Las Vegas Real Estate news and predictions 2006

Prediction on Las Vegas real estate 2006

 

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 This is the inside information report on Las Vegas real estate for the 2nd Quarter of 2006.  I’m Max Schmidt and thanks for joining me as I discuss what the experts predict for the Las Vegas real estate market for the balance of 2006 and beyond. I’ll also be sharing my thoughts and predictions about this dynamic market.

Lets’ begin with the market basics. The Las Vegas economy is holding strong over all. The in-migration is still 6,000 to 8,000 new residence per month. 50% of residence own their homes in Las Vegas according to the U. S. census. That is an influx of 3,000 to 4,000 new Buyers per month establishing permanent residence here. Add to this the Buyer/Seller moving from one home to another. The out of state or international buyer buying for a second or vacation home. And the investor which amounted for about 8% of the market last quarter. The result is a very active market. There is one other factor that is relevant here that none of the experts shed light on in their reports. About 25% of new residences will leave within 3 years.  . Nationally people move on average every 7 years in the United States. If you look at Las Vegas it is closer to 6 years on average. We have a more transient culture here in Las Vegas and this lends itself to a more active real estate market.
The 5 year job growth indicators put Las Vegas as one of the top employment cities in the United States. The unemployment rate places us as one of the best cities in the country. The heavy retirement trends of people moving to Las Vegas continues and in-fact according to Pulte homes, they are running out of active retirement community space in the valley and are looking to establish new product in Mesquite Nevada some 50 miles to the north of Las Vegas.
Normally when a market slows the Sellers continue to exit the market and inventory builds from a lack of buyers. This slowing of Buyers and continued supply of sellers increase the inventory to the point sellers who cannot maintain their residence. Those Sellers having to move begin to discount their equity in order to move their properties and stabilize their personal cash flows.  After all how many people can make a payment on a home they are no longer living in?

Las Vegas has been a little different animal in that we had in 2004 an investment fever of short term flippers (20% of the market) who saw an opportunity to make a quick buck and flooded the market purchasing properties anticipating heavy appreciation (which ended up being 46% for the year). The following year 2005 appreciation was about 15%. That is a 50% increase in property values in 2 years and what a great investment it has been for those people.  Now a number of these flippers have seen the appreciation rates slow and therefore have put their properties on the market in an effort to move their gains into higher yield investments. This has increased inventory artificially and temporarily from an average of  7,000 resale units to over 20,000 units. On the face this would seem like a Buyers market and temporarily it may be just that.  Inventory levels are now heading down and I predict that they will continue to drop until they reach the 12,000 to 14,000 unit level by the end of the second quarter of 2007. If Las Vegas only averages 12,000 sales per quarter, this will put us solidly back into a Sellers market giving us about a 3 month supply of homes. Currently(#86) we are at about a 6.8 month supply level and much of the national press has declared Vegas as flooded with inventory. The National Association of Realtors says that in order for a market to be considered a Buyers market the inventory levels should exceed a 6 months supply. Based on this rule Las Vegas is just barely a Buyers(#53) market and if we look at the median price of a resale home over the last year in Las Vegas you can see that it still is edging up 5.7% over last year. (#52) The price of a new home is also increasing raising 17.2% over a year ago.  Partially because of all negative publicity concerning the Las Vegas real estate market it has many Buyers waiting with a wait and see attitude and therefore the number of closings in the second quarter was off about 22%.
If this is a Buyers market it will last only a short period of time and you would be wise to buy now rather than wait for inventories to shrink and prices begin to rise at an increased rate.
 Why will prices rise further above the level of affordability for the average wage earner in Las Vegas? 
1)Some of reasons are that 25% of the home owner market are retirees that are not dependent on wages. 
2)About 8% of the market are investors who base their purchases on rents and the prospect of appreciation over the long run.
3) The vacation home buyer comprising about another 10% of the market. Once again not sensitive to wage rates.
4) We have one of the lowest unemployment rates in the country which translates into increased wages. Always keep in mind that in Las Vegas most of the service industry people receiving these low wages are also earning tips and in many cases tips are  greater than their wage income. Tips are not reflected in the government wage statistics.
5) The developable land in Las Vegas Valley is running out.  It is estimated that between 7 and 10 years new single family residences will no longer be built in the Las Vegas valley because of the lack of land. The average sales price for an acre of raw unimproved land at the last Bureau of Land Management auction was $407,000.  The cost to supply building lots in the valley have reached a point where a traditional lot for a single family home is impossible to find for the average buyer of a new home.
6) Affordable housing will become a viable investment for the Casino and service industry. They will provide apartments and in some cases the ability to purchase affordable homes here in Las Vegas for their employees. This is good business in order to hold their workforces and expand their corporate investments. Look for some of this to take place in the next 2 years.
7) The international and national interest in Las Vegas continues to grow. With all the Luxury housing options, high end shopping, fine dining, available air travel options, entertainment,  and no Nevada income tax, the wealthy of the world are looking strongly at Las Vegas as either a primary address or at least a secondary place to own a home or condo. This movement creates more jobs and moves the economy to further diversification. This (#95) segment of the market has increased nearly 7% over a year ago and is projected to continue to grow.
8) Construction cost continue to rise 1 to 3% per month driving an increase in sales prices.

(#54) There is no sector of the market to date that has shown a sustainable decrease in median price over the last 12 months. There are the normal dips and rises as in any market graph in any real estate market. Please note the red line on this graph which shows all sales minus apartment-condo conversions in the market place. In April and May there has been a slight softening of the market but it appears to be headed back up which showed in the overall performance for the 2nd quarter of this year.

 

Concerning New homes because it takes approximately 8 months from permits being issued to the housing units completion we are seeing the standing inventory increase as a result of demands when the resale market was much lower in inventory levels.  The Seller/buyer attempting to now sell their existing home in order to purchase a new home is having a harder time selling their home for top dollar in order to buy their new home.  As a result of this temporary problem, their has been a heavy increase in new home contract cancellations adding to the standing inventory levels created for the anticipated demand 8 months ago for new housing. 
(#88) Please note that new home closing show no reduction from 2005

The builders have found themselves with still strong demand for their product but an increase in inventory levels due to this “Move Up” sector in the market place.  This has caused builders to offer incentives to Buyers for standing or soon to be under construction inventory.

Look for a decrease in inventory over the next 8 months as builders are currently buying fewer building permits from the county, resulting in less homes in inventory 6 to 8 months from now.

If you’re looking at buying a new home in Las Vegas you may want to consider the standing inventory that is currently available as the best buys that are going to be available.

The Apartment/condo (#56) conversion market has almost total flexibility and resilience to price depreciation or flooding the market. Although with all condos mapped that have not yet been sold give the appearance of a 24 month supply many of these units are or can be rented to maintain cash flows for the developers. (#56) Even with the numbers of closings leveling at about half of their peak in December 2005. Don’t look for the price of a apartment condo conversion to come down as the inventory is not standing vacant and can be absorbed by the market at what ever attrition rates the market dictates. (#57) Perhaps in near future you will see the median price of these units not accelerate as fast as previously but this is a normal occurrence in a market with the inventory levels we have.
In the long term apartment condo conversions are going to be a great 3 to 5 year investment. The numbers of these units being mapped will continue to fall because rental vacancies are now below 8% and rents are increasing.  Eventually you will see the casino industry enter the market and start securing company housing for employees via apartment communities. This means the pool of available apartments to convert will diminish pointing to a drying up of this short term conversion opportunity.

Now lets turn our attention to the Hi and Mid rise condo market in Las Vegas. With all the units that have been sold, are currently under construction, are in the reservation stage and are in the planning idea stage, then toss in all the units that have either been canceled or suspended and you end up with over 47,000 condos in the $600 to $1,200 per square foot price range. What reasonable person would believe that all these units would be 100% successful with no project cancellations or suspension of sales and not any history of absorption in a city of 2 million people. 
Yes, there have been and there will be more cancellation of high and mid-rise projects in Las Vegas as some poorly conceived and planed projects are closed up.  But also keep in mind that other better planned out projects are still coming on line and some projects that have been scrapped are being replaced by better projects.
Think about it this way The “W” paid millions of dollars per acre for the site on which the “Las Ramblas” resort was canceled.  The national press cries out how this major resort was cancelled and George Clooney is force to pick up his investment chips and go somewhere else. OK but you don’t pay millions of dollars an acre to acquire a vacant lot and keep it that way. Perhaps the “W” has something in mind for the site when they bought the land. That could be a reasonable assumption. And perhaps in the near future a new project will be announced for this site.  So does this mean that the project has failed or has it just transformed into something else.
Yes, projects will continue to fail in Las Vegas high rise market but keep in mind that projects all over the country are currently failing.  But it is interesting how quickly the land on which these projects were to be built are snatched up by other developers destined to be better projects.
If you ask me what will be the ratio of proposed projects to future completed projects on the current land sites identified as high rise projects in Las Vegas. I predict it will be somewhere around 80%.
If you ask me what will be the ratio of proposed projects to future completed projects by their current names and ownership. I predict it will be somewhere around the 50% level.
On many of these canceled sites the current dwelling units have been cleared. Some Like the Majestic owned by Hilton have owned the property since the 1950’s but feel that by waiting construction costs will stabilize and the market will mature allowing for better opportunity for a truly luxury property in the market place.
Peter Morton owner of the Hard Rock canceled his project and now is under contract with the Morgan Group to sell the entire Hard Rock property.  Morgan Group is not going to sit long on an empty apartment complex to its west. Interestingly enough it purchased the plans for the expansion from Morton as a part of the total package.  The Hard Rock condo’s were sold out prior to Mr. Morton pulling the plug.
About the only site that doesn’t make sense is the Ivana site as it is to small for that large of a property but it could still be done.
Please keep in mind that the words suspend sales is different from the words canceled.

Las Vegas is getting its first taste of the high-rise resale market and its performing rather well.(#66) This chart is calculated of an extended period based on how long the project has been sold out but show the average appreciation performance of the  projects based on an annual basis. Regency Towers is the oldest project built in the 1970’s but  is yielding a 16% appreciation per annum over the last 4 years. Park Towers completed in the 1990’s has averaged around 13%. While Turnberry and Metropolis the newest offerings are 13 and 16% respectively.  All in all these units have proven to be good investments in this market. 

By the end of this year we will start to see re-sales in  Panorama Towers, Platinum, Soho Lofts, and MGM Grand Residences.

The experts predict that the price per square foot  in a high rise condo units will rise to over $1,000  in the next few years. If this is correct then the high rise market will do very well in the next 5 years in Las Vegas. Some of the Buyers fever is leaving this market place as investors realize that supply of product is not the issue as much as the ability of the project they invest in to be built. There are many very stable builders in Las Vegas with roots here.  These are the Builders who will succeed with their projects as they have the networking contacts and local savvy to make it happen for their respective projects.

The statistics in this presentation were compiled from data obtained from the GLVAR multiple listing service other data was supplied by SalesTraq a housing analytics company with offices in Las Vegas Nevada. All information presented here is the opinion of its authors and should be verified by you before acting upon or relying on it.

 

I hope you’ve found this information  helpful and valuable. If you would like to discuss any of these issues further with me please feel free to call me at the number on your screen. I’m Max Schmidt a real estate broker/salesman in Las Vegas Nevada and this is MaxSellsVegas.com.

Contact Max here NOW!

Prudential Americana Group, Realtors®
Max Schmidt P.C. dba Max Schmidt
Broker/Salesman
871 Coronado Center Dr., suite 100
Henderson, Nevada 89052
 (702) 334-2200

Las Vegas real estate forecast and predictions for 2nd quarter 2006