When Cash Buyers Move Out of a Market

Real estate is local, and every market is unique. However, certain trends are national in nature, and the law of supply and demand doesn’t change from market to market. Playing out in the Las Vegas, NV market right now is a situation with cash buyers leaving the market. It could be a learning tool for investors in other markets to mitigate risk and even possibly wait for better deals to appear with lower demand.
Las Vegas was one of the markets hardest hit in the real estate crash, so it has also been one of the strongest comeback markets in the past few years. However, with some 60% of all home purchases there going to cash investor buyers, it hasn’t been a retail market for a while. That 60% number has decreased to around 40% in the past year, and Las Vegas homes for sale inventories have jumped by a whopping 51% this past year.
Even after large price increases over last year, the median home price in the Las Vegas market is around $185,000. This still looks good compared to some areas, particularly some of the bloated markets in California. Unfortunately, Las Vegas investors aren’t seeing the cap rates of the past few years now, as local renters aren’t getting the wages and employment opportunities to fuel higher rents that go with higher prices. Current prices in Las Vegas are around where they were in 2004.
So, with lower cap rates and challenges to fill rental homes with tenants who can afford higher rents, investors are moving out of the Las Vegas real estate market. When the buying pressure drops, inventories rise, and prices should begin to fall again without an influx of retail buying. Right now, with thousands of rentals listed and vacant, a 3000+/- square foot, 4 BR, 3BA home is advertised as reduced from $2,100/month to a $1,900/month rent.
Your market is unlikely to have experienced the damage seen from the crash in Las Vegas, and it’s doubtful that you’ve been seeing price increases and heavy investor demands like those in the Vegas market. However, supply and demand is still in command, and investors have been the primary buyers in most markets for two or three years now. Take a look at your for sale inventory levels and the same for rental units. Count the cash sales in comparison to the previous couple of years. You just may be seeing the beginning of a slip in demand, and waiting could bring you some new bargain opportunities when inventories rise and demand doesn’t.