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Las Vegas real estate no longer affordable? Get real!
Commentary

April 7, 2006

The press has been busy once again making headlines that on the surface seem true but often doesn't hold water with a little common sense. Just think of all the parking lot attendants, waiters, limo drivers, cocktail waitresses, bell boys, bar tenders, dealers, cab drivers, concierges that aren't going to be able to afford an average house in Las Vegas any more. This may look true on the surface until you start thinking about how tips work in Las Vegas and how they are reported to the IRS I know of many of these service industry people who qualified just fine for a new home in 2005.

Now lets take a look at the lowest wage earners of the service industry hotel maids, laundry workers, maintenance workers, gardeners, and others in this category. These people may not be able to qualify for the great American dream of home ownership. But chances are when you look at this group historically only only a small percentage have ever qualified. So the real problem for this group is the cost of rent which is rising quickly here in Las Vegas.

Now lets take a moment to reflect on the huge casino conglomerates here in Las Vegas. Last year profits for these giants grew $1,800,000,000 (that's 1.8 billion) and that is just how much more they made in 2005 than they did in 2004. The real number they made in gaming only is $17,300,000,000 in 2005 and that's only gaming. Add to that conventions, hotel, food, entertainment and you have a huge profit machine with over 38.5 million visitors. These numbers have lead to a scramble to build new casinos to attract more visitors to make more money. The reason construction costs have risen 30% in Las Vegas in the last year is not only because of the high rise towers, but because the casinos are willing to pay premium prices to get their jobs done on time so that they can cash in on the current profit trends in the market place. Currently there are 5 major new casinos being built in Las Vegas and most of the existing properties are going through expansion or renovation.

Now the affordable housing folks and the Fed's think that it will take a while for wages to "catch up" with the rise in housing costs. My thought is that the service based casino industry is going to pay hire wages in order to acquire the help it needs to satisfy its guests. If we follow the Fed's thoughts on this subject the guest at the Bellagio may only get maid service ever 3rd day.

Let's get real, a guest whom on average spends $627 gambling Plus pays for their hotel room, food and entertainment is not going to get room service in any fashion other than daily. A $3 wage increase equating to over $500 per month to the employee will cover the housing rent increases and can be increased as the casino industry sees fit to meet its needs. The casino industry is serviced based and can react to the market at will, just as it has reacted to the construction market by paying higher prices to meet its demands it will react to the employment market to meet its needs. It won't pay any more than it needs to pay to secure quality employee's to meet its guest needs. This is not an industry that manufactures and then must compete with foreign goods as many other industries. This is a unique service industry that is cash based and very healthy.

The Bottom line is that I think Las Vegas real estate will continue to grow. That the rental business in Las Vegas will offer more opportunity for its investors. That the retiree and 2nd home markets will play an increasing roll in the Las Vegas real estate market. And in time as the pressure for the large contractors is relieved and they quit over bidding on projects, then the high rise condominium projects that have been on hold or canceled will once again become active and viable.

Las Vegas real estate is only about half the cost of real estate in California and offers many positive tax benefits to its residence. It has room to grow and will continue.

That's my opinion. What's your opinion? Please email me your thoughts.

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Las Vegas real estate sales are picking up again!
(NO bubble in this market)

April 7, 2006

It seems that January and February of 2006, in which sales slumped over the previous year, was more of a seasonal slow down in the Las Vegas real estate market. The March 2006 sales figures for Las Vegas home sales showed a 41% increase over February and an average single family home jumped 1.9% to $315,000 according to the Greater Las Vegas Association of Realtors (GLVAR).

Although sales are showing a marked increase from last month they are still off 19% from March 2005. But this is the first sign in an upward trend in the market. It appears to the GLVAR that Las Vegas is returning to a "more normal selling environment." Las Vegas has been in a Sellers Market for over 7 years and with the average time on the market at 44 days it appears it is still a strong Sellers market. The National Association of Realtors says that a balanced market between Buyers and Sellers is 90 days on the market.

Condo's and town homes increased in price even more than single family residence. Las Vegas Condos and town homes increased in price a whopping 4.4%.

Besides the pressure on Las Vegas real estate sales increasing, so is the pressure on the rental market which currently has a vacancy rate of below 4%. This is due to a loss in rental units as 30,000 units are being converted to condo's from 2005 through 2007. This looks like a great opportunity for the small investor to buy these units and then rent them out. With vacancy rates so low apartment rents are rising quickly in the market place.

So much for a bubble in the Las Vegas real estate market. With one of the fastest growing economies in the U.S. Las Vegas will continue to grow and Las Vegas condo's and homes and increase in value as the markets continue to grow here.

Vacation, investment and second home purchases on the rise!

April 6, 2006

According to the National Association of Realtors (NRA) housing is becoming a greater avenue for investment for Americans across the country.

The purchase of second homes in 2005 was up a 4% form the previous year. This amounts to 16% of all homes sold in the U.S.

Homes purchased for investment were up 4.7% to 40% of all home sales nationally.

The only area that fell slightly were vacation homes which slid from 13% of the market in 2004 to 12.2% in 2005. But with the over all sales increasing 16% in 2005 this figure seems to mean that about the same number of houses were sold in 2004 and 2005 as vacation homes.

The NRA spokesman said that the baby boom generation were driving sales with incomes at their peak and interest rates remaining historically low they believe baby boomers are diversifying their investments.

Because of the 1997 tax law changes, baby boomers can sell their family home and keep up to $500,000 per married couple in profits tax free. This is allowing them to purchase 2nd homes. About 4% of home owners in the U. S. own three or more properties.

Las Vegas real estate is being impacted by these home buyers. It is estimated that in 2005 25% of the Las Vegas population was retired. The percentage of retirees is expected to grow here in Las Vegas as more and more baby boomers retire. We are just at the beginning stages of this formidable movement to the Sun belt.

Las Vegas condos have seen a huge increase in sales, especially those properties on the Strip. Las Vegas is now the place to have a condominium as a vacation home. With so much to offer visitors and easy air access, it now appears Las Vegas has become a viable vacation home destination.

The investor segment of this market is very prevalent in the Las Vegas real estate market as well. With rents increasing rapidly and vacancy rates at an all time low. Investors are still purchasing and subsidizing until the rents catch up in this quickly changing market.

Fed's Don't see bubble in Las Vegas real estate market!

April 5, 2006

According to John Anderlick, the acting regional manager for the FDIC in its San Francisco Office, " We are beginning to see signs of moderation. I wouldn't say they are extremely worrisome conditions... Inventories are rising in Nevada, but we are not seeing a significant decrease in prices in the future. But it is certainly reasonable that home prices will have to level off as incomes catch up."

I personally don't see things in the same light as the Fed's. Remember that the Federal Reserve late last year felt that the Las Vegas market was in a bubble and was showing signs of bursting. It didn't happen and in fact the delinquency rates on mortgages remain very low (about 0.35%). All be it that sales have moderated over last year but please remember last year was a frenzy market in which speculators were flipping houses. Those speculators are quickly leaving the Las Vegas real estate market as home inventories rise. Last year the approximate percentage of the market attributed to speculators was around 22%. This year we have seen about a 19% drop in sales in the Las Vegas real estate market. My guess is that we are seeing a more realistic investor and home ownership sector in the market place minus the short term cash driven speculator.

A market without speculators is a much healthier market to invest in and much more stable. True you don't get 34% appreciation on your home purchase in one year but you can get a stable reasonable return that makes good financial sense in the 3 to 5 year investment strategy.

I believe the days of the house flipping speculator are over in Las Vegas for now.

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*The above reprinted by permission of Inman News Features

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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