Las Vegas -
Is it the perfect real estate market?
by Gregg Thaylor
Director of Business Development
SunVest Communities
We believe that the only bubble that will be seen in the near and
foreseeable future in the Las Vegas real estate market will be in
the champagne glasses of the home buyers and investors who continue
to buy real estate in the Valley in unprecedented numbers. Here’s
why:
·
Las Vegas has doubled its population every decade since World
War II; in the decade of the 1990s, Las Vegas added nine new
residents every hour; and, in 2004, the region bettered that
astonishing pace by adding 11 new residents every hour (that’s one
about every 5 minutes and 30 seconds.
·
Federal government figures released recently reveal that U.S.
housing prices jumped by 13.4 percent for the 12-month period ending
June 30, the largest increase in more than 25 years. And Government
officials see no end in sight. The report quoted Office of Federal
Housing Enterprise Oversight (OFHEO) chief economist Patrick Lawler
saying, "There is no evidence of prices topping out. On the
contrary, house price inflation continues to accelerate.
·
Unemployment is below 4% and is dropping rapidly.
·
In addition to Las Vegas being the fastest growing city in
the United States for the past ten years, Nevada will be the
nation's fastest growing state for the next two and half decades and
by 2030 will have more than 4 million residents -- more than twice
as many as in 2000, according to a U.S. Census Bureau population
growth released this April.
·
"Las Vegas: Is Boom Overextended?" was the headline on the
June 20, 1955, issue of Life magazine. Fifty years and and 130,000
hotel rooms later another boom is echoing across Las Vegas Valley as
the market adjusts to demand for affordable housing.
·
Las Vegas consistently pulls families, second-home, and
retirement refugees from California who look for a better value and
a way to bank some of their home equity.
·
A recent report from the Public Policy Institute of
California found that high rents and rising home prices have one in
four Californians thinking about moving out of state or to another
town. Of California's 36 million population, about 7 million are 55
years of age or older and more than a million will hit that age in
the next five years, Sullivan said. All of them pay state income
tax. Moving to Las Vegas would save them about 10 percent of their
annual income.
·
Casinos backed by Wall Street are spending billions of
dollars expanding. From downtown, where hundreds of millions of
dollars are being spent renovating such downtown icons as the Golden
Nugget and the Lady Luck, past MGM’s $5 billion City Center and
Boyd’s $750 million South Coast, ending at the twin $2 billion
casinos being built at the Strip and St. Rose Parkway, hotel and
casino development planned to be completed by 2009 approaches $15
billion.
·
There were more small businesses started in Las Vegas in 2005
than anywhere in the country.
·
Apartment complexes are being snapped up by investors and
converted to condos at a faster rate than new units are being built,
which is putting upward pressure on rental rates.
·
The apartment market reached a 95.1 percent valley-wide
occupancy rate in the second quarter, despite a 6.3 percent increase
in monthly rents during the last 12 months.
·
Analysts estimate that apartment rent growth will range from
8 to 10 percent by the close of 2005.
·
On November 22, 2005, the Las Vegas Review Journal reported
that in the past year, Las Vegas businesses have added 61,000 jobs.
61,000 jobs! How many families does that represent? How many
individuals? More to the point, ask yourself what impact the
creation of these new jobs, many of which, if not the majority of
which, went to new residents of the Las Vegas metro area, had on the
demand for housing in the Valley?
This level of job
growth is four times the national average, no other state even came
close to Las Vegas’ job growth performance.
Gaming and
hospitality added the most jobs with 16,500, which was to be
expected. Additionally, professional and business services companies
added 13,600 jobs, a strong second place showing. This is extremely
significant in that it provides empirical proof that the
diversification of Las Vegas’ economy, which can only stabilize and
strengthen the real estate market, is rapidly proceeding.
These new employment
figures further strengthen our position that if there is a bubble in
the Las Vegas real estate market, it is a protective bubble derived
from the Valley’s unique demographics and geography, a bubble of
stability, not one of irrational speculation.
Despite these facts,
we believe that investor’s expectations must be adjusted. It is
almost a certainty that the recent year to year 52% median home
price increase that homeowners and investors alike experienced in
2004 is unlikely to be repeated. Ever.
Advise your buyers
to scale back their expectations and dreams of get-rich-quick
returns. It is likely that those meteoric gains will be replaced
with merely stratospheric returns.
Real estate buyers
have become spoiled, with the leverage of mortgages, those 52% gains
yielded some buyers cash on cash returns of several hundred per cent
in one year.
No investment ever
goes up in a straight line, and it seems that prices had gotten
ahead of themselves a bit and are taking a breather. But, Las
Vegas’ population and economic growth is marching on inexorably, and
can only lead to one result; continued real estate price
appreciation.
After all, condo
conversions represent entry level, necessity housing. And while
there seems to be no let up in site, historically it has been
necessity housing that has been most price inelastic.
So, advise your
buyers to take a deep breath along with a reality check. Manage
their expectations. Inform them that they may have to hold their
properties longer than thirteen months to see the considerable gains
they became accustomed to. So, maybe it will take 23 months to see
stratospheric returns. Dare them to find an investment with a
higher likelihood.
Thirteen months,
twenty three months or thirty months, a strong case can be made that
Las Vegas real estate, with its terrific likelihood of appreciation
and the not-to-be-found-elsewhere safety net of its restricted
geography and compelling demographics, represent one of the surest,
safest bets to be made anywhere.
One of the surest,
safest bets anywhere? Found in Las Vegas? A little ironic, isn’t
it?
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