More Investors Buying Las Vegas Homes

Several years ago, buying foreclosed homes in bulk in Las Vegas to rent out was the sure-thing trade for investment firms backed by money from private equity companies, hedge funds and pension systems. Literally, thousands of foreclosed homes were purchased in bulk here in Las Vegas. And many more foreclosed and short sale homes were purchased by individual investors.

Then Las Vegas home values increased dramatically in 2012 and again in 2013. According to the Greater Las Vegas Association of Realtors, median home prices increased 25 percent in 2012, and 24 percent in 2013.

As a result, investment firms then focused more on other markets and alternative investments.

And yet, today, it appears 2016 is a great year to make a Las Vegas real estate investment. According to RealtyTrac, approximately 45 percent of Las Vegas area home purchases this year are by non owner-occupants. In other words, by investors.  So what’s driving this trend?

Thanks to a number of factors, Las Vegas is attracting an increasing number of individual investors to its residential housing market.

Four Drivers For Investors Buying More Las Vegas Homes

1. Vegas median home prices are still far below peak reached before the recession.

Some other cities have fully recovered, and prices there now exceed peak before the last recession. Las Vegas home values have climbed in recent years, but they have more room to grow than in any large metro area to reach peak levels again.

According to the Greater Las Vegas Association of Realtors, the median resale home value in the Las Vegas area in July was $237,000, up 7.7 percent from a year earlier.

Locally, home values remain 25 percent below their peak. The National Association of Realtors recently reported that across the U.S., values are 6 percent below the peak.

Based on the latest report from CoreLogic, a property analytics firm, prices in the Las Vegas area are expected to continue to increase. It says prices will rise 12.1 percent from the first quarter of 2016 through April 2017.

2. Las Vegas metro population continues to grow faster than available housing.

According to the Las Vegas Convention and Visitors Authority, the Las Vegas metro area population is approximately 2.2 million. And the local population is increasing by 5,000 to 6,000 per month.

There's huge interest in local housing. For its ratio of four inbound to one outbound home searches, Las Vegas handily beats every market.

As local population continues to grow, available housing isn’t keeping pace. According to Home Builders research, local new home sales for 2016 are projected to be less than 600 per month.

And, according to Clark County records for 2016, newly built apartments are projected to be less than 400 per month.

The Greater Los Vegas Association of Realtors reports that approximately 200 local foreclosed homes per month are currently being sold, and added to the available housing pool.

As long as local demand continues to outpace available housing, home prices could continue to rise.

According to the Greater Las Vegas Association of Realtors, the current existing supply of local homes on the market is about 2.75 months, compared with a normal supply of six months.

3. Las Vegas economy and wages are trending up.

It’s true that Las Vegas’ unemployment rate lags behind the national average. Las Vegas’ current unemployment rate is 6.4 percent – 1.5 percent above the national average. That said, just three years ago, Las Vegas boasted an unemployment rate of 9.9 percent. Without question, the job sector is heading in the right direction, as is apparent by the 3.5 percent improvement over the course of three years. Local employment growth is strong compared to other markets.

According to the Nevada Employment, Training and Rehabilitation Department, our state is outpacing 48 other states in terms of job growth. And Las Vegas is leading the pack, with area employment at an all-time high, and complete recovery of all the jobs lost in the recession.

The U.S. Bureau of Labor Statistics predicts local job growth of 4.8 percent in 2016, well above a national rate of less than 2 percent.

4. Demand for housing in Las Vegas is growing.

Some of the anticipated demand comes from millennials. Because of a number of economic factors, they’ve largely been neglected for the better part of a decade. That said, millennials are finally getting their home buying feet wet. The expansion of the economy has made it more reasonable to own a home than in recent years, and millennials are aware of that. It was only a matter of time before this population joined the Las Vegas real estate market.

Last year, according to the National Association of Realtors, millennials, the largest generation in American history, purchased 35 percent of homes sold in the U.S. Consider that the median age of the millennial generation is 25, and the average age of a first-time home buyer is 31. It’s fair to say there’s a sizable wave of millennial home buyers on its way.

A third of young adults nationally saying they plan to purchase by 2018. Nearly a quarter of locals are millennials.

Additionally, some of our local demand for housing is coming from the 7.3 million former homeowners that lost their homes through foreclosure or short sales between 2007 and 2014.

Current FHA guidelines indicate borrowers can apply for FHA insured mortgages three years after the date of their foreclosure or short sale. Borrowers must also have reestablished their credit with no late payments in the past 12-24 months, depending on hardships.

As more and more of these former homeowners continue to improve their personal financial situation and credit, our local market will see more of these boomerang buyers.

The National Association of Realtors recently indicated that approximately 950,000 formerly distressed homeowners have purchased homes in recent years, and another 1.5 million will re-enter the market during the next five years.

What the Future Holds

Recently, Trulia identified Las Vegas as one of its “top ten markets to watch" in 2016 for "strong growth potential."

Headwinds could keep the market from taking big advantage, though.

Local realtors indicate many clients still have credit challenges that make it hard to buy.

Then there are the wild cards, including interest rates and land prices. Both are set to potentially rise and make it more expensive to buy.

And as reliant as Las Vegas is on consumer spending, a downturn in the U.S. economy would ripple across local job markets, though few predict a major national correction.

Still, the forecast could hold, and Las Vegas, with continued job expansion and positive overall population growth, could become an even stronger residential real estate market.