September Las Vegas Rental Market Update

[Eric Fernwood]

It’s September and time for another Las Vegas update. For a more in-depth view of the Las Vegas investment market, DM me for a link to our blog site which contains more information on investing in general, analytics, and investing in Las Vegas in particular.

Before I continue, note that the charts only include properties that match the following profile, unless otherwise noted.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF.
• Price range: $320,000 to $475,000
• Location: All zip codes marked in green below have one or more of our client’s investment properties.

Regarding the overall Las Vegas real estate market inventory:

The chart below, provided by the MLS, includes all property types and price ranges. As of today, the inventory is at 2.4 months and is decreasing. In Las Vegas, a balanced market is characterized by six months of inventory, where the number of sellers is roughly equal to the number of buyers. We are in a seller's market.

Rental Market Trends

The charts below are only relevant to the property profile that we target.

Rentals - Median $/SF by Month

August saw rents drop slightly, conforming to past seasonal trends. YoY is flat.

Rentals - Availability by Month

The number of homes for rent continued the downward trend.

Rentals - Median Time to Rent

Median time to rent maintained at ~20 days, indicating steady demand.

Rentals - Months of Supply

Only about 0.8 months of supply for our target rental property profile. Demand is greater than supply.

We saw a similar tight supply in sales as well. Now only about 0.8 months of supply. This will push up the prices.

Sales - Months of Supply

Inventory for our target market continues to fall.

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF is climbing up.

Las Vegas Rental Market Outlook

I believe that rents (for our target segment) will increase by an average of more than 8% over the next 5 years. Below is my reasoning for this conclusion:

• Real estate prices and rents are determined by supply and demand. Population growth is the driving force behind housing demand. When there is sustained and rapid population growth, demand increases rapidly. As a result, prices and rents rise rapidly. Las Vegas has an average annual population growth rate of 2-3%, which may increase due to recent news that Las Vegas is now the top city for people relocating due to job opportunities.
• Why are so many people moving to Las Vegas? Jobs. But how many jobs are available? The spring job fair in Las Vegas had over 20,000 open jobs with an average annual wage of about $65,000. As more people move to Las Vegas, demand for housing will increase. Our target tenant demographic includes individuals earning in the range of $60,000 to $75,000. Therefore, an increase in demand for housing will particularly drive up demand and rental rates for the segment we are targeting.
• Future job growth: New projects worth approximately $30 billion are either under construction or planned. These projects will create thousands of additional jobs and attract more people to Las Vegas, further increasing the demand for housing. This demand will primarily be in the tenant segment that we target.
• Fixed inventory - There is little undeveloped land left for expansion in the Las Vegas Valley (see aerial view below), and raw land in desirable areas costs over $1 million per acre. Due to the high cost of land, new homes in these areas start at $550,000. The properties that attract our target segment cost between $320,000 and $475,000. Therefore, building more new homes priced at $550,000 or higher will not increase the inventory of homes in the $320,000 to $475,000 price range. Therefore, the number of properties that attract our target tenant segment is almost fixed. The result will be rising prices and rents.

• The chart below illustrates the annual rent increase rate by year. The rate at which rents increased relative to 2021 depends on the year the property was put into service. The conditions that created this rent growth have not changed so I expect the trend to continue.

•  Inventory levels in our targeted sector are unusually low. Currently, there is less than 1 month's worth of inventory. This is significantly below the six months of inventory considered to be a balanced market. I believe that high-interest rates are discouraging potential sellers from entering the market, as they would be trading their current ~3% interest rate for a 7%+ rate on their replacement home. When interest rates decline, buyers who have been waiting to buy a home for years will enter the market and the increasing demand will dramatically increase prices. As prices increase, fewer people can afford to buy a home and will be forced to rent, which will drive up rental rates.

In Conclusion

Las Vegas has a unique combination of a rapidly rising population and a (almost)fixed housing supply, which almost guarantees substantial long-term increases in rent and housing prices.

Thanks for reading my post. Reach out if you have questions or would like to discuss investing in Las Vegas.