Las Vegas Real Estate Investment Update - 2025 Outlook

[Eric Fernwood]

I hope you are having a great start to the new year.

Every January, we publish our Las Vegas investment outlook for the upcoming year. While predicting the future is challenging (and foolish)—factors like inflation, economic performance (potential chaos caused by tariffs, if they all come through), interest rates, geopolitical events, and unexpected developments affect the market—forecasts remain helpful tools for investment planning. At the very minimum, they help us consider possibilities.

I will start by reviewing what happened in 2024.

Looking Back at 2024

The following charts only apply to the property profile we target:

• Type: Single-family
• Configuration: 3+ bedrooms, 2+ baths, 2+ car garages, 1,100 to 2,400 SF, one or two stories, lot size 3,000 SF to 6,000 SF.
• Rent range: $1,900/Mo to $2,300/Mo
• Location: See the map below for the general areas.

Prices

Sales - $/SqFt by Month

A December 2024 price decline and an unusual price spike in December 2023 (caused by lower interest rates) resulted in a 3.7% year-over-year growth. In November, the year-over-year growth was 7.6%, better representing the 2024 trend.

Sales - List to Contract Days by Month

The average days on the market stayed under 25 days, except for November and December, which are traditionally slow periods for the housing market.

Sales - Months of Supply by Month

Inventory remained between 1 and 2 months in 2024. A typical balanced market (where the number of buyers roughly equals the number of sellers) is about 6 months. This shows our segment of the market is a firm seller’s market.

Rentals

Rentals - $/SqFt by Month

A decrease in December from November puts the year-over-year increase at a modest 1.8%. However, November through January are typically the slowest rental periods.

Rentals - List to Contract Days by Month

The average days on the market for rentals remained under 30 days—except for December, traditionally the slowest rental month—indicating a robust rental market in our segment.

Rental - Months of Supply by Month

Rental inventory ranged between 0.9 months and 1.7 months. This low inventory will pressure up the rents.

Mortgage Interest Rate

In my 2024 Interest Rates Forecast, I stated that -

I expect 2024 to be a muddle-through year for interest rates, i.e. sticky (to where they are today) and will only move (up or down) if there are significant occasions. Even if they do move, I don't expect them to be significant based on what I can see now (no more than 1% changes in either direction).

It turned out to be what I expected. The 30-year fixed-rate mortgage rate started 2024 at around 6.6% and ended at 6.9%.

[Source: Freddie Mac]

Note that the high rates in April did not stop the price from rising, and the dip in September/October helped a price rebound that bucked the seasonal trend.

Looking Forward to 2025 and Beyond

Since the housing market is sensitive to interest rates, especially for our segment, I want to discuss my expectations for the mortgage interest rate first.

My 2025 Interest Rate Forecast

The Fed has started rate cuts in September 2024 but remains paused for now. This makes sense—with the economy performing well, there's no need to stimulate it through rate cuts that might reignite inflation. As a result, there are currently no clear drivers pushing interest rates lower.

Can the mortgage rates go further up?

The 30-year and 10-year Treasury yields rose around 18% in 2024. With the federal government running large budget deficits and its debt approaching dangerous levels, bond buyers demand higher interest rates to offset increased risks. Since mortgage rates are tied to long-term bond rates, any continued climb in bond rates will likely push mortgage rates higher as well. Given these factors, rates are more likely to rise than fall.

Of course, the Fed could stimulate the housing market by increasing its mortgage-backed securities (MBS) purchases, which would push mortgage rates down. However, there has been no indication that the Fed is considering this option. They are still winding down their tightening cycle, and as the saying goes—if it isn't broken, there's no need to fix it.

Overall, my forecast for mortgage rates in 2025 mirrors my 2024 predictions. Rates will likely remain in their current range between the low 6% and low 7%, though they could potentially climb into the mid-7% range.

Assuming that mortgage rates will remain mostly stable in 2025, let’s examine the Las Vegas real estate growth prospect.

Las Vegas Investment Real Estate 2025 Outlook

Unlike complex financial markets, the housing market is relatively simple to analyze. Real estate prices and rents depend on just two key factors: supply and demand.

Supply

Supply for our segment (i.e., investment-grade Las Vegas real estate) has been in the 1-2 months range for 2024. This indicates more buyers than sellers, which is expected to increase prices.

The overall housing supply in Las Vegas has also been falling. The chart below shows the historical monthly inventory of single-family homes from 2014 to the present. The downward trend for the last ten years is apparent.

[Source: Las Vegas Realtor Association MLS]

Will/can the supply increase?

Not likely.

Given that mortgage rates are likely to stay at the current level (if not higher), existing homeowners have little motivation to move. Who would give up a sub-4% mortgage for a 7% mortgage unless you have to?

Can new homes come to the rescue?

Not in Las Vegas.

Las Vegas is a small island of private land surrounded by federal land. With minimal undeveloped private land left in the Las Vegas Valley and desirable areas costing over $1 million per acre, new homes in these locations start at $550,000. Since our target tenant segment seeks homes between $350,000 and $475,000, the supply of housing we target remains virtually unchanged regardless of new construction.

Demand

Can and will the demand for our target segment increase?

Likely.

The demand for housing is driven by population.

Las Vegas' population continues to increase at an average rate of about 2.3% per year and is projected to continue growing for the foreseeable future.

The factors that are attracting people to Las Vegas have not changed.

• Job growth - Businesses, large and small, continuously set up operations in Las Vegas. There are currently 28.3B worth of projects underway or planned. There will be worker shortages when you have this much investment going into a metro area of about 2.4M population. Jobs attract people.
• Lower cost - Lower cost of living, lower taxes, and lower cost of doing business continue to attract people and businesses from high-cost states such as California.
• Low crime: Las Vegas is Becoming the SAFEST City in America. This is part of why businesses and people are attracted to Las Vegas.

Another potential demand boost is the impact of Southern California fires. With over 10,000 homes destroyed plus an already existing housing shortage, the LA housing situation will become more undesirable. The destruction of business facilities also led to significant job losses, with many employers facing years of recovery—if they recover at all. We may see higher than usual relocation from LA to Las Vegas. Such migration would further increase demand pressure on our already limited housing supply.

When there is increasing demand and a stagnant (if not shrinking) supply, home prices and rents are bound to increase.

How fast will they increase is a much trickier question.

Although past performance doesn't guarantee future results, it remains our most reliable indicator. The following charts show the median price and rent per square foot for properties matching our target segment over the last 10 years, based on our analysis of MLS sales and rental data.

Appreciation:

[Source: Fernwood Real Estate Investment Group]

Rent growth:

[Source: Fernwood Real Estate Investment Group]

As mentioned in my 2024 Outlook, the COVID market frenzy and the subsequent dramatic rate hikes significantly distorted price and rent trends. To better project growth rates for the next 5 years, we should examine the pre-COVID period from 2015-01-01 to 2020-03-01. The charts below show the median price and rent per square foot during this more stable period.

[Source: Fernwood Real Estate Investment Group]

Rent:

[Source: Fernwood Real Estate Investment Group]

Since the economic conditions today are similar (if not superior) to those in 2015, my expectations of the price and rent growth for the next 5 years align with the growth from 2015 to 2020. In other words, I expect the CAGR (Compounded Annual Growth Rate) for the prices for the next 5 years to be around 9-10% and the CAGR for the rents for the next 5 years around 7-8%

Of course, markets NEVER move linearly. Some years will see above-average growth, and others will see below-average growth.

Concluding Thoughts

A personal note:

Our goal is to provide you with the best information we can and be level-headed in our investor outlooks. Please let us know if you have corrections or recommendations.

Due to the continuing demand and chronically low supply (likely to get worse), we anticipate that prices and rent will continue to increase, even if interest rates do not fall. Further, we do not expect the interest rates to fall in 2025. So, if you have been considering investing in Las Vegas, waiting will not give you a “better” market condition (i.e., lower prices or lower interest rates) to enter. Rather, waiting will result in higher prices and loss of appreciation that could have been captured by acting now.

If interest rates do fall meaningfully in 2025—though this scenario is less likely—prices in our segment will increase rapidly as more buyers enter the market and compete for limited inventory. In this scenario, investors who act early rather than late will avoid missing out on this appreciation.

If you're interested in exploring how the current Las Vegas market conditions could align with your goals, please use the link below to schedule a time that works best for you.

• Schedule a Zoom meeting with Eric Fernwood