The Las Vegas Housing Market – Blackjack or Bust?

Las Vegas Home Sales

Per the Greater Las Vegas Association of Realtors, home sales in the sin city area increased by 30% in March. Sources indicate a large number of sales were to investors who are buying two to three homes at a time. One investor, Arthur Wong, indicated that the current buyers are looking to hold long-term, unlike the speculators who inflated the market in the first place. February, 2009 home sales in Las Vegas were 80% higher than in 2008. Some landlords are even researching foreclosure rolls to find potential renters to ensure their new investments will produce cash flow, per Camden Property Trust.

Ominous Signs Despite Increased Investor Interest

Despite the increase in sales, prices are declining. The Association of Realtors announced that the median price in March, 2008 was $149,000, down 39% from the year before. The Nevada state legislature recently introduced a measure known as AB I39 which would improve accessibility to low income housing. A similar measure was defeated in 2007 as too costly, but the current measure would be funded from an affordable housing trust fund and not general revenues. In addition to the perceived need for government stimulus or cash advance loans to the housing market, personal bankruptcy filings in Nevada went from 10,632 in 2007 to 18,211 in 2008. This indicates fewer individuals will be able to qualify for home loans. The mixed use CityCenter Las Vegas complex, a $9.1 billion project including both condominium and retail space, is now in jeopardy as Dubai World filed suit against its principal partner in the development, MGM Mirage, last month. MGM recently obtained a $70 million reprieve from creditors which may ease financial strains on the project. However, if completed, the condominium units would add supply to the strained residential market. The potential for further cheap condominium supply weighing on the market is indicated by the sale offering for the mortgage on Vantage Lofts. George Smith Partners recently indicated it is willing to sell the Note at a discount as the developer is in bankruptcy.

Merger Increases Cost Effectiveness

The recently announced acquisition of Centex Homes by Pulte Homes in a stock swap merger may improve the economics of this market somewhat. The cost savings from eliminating redundant back office staff would allow the combined company to be more price competitive in a market where new home sales have declined steadily for four years. It is not clear however, whether resulting lower new home prices and increased investor interest in single family homes will create sufficient demand to stem this decline.

Foreclosures Continue to Loom

One negative factor for the Las Vegas housing market is the potential for large numbers of foreclosed homes to be placed on the market. Distressed residential loans increased to $455 million at December 31, 2008 from $83 million at December 31, 2007. In addition to creating additional supply, the high level of delinquent loans could make banks less willing to lend in the Vegas market, making credit less accessible to potential buyers.

Caution Remains Prudent

Despite the increase in the number of units being sold, the likelihood of significant additional supply of residential housing units and the continuing price declines for these units suggest that the Las Vegas market has not hit bottom. A cautious approach would appear justified for anyone considering purchasing a home in the area at this time.