Moving to Las Vegas - Housing market on fire

[Christopher Sellar]

Hello All!  

BTW, the Bigger Pockets community is amazing and thank you all in advance.

My wife and I are both active duty military and moving to Las Vegas in Feb. The housing market, like most places, is hitting new all-time high after all-time high. What are all your thoughts on buying right now?

Personal factors:

- combined housing allowance is increasing with market so this gives us more wiggle room but doesn't mean we will pay more than we should. 

- we have access to VA loan, so no money down required.

- we have 5 children so school district is huge. (On base housing is not an option)

We are looking at $500-550K homes that were $400K or less not too long ago in fear that it will dip back down. The plan is to hold long-term (10+ years) and renting out once we move in roughly 3-4 years.  There are so many factors within the market that we feel somewhat stuck in this decision (market at new highs, speculation of hyperinflation around the corner, etc.), that we are considering renting until it all pans out...

Sorry for the long post. Any suggestions are much appreciated. If any of you could me a recommendation on a realtor in the area that would be great as well!

Thanks again!

[Eric Fernwood]

Hello Christopher,

Prices have risen rapidly in Las Vegas, but the market is not a bubble, like in 2008. In 2008, prices were driven by speculation, not demand. Today, the increases are demand-driven, not speculation. Below is the data supporting my statement.

Where are prices today compared to peak prices in 2006?

As you can see from the chart below, if you adjust for inflation, prices are still about $40/SF below peak prices; the market has not recovered from the 2008 crash.

Below are two charts showing prices vs. inventory for the preceding 13 months. The data is for the single-family home segment we target (which includes the price range you mentioned), not the entire market.

Sales - Median $/SF by Month

Sales - Months of Supply

As you can see, inventory is symmetrical to median $/SF. This shows that price increases are driven by demand, not speculation.

Key Drivers of the Las Vegas Housing Market

What are the major market drivers for the Las Vegas housing market and economy?

Jobs

• Everywhere you look in Las Vegas, there is help wanted signs and job fairs. There are plenty of jobs available.
• What about new jobs? Approximately $10B in new construction was completed and came online in the last 3 or 4 months, creating thousands of new jobs. There is also about $22B of construction underway and another $7B announced. These projects will create even more jobs. More jobs bring more people to Las Vegas, which creates more demand for housing.

Land Shortage

Las Vegas is an island surrounded by federal land. At the end of 2019, the amount of vacant buildable land in the Las Vegas Valley was less than 28,000 acres, of which 5,000 to 7,000 acres is not viable for residential development. (87.5% of Clark County is federally owned. 85% of the entire state is federally owned.) Consumption rate is about 5,000 acres/year. See the animated GIF below. The areas in brown are federal land. The time-lapse only goes through 2018, and there was a large amount of development in 2019, 2020, and 2021. The shortage of land combined with the increasing population almost guarantees property prices and rent will continue to increase.

California

California seems to be doing all it can to drive people and companies out of the state. And, with Newson surviving the recall, things look even better for Las Vegas. California can be relied upon to continue driving people and companies out of the state. The winner will be states like Nevada and Texas. However, Nevada has a huge advantage over Texas due to the nature of the business each is attracting.

• R&D is largely going to Austin. I've seen companies fire 10,000 engineers and programmers at one time. So, a downturn in R&D could seriously impact Austin property values.
• Infrastructure is largely coming to Las Vegas. For example, Google's 1.2B data center. I cannot envision a situation where Google decides to shutter such an investment and walk away. So, whether there is a downturn or not, jobs will remain and fairly well insulated from crashes due to the nature of the business Las Vegas attracts. This is especially true for the tenant pool we target.

What else attracts people and companies to Nevada and Las Vegas?

• Low commercial energy cost - California: $0.18/KwH, Nevada: $0.046/KwH. Also, Las Vegas is one of the few cities in the US with dual electric power sources, critical for servers and electricity-dependent industries like data centers and Internet switching.
• No state income tax
• Pro-business government
• Low property taxes - The average property tax rate is 0.55%. According to MortgageCalculator.org, Nevada has the 9th lowest property tax rate in the nation.
• Low-cost insurance - The cost of property insurance is a good indicator of major natural disaster risk probability. Nevada has the 10th lowest average insurance cost in the nation.
• Population growth - The population is growing at a very sustainable rate of about 2.5% to 3%.
• Internet backbone - The fiber optic bundle connecting Southern California to the East Coast runs under Las Vegas Boulevard. This is part of the reason Google is building a $1.2B data center here. Also, Google just announced that they will launch a "first-of-its-kind, next-generation" geothermal project in Las Vegas.

In summary, no one knows the future. But, until California becomes the go-to place for personal freedom, low crime rates, and low-cost business operations, Nevada and Las Vegas will continue to do well.

A home now and a rental property later

We deal with investment properties and have for the last 15 years. We've had several military clients do what you wish to do; buy a property to live in while you are in Las Vegas and then rent it as they rotate through various assignments. It is important that you buy a property that will be a good rental, not just a home that you will like. Please reach out if you would like more specifics.

Again, welcome to Las Vegas.