Las Vegas Market Hits New Highs
By Brian Boucher
If would-be soothsayers and gamblers have learned anything in the pandemic era, it’s that predictions are a mug’s game. The housing market in Las Vegas is a case study.
In November, CoreLogic formed a gloomy chorus, predicting with over 75 percent confidence that Vegas, slammed by the tourism downturn, was at an above 70-percent risk of a decline in home prices in the coming year.
But 9 months later, that very company reported Vegas was fourth among major metros for increased home prices, which skyrocketed 18 percent. The Nevada Current wrote, “What seemed like a sure bet proved to be a fool’s wager,” adding that CoreLogic wouldn’t answer their emails.
The numbers tell quite a story. The median sales price of previously owned single family homes, the better part of the market, was a record-breaking $395,000 in June. As for new homes, the median Southern Nevada sale price was a record-setting $402,990 in May. Typical rental rates zoomed up by over 17 percent year over year, the second-highest growth nationally, making Las Vegas an attractive proposition for real estate investors.
Could the craze end, if housing supply catches up with demand, or interest rates climb? FitchRatings said homes in Las Vegas were overvalued by 34 percent in the first quarter of 2021, highest among the country’s biggest metros. Fitch deemed Los Angeles overvalued by 9 percent, Atlanta by 14, Tampa by 19, and Phoenix by 24.
But, again, predictions.
From Railroad Town To Entertainment Capital
Whatever it might hold, the city’s future builds on a storied history, one that has earned it a berth in popular entertainment from “Viva Las Vegas” to “Leaving Las Vegas,” “Casino” to “The Hangover.”
Founded as a railroad town in 1905, the city soon benefited from an influx of construction workers building the Hoover Dam, creating a Depression-era population boom. Casinos began to pop up in 1941 (and within a decade, Congress was holding hearings into organized crime). Another boom got underway in the eighties; between 1985 and 1995, the city’s population doubled. The seeds for a recent tech boom were planted in 2013, when Zappos, the online shoe and clothing retailer, moved to the old city hall. The building was converted into a LEED gold-certified campus, complete with a 25-foot enclosed fish tank that doubles as a nap room. Some 40,000 people move to Vegas annually, and the greater metro area is now home to about 2.3 million, the nation’s 25th-largest city.
The city has been working to diversify from the hospitality and tourism business that has taken such a pandemic-era beating; international travelers, long Vegas’s bread and butter, were nowhere to be found on the Strip for more than 18 months.
Hard Lesson for City That Relied on Tourism
The city was still too tourism-dependent 13 years ago, and for that reason was “the poster child” for the 2008-09 crash, says Vivek Sah, director of the University of Nevada Las Vegas’s Lied Real Estate Institute. It didn’t start to recover until 2013.
One factor that has historically discouraged companies from moving to Vegas, Sah points out, has been a less-than-stellar school system. (Even the uneducated, he said, have typically been able to earn six figures at casino and resort jobs.) And there’s just one university serving the population.
But now, like countless other locales nationwide, Vegas wants a slice of the tech pie.
“Nevada got a huge gift when Tesla opened one of its ‘gigafactories’ in Sparks,” says Brittany Merollo, an economist with Moody’s Analytics. “People started investing more in Nevada and price rises exceeded the national average.”
In 2019, national commercial real estate services firm CBRE Group ranked Vegas as one of its top ten up-and-coming tech talent markets. Google says its new $600 million facility in suburban Henderson will hire at least fifty employees, earning an average of $65,000 — well above the median national household income of about $56,000.
The University of Nevada at Las Vegas opened a tech incubator, the Harry Reid Research and Technology Park, named for the former senator. The school predicts it will create 25,000 jobs and generate $2.6 billion in revenue. In cooperation with Startup Nevada, which gets federal funding, the city created an innovation center to help support startups; 13 were in residence in August 2020. The future is visible on the city’s streets: it is allowing tech companies to use public infrastructure to test out innovations like self-driving cars.
This job growth, and accompanying housing demand, has supercharged the real estate investment market in the Las Vegas-Henderson-Paradise metropolitan area, which includes Las Vegas, North Las Vegas, and Henderson.
Influx of Tech Workers Pushes Up Housing Prices
Those incoming, well-paid tech workers will likely continue to raise home prices. What’s more, says Merollo, a shortage of labor is also affecting home prices.
“Construction employment never fully rebounded from its low Great Recession levels,” she said. “The national average was able to bounce back, but Vegas never was. They had about 145,000 construction workers at the peak, now we’re at 90,000. So there’s fewer people to build houses.”
When builders can erect fewer homes, they are more likely to build more expensive ones to increase profit. And the city is limited in where it can expand since Nevada is about 80 percent federal land, she says.
The downside of the boom? As in many other metros, middle-class families are being priced out.
“The median household income of about $61,000 is not a lot of money when you see median prices that may be cresting $425,000 by December,” said Aldo Martinez, president of Las Vegas Realtors. The tech-enabled Covid-era Great Reshuffling may attract a new class of temporary residents. Zillow placed the city among its top ten metro areas for digital nomads, who can work from anywhere via email and Zoom, and whose number doubled to eleven million in 2020.
Maybe those nomads who came to Vegas will stay in Vegas.
A High Quality of Life, and Many Amenities
It’s not just the neon, casinos and resorts that might induce nomads to stay. Unlike neighboring California, there is no income tax, not to mention no danger of forest fires, earthquakes and mudslides, nor the extreme weather events like hurricanes or tornadoes that plague other parts of the country. But the heat has grown worse with climate change, and summer temperatures routinely exceed 100 degrees. For relief, many homes have pools.
Based on factors like cost of living, Numbeo’s quality of life index is “high.” J.D. Power ranked McCarran International Airport third (tied with Orlando’s) among the nation’s megas, and the Bay Area is less than an hour’s flight away. A high-speed rail connection to San Diego is in the works, Sah points out. The Grand Canyon is within four hours’ drive, and the arid climate offers 300 sunny days a year.
“There’s even a glacier in Nevada,” says Martinez, referring to Wheeler Peak Glacier, 300 miles from the city. “I bet you didn’t know that.”
And the Entertainment Capital of the World has more to offer than Celine Dion and the Cirque du Soleil. Sports fans are psyched to have the NFL’s Raiders (another migrant from California), the NHL’s Golden Knights, and the WNBA’s Aces. Major musical acts play here. The majority-minority hip-hop dance troupe Jabbawockeez, whose anonymous members perform wearing masks and take their name from Lewis Carroll’s “Jabberwocky,” just renewed their contract at MGM Resorts, taking them to fifteen years in residence.
One might not think fine art and Las Vegas belong in the same sentence, but Sin City is not without high culture. The Bellagio Gallery of Fine Art (“Where great art goes on vacation”) stages shows of masters from Picasso to Basquiat. Besides the Neon Museum, which focuses on the city’s trademark lighting, renowned California Light and Space artist James Turrell, known for immersive light experiences, has an installation inside the Daniel Libeskind–designed high-end shopping center Crystals, alongside stores like Fendi and Gucci. Art in America called it “a beautiful, strange experience.”
A Destination for Investors as Well as Tourists
With the city’s reputation as an entertainment and gambling mecca for tourists is rock solid, there is a lot more to Vegas than the Strip. Its affordable cost of living, lack of personal or corporate income tax, and business-friendly environment augur well for its growth in the coming years.
The median home price in the Las Vegas valley has been rising more than the national average since 2018, and has continued to exceed that rate in most months in the last three years. Rents have risen more quickly than the national rate since 2016 as well.
These numbers point to opportunities for real estate investors in the Las Vegas metro area, at odds that are better than those in the casinos.
There are 40,000 people moving to Las Vegas each year, drawn by its neon-drenched mystique and its scenic desert surroundings, looking for a future that is full of promise, and maybe even a bit strange.
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