Is it sustainable for Las Vegas home buyers to bid up real estate in a collapsing economy? Let’s check this out.
Prashant Gopal wrote an article on Bloomberg on September 16. He mentioned the widening gap between real estate and the real economy. The gap becomes more apparent in Las Vegas where tourism is in ruins.
Wages are plunging yet home prices keep rocketing – higher than the median price for a single-family house. In August this year, it jumped almost 10% from a year ago. The median is now $335,000, according to a report from the Las Vegas Realtors.
The report also compared the annual price growth in February of 6.7%, a month before COVID-19 broke out. Drastic health measures emptied casinos, hotels, and restaurants. But home prices continue to rise faster than previously due to record-low mortgage rates and people moving to the state, especially from high-cost markets in California or New York.
Nevada’s lack of income tax looks like a great thing right now. In less than a year, that could change, though, as more owners list their properties and send prices falling. For me, trying to flip properties in Las Vegas doesn’t make any sense.
Why would you buy it now to resell it in less than a year?
Las Vegas is among the riskiest states for housing markets in the country. In August 2020 alone the available listings fell 40%. This is because of the influx of housing demands which is dwarfing supply.
This will change, according to the supply chief economist at CoreLogic Forecasts, Dr. Frank Nothaft. Investing in Las Vegas is risky as more homeowners can’t afford to pay the mortgages. Lack of income to cover the debt could mean homeowners may have to sell their properties at a much lower price just to get out from under the debt. Even worse – The federal mortgage forbearance program also expires in March.
I remember one of my first clients back in 2008 who worked as a waitress. She was a nice lady. She had a nice house in Las Vegas and suddenly got laid off. She didn’t have income.
Like many people back then, she needed to liquidate her house and she tried to sell it, for only $140,000 – way less than what the $350,000she bought the house for just a few years earlier. It’s crazy!
Another guy, Tony Vayne, a realtor with Berkshire Hathaway, has 13 houses under contract. He may have to farm out businesses to other agents because he has too many. He’s fully-booked on weekends from out-of-state customers.
One of his listings includes a 4-bedroom home with a swimming pool and room for an RV. It drew 15 offers in 3 days. Someone purchased it for $11,500 above the asking price at $360,000. Seriously?
If you take a closer look at these numbers, it’s hard to see hope for the next year.
- Las Vegas unemployment rate – 15.5% (from 16.7% in July)
- Construction – 3.2%
- Leisure – 14.6%
- Hospitality – 24.7%
- Nevada’s insured unemployment rate – 13.7%
I don’t know why people want to live there. I like to live in a green state with grass and trees. But apparently many people do. I hope they don’t go through a 2008 redux.