominiums and townhomes were listed as of late June without any type of offer.

That’s more than double what was available at the end of June 2021.

“We still have a great deal of buyers coming into the market, and the market is competitive,” says Tony Humphrey, vice president of mortgage lending for One Nevada Credit Union. “We are seeing some discounting from sellers now, which we weren’t seeing a few months ago. In those situations, sellers are often trying to keep buyers in their contracts. Sellers are beginning to pay some closing costs again.”

Partly because of the rising interest rates—but also because Americans have been paying more lately for everything from gasoline to eggs and bread due to inflation—mortgage business has slowed in many parts of the country, including Las Vegas.

One of the country’s biggest mortgage lenders, Wells Fargo reported in a quarterly earnings call earlier this month that fees collected from its mortgage banking operation fell from $1.3 billion during the second quarter of 2021 to $287 million during the second quarter of 2022.

Matt Haugh, a Las Vegas area Realtor, has seen a definite downshift in the market lately. “A lot of buyers are on the sidelines waiting to see what’s going to happen,” he says. “We have even seen many of the institutional buyers and hedge funds that buy properties with cash canceling contracts.”

As everyone continues to wait to see where the market will go, Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors, says there are some things that potential buyers can do to put themselves in the best position possible.

“I do expect a large reduction in home sales activity over the following months,” Evangelou says. “What we see now is people looking for lower-priced homes. Buyers should try to find homes that are 25% less than what the median priced home is now.”

She says people can also look for first-time homebuyer and down payment assistant programs, or gravitate toward adjustable rate mortgages (ARM), which offer lower rates at the outset of the loan but eventually rise.

As always, Evangelou adds, the better the credit score, the better the loan rate, so care for one’s credit is important.

“Especially for those first-time buyers, an ARM can make sense,” Evangelou says. “If they’re looking to stay in a home for five to 10 years, an ARM can save them as much as $300 per month on their payment.”

The issue with that, of course, is that adjustable rates go up at some point. If a homeowner doesn’t prepare for those pending changes, a noticeable jump in a monthly mortgage payment can cause a household financial crisis.

No matter how potential homebuyers look to tilt the scales in their favor, most experts seem to agree that the market will remain challenging for the immediate future.

“Specifically for those younger buyers, I’d say to take your time in this market,” Renter says. “It can be really hard if you find something in your way after you plan for a purchase as big as a home, but people shouldn’t overextend themselves in the name of achieving that goal. You can kick the decision to buy out a year or two and potentially be in a more favorable position.”

Due to its consistent standing as one of the fastest-growing cities in the west, Las Vegas is likely to stay busy.

As Evangelou put it, Las Vegas “is a popular place for those who want to move.”

People are still moving here from more expensive places like California, and experts say it’s not likely that the market in Southern Nevada craters like it did following the onset of the Great Recession in 2008.

In early 2012, the median price for a home in Las Vegas bottomed at $118,000, almost exactly one-fourth of the cost for a home in the Valley today.

“We may see some depreciation, yes, but I don’t think the market will crash,” Humphrey says. “The prices are relatively flat. The rates are what are driving most people out right now. I don’t think mortgage rates will get to 7% by the end of 2022, but we could certainly get close to that.”

Back in North Las Vegas, Lexi Reyes says she’s happy with the interest rate, about 4.9%, that she and her husband secured for their new home.

“Sure, it’s not 2.9%, but we were able to take advantage of the equity we had in our previous home,” she says. “I don’t think we felt like the market was going to crash or anything, but the time was right for us. It worked out.”

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