Stabilization Is a Welcome Change for Las Vegas Market

las-vegas-housing-foto-250.jpg

Seven years after the bubble burst, stability may be the new normal for Las Vegas — a long-awaited respite after several months of tremendous growth. According to the Heidi Kasama, the president of the Greater Las Vegas Association of Realtors, the stabilization is "a welcome change" for the area, and will represent a major shift from last summer when investor interest was so high it was outpacing inventory and blocking out other buyers.

"Investors were coming because prices were so good, but now that prices are stabilizing large groups of investors are stepping back, and that's fine," she said. "There were so many buyers and families that couldn't get a home because there were so many investors, and now they have an opportunity."

The Standard & Poor/Case Shiller 20-city home price index for July showed an annual gain of 12.8% in home prices for the beleaguered city — the best in the nation. That's a big increase, but it's down from an almost 30% jump last year. Kasama expects that comparatively modest growth rate to continue in a "slow steady march" for the next several years.

Freddie Mac Chief Economist Frank Nothaft cautions onlookers to remember where Las Vegas came from before reading too much into the huge growth. While the Las Vegas metro area has improved significantly, he explained it is still the weakest in the nation.

"As you know, Las Vegas was probably the poster child for the devastation we saw in the depression in the housing market," Nothaft said.

"The great recession impacted the local economy severely because there was a big drop in tourism, and the conventions that were still being held there were a lot smaller."

This oversensitivity to the national economy is one of the reasons Las Vegas has been growing so much faster than the rest of the country over the last several months.

Nationwide economic growth, Nothaft said, "translates to more vacations, more attendance at conferences and other meetings that bring people into the [Las Vegas] market."

The bump in tourism and construction has also brought new construction. "Much of the pickup of construction has been the start and completion of the new casino projects, with some older ones being torn down and replaced," said Nothaft, who said he anticipates construction will continue to grow over the course of the next year. "This [casino construction] bodes well for employment in the construction sector, and naturally you need residences to house employees."

Len Kiefer, deputy chief economist at Freddie Mac, echoed Nothaft's construction predictions and added that the lack of residential construction was likely due to an "overly severe, downward correction in prices" after the bubble burst seven years ago.

"A few years ago you didn't have any construction occurring because of the oversupply of homes at dirt-cheap prices," he said. "That's all beginning to turn around."

And while he recognizes the clear improvement, Kiefer warns against being overly optimistic. He says that there are still two major areas of weakness — purchase applications and delinquencies.

On Freddie Mac's most recent Multi-Indicator Market Index, purchase applications in Las Vegas are rated at 16.4, compared to a rating of 65 nationwide. "That's been trending up, but until recently it has flat-lined," said Kiefer, who called the current number "very weak."

And while delinquencies are still a problem — the MiMi rates Las Vegas at 36 compared to a national rate of 66.3 — they have improved significantly, and have in turn pushed up the entire market. The most recent MiMi's Current on Mortgage indicator showed a 10.77% increase over the last three months.

Both Kiefer and Nothaft expect this slow but steady improvement to continue as the area sees an uptick in people from outside of Las Vegas moving in to take advantage of the relatively low prices and improving economy.

"Nevada is next to California — a really, really high housing cost state. As housing costs continue to ratchet up, that could continue to provide some incentive for folks to move to Nevada — especially Las Vegas," he said.

He also noted that Las Vegas may see some businesses move to Las Vegas from California, given the Golden State's high cost structure.

He elaborated that baby boomers will be a huge boon for the city: "Arizona and Nevada are two of the markets that have really benefited from the last generation. There's no reason that's not going to continue." Kasama agrees, saying that the low cost of living and assortment of amenities Las Vegas offers is a huge draw for retirees and people looking to purchase affordable second homes.

For reprint and licensing requests for this article, click here.
Originations Compliance Servicing
MORE FROM NATIONAL MORTGAGE NEWS