Mny people are worried about stagflation. This is when prices rise fast, the economy grows slowly, and unemployment might go up. If you invest, plan to buy a home, or are involved in real estate, especially in places like Las Vegas, knowing where the economy is going can help you a lot in the coming months.
What Is Stagflation and Why It Matters
Stagflation is a tough economic situation. It means the economy isn’t growing much, prices are going up fast (inflation), and jobs could become harder to find. This is tricky because the usual ways to fix one problem often make another worse. For example, cutting interest rates helps the economy grow and create jobs, but it can make prices go up even faster. Raising rates helps slow price increases, but it can also slow growth and lead to job losses. The US had bad stagflation in the 1970s because of oil problems and bad policies. We don’t have full stagflation now, but some economists see early signs. This makes the economy hard to predict and watch closely, especially for investors and people in housing markets that already go up and down a lot, like Las Vegas.
Why Experts Are Ringing the Alarm on Stagflation
Experts are talking about stagflation again. This is because today’s numbers look similar to the 1970s. They see housing and service costs going up, GDP growth slowing, people feeling less confident about the economy, and businesses investing less. Economists say supply problems, like ongoing wars and slow global shipping, are keeping prices high. But also, the Fed’s high interest rates are making people and businesses spend less. When companies cut back on hiring or growing, it hurts the economy’s chances of getting better. And then, core inflation (prices without food and energy) is still high. This shows that the main reasons for price increases haven’t gone away. This makes it hard for the Federal Reserve to cut rates much. So, any move the Fed makes is tricky: it can try to keep prices steady, or it can try to keep the economy moving, but not both at the same time.
The Economic Data Telling the Story
To see if stagflation is a risk, people are watching US economic numbers. And these numbers show warnings. The Bureau of Economic Analysis says the economy grew by only 1.6% in the first three months of 2024. This was much slower than the 3.4% growth at the end of 2023 (BEA, 2024). This slower growth is a clear sign the economy is cooling down. At the same time, prices are still going up faster than the Federal Reserve’s 2% goal. The PCE index, which the Fed looks at most, shows prices were over 3% higher than a year ago. This is less than in 2022, but it still shows prices are rising even with high interest rates. And then, people aren’t spending as much, especially on things they don’t absolutely need or big items like cars. More people are falling behind on credit card payments, and sales at some stores have stopped growing or gone down. These numbers suggest that people are dealing with higher costs and don’t want to or can’t spend like they used to. This drop in spending is a big deal, because what people buy makes up about 70% of the US economy.
Unemployment: Still Low, But for How Long?
The number of people out of work is still quite low, around 3.9%. At first glance, this seems good. But economists point out that the job market numbers often show economic trouble later, after it has already started. Right now, some things suggest the job market isn’t as strong as the low unemployment number makes it seem
- Businesses are posting fewer jobs, especially in service and technology fields.
- Companies are not raising pay as fast.
- Fewer people are quitting their jobs, which shows less confidence about finding a new one.
When businesses think people will buy less, they often stop hiring or cut hours before they start firing people. We are seeing early signs of this happening now. So, the job market could be a turning point. If more people lose jobs, even just a few, it could make people spend even less money and hurt the economy more.
The Federal Reserve’s Dilemma
The Federal Reserve is right in the middle of this difficult situation and is facing one of its hardest jobs in years. It has two main goals: keep prices stable and help as many people as possible have jobs. But its main tool, changing interest rates, can’t fix price increases caused by supply problems without hurting the economy too much. Early in 2024, people expected the Fed to cut rates several times, thinking prices would calm down enough. But prices are still rising, especially for services and housing, so the Fed has had to keep rates high. The head of the Fed, Jerome Powell, said recently that cutting rates too soon could make prices start going up fast again (Federal Reserve, 2024). If prices don’t go down as much as hoped and the economy keeps slowing, the Fed might be stuck. It might have to let stagflation happen instead of risking a worse recession by keeping rates very high or making prices shoot up again by cutting rates too early.
Las Vegas Real Estate: Why This Market Is on High Alert
Las Vegas real estate reacts strongly to the economy. It relies a lot on tourism and entertainment, which means it can be hit harder when the country’s economy slows down. In the 2008 housing crisis, Las Vegas saw some of the biggest drops in home prices in the US. Right now, the Las Vegas real estate market is sending mixed messages
- Home prices are still quite high compared to before the pandemic.
- People are listing fewer homes for sale.
- There are a few more homes on the market, but still not as many as before the pandemic.
- Homes are taking longer to sell.
Mortgage rates, which have been over 7% for a while now, are really slowing down buyer. Many people who own homes don’t want to sell because they have great mortgage rates below 4%. Meanwhile, buyers can’t afford the high prices with high rates, or they are waiting for rates to drop. This “lock-in effect” means fewer homes are changing hands, making the market less active and causing buyers and sellers to just wait and see.
How Inflation Is Impacting Housing Affordability
It’s harder to afford a home now across the US, and Las Vegas is the same. When you look at national numbers, the cost of higher mortgage rates and high home prices together takes up a very large part of what families earn. If there is stagflation, this problem doesn’t just hurt people wanting to buy a home. It slows down the whole housing world. Sellers might wait to move to a different home. Investors might not make as much money. Builders might stop or delay building new homes because they aren’t sure people will buy them. In Las Vegas, homes cost more than $400,000 on average. So, many families can’t buy or don’t want to buy. This is especially true for people trying to buy their first home who are struggling with rising costs and slow pay raises.
Real Estate Investing in a Stagflation Scenario
For people who invest in real estate, stagflation makes things different. Real estate was often seen as a good way to deal with rising prices because rents could go up. But if the economy isn’t growing, that might not help as much. It could be harder to rent out properties if people lose jobs or fewer new families start households. Raising rents might be difficult. Home prices might not go up fast, which isn’t good for people who buy to fix and sell quickly or who want prices to rise a lot. So, investing well means:
- Caring more about the money you make from rent each month than hoping prices will up fast.
- Not borrowing too much money and making sure you have cash ready.
- Owning property in good, steady neighborhoods where people want to rent.
In Las Vegas, investors are starting to buy properties to keep for the rent money they bring in, like small apartment buildings. This steady income helps when prices aren’t rising much.
How Is the Las Vegas Rental Market Holding Up?
The rental market in Las Vegas has been pretty steady lately. Average rents haven’t changed much in most neighborhoods. But now, there’s a bigger difference between places
- Expensive apartments in central spots like Summerlin or Henderson still have steady renters wanting them.
- But cheaper rentals in areas farther away have more empty places, and landlords are offering deals.
Reasons for this are
- Fewer people are moving to Vegas.
- Families have less money.
- And more new apartments are being built.
Investors with properties in good places who manage them well are still making money. But those who were expecting to raise rents a lot every year or who counted on sudden busy periods are seeing their profits shrink.
Consumer Spending in Las Vegas: A Canary in the Coal Mine
Tourism, conventions, and entertainment are what the Las Vegas economy runs on more than anything else. So, if people spend less on fun things, it directly hurts jobs and the demand for housing. Recent numbers show tourism isn’t growing anymore, and casinos in the area are not making money as fast as before. When travelers, especially those dealing with high prices at home, spend less, you start to see the effects
- Local shops say fewer people are coming in.
- Hotels and restaurants are hiring less workers.
- People who already work there are getting less overtime or fewer shifts.
In the past, like during the 2008 money crisis and the 2020 pandemic, less tourism meant a lot of local job losses and real estate slowing down. Las Vegas is like an early warning sign for bigger money problems.
Key Economic Indicators to Watch
If you invest in or live in the Las Vegas real estate market, or just follow the US economy, here are important things to watch regularly
- Inflation Numbers (CPI, PCE) – These show how quickly prices are going up and when they might stop rising so fast.
- What the Federal Reserve Says About Its Plans – This affects rates for mortgages, credit cards, and business loans.
- Reports on How Confident Consumers Feel – These show how likely people are to spend money later.
- How Many Jobs Are Being Added (monthly report) – These show if the economy is strong or struggling.
- How Many People Are Applying for Mortgages – This helps show how healthy the market is for buyers and sellers.
- Building Permits in Clark County – This is an early sign of how builders feel about building new homes.
- Information on Tourism and Hotels from the Las Vegas Convention and Visitors Authority.
When you stay informed and can react quickly, you can deal with changes more clearly.
Insights from Las Vegas Real Estate Expert Steve Hawks
Steve Hawks, a local real estate expert, says the smartest way to invest is to be careful and use facts. When things are risky, here’s what he suggests
- Look for great neighborhoods where rentals do well all the time.
- Make sure properties at least cover their costs or bring in money each month.
- Don’t borrow too much money; use fixed-rate loans if possible.
- Have enough cash ready to jump on good deals that come up.
- Keep learning; the market can change fast and affect how easy it is to sell.
He says, “You don’t need to find the absolute lowest price to buy—just don’t be in a bad spot if prices drop.”
While Stagflation Isn’t Certain, the Risks Are Growing
We aren’t officially in stagflation, but the US economy has signs that we should pay attention to. Slower growth, prices still rising, people spending less, and the Federal Reserve facing tough choices make 2024 one of the hardest years to predict for the US economy and the Las Vegas housing market. If you invest in real estate, own a home, or rent and are thinking about your next move, let facts guide you. Watch the important economic numbers, work with experts like Steve Hawks, and be careful in today’s market. Don’t react out of fear.