Corona Virus Impact to Las Vegas Market

417 Replies

Originally posted by @Phillip Dwyer :

MLS June Stats are out. June had the highest number of pending sales since 2012 for single family resale property.

Why people are buying now?

Are they scared that since they lost their job, they have these money saved up and at least there will be a house to live in?

If it was me , if I was laid off, I would take money from my 401K and find some cheap place to live, under 100K, somewhere rural...

I cant believe people are buying when the prices are so high these days in Vegas!

 Here is a hypothesis: since people lost jobs more people are trying to sell, so the supply increased, unlike in other markets where supply decreased..

What do you guys think?

Originally posted by @Phillip Dwyer :

@Mary Jay supply is actually going down and prices are going up.  I could see this changing by spring 2021, but for now the local residential real estate market is moving counter to the economy. 

Phil, I see you are in Henderson. I have been watching props there and Summerlin very closely. What price range are you referring to with your comments? Curious. I am seeing tons of supply, but on the higher end. Every day my Zillow alert is ringing. Prices not going up. Most of what I have seen in person or following is stagnating, dropping a bit, or going contingent / off market (pulled unsold). But I assume you are talking $250-500k range? 

 

Originally posted by @TJ Watson :
Originally posted by @Phillip Dwyer:

@Mary Jay supply is actually going down and prices are going up.  I could see this changing by spring 2021, but for now the local residential real estate market is moving counter to the economy. 

Phil, I see you are in Henderson. I have been watching props there and Summerlin very closely. What price range are you referring to with your comments? Curious. I am seeing tons of supply, but on the higher end. Every day my Zillow alert is ringing. Prices not going up. Most of what I have seen in person or following is stagnating, dropping a bit, or going contingent / off market (pulled unsold). But I assume you are talking $250-500k range?

 

not sure if this is germane but my daughter is working 3 buyers right now that are all looking at 1.2 to 2.0  with one in contract.. she is super busy.. I have heard this from others in other markets too that counter to popular thought the higher end lux market is doing pretty good.


 

Originally posted by @Jay Hinrichs :
Originally posted by @TJ Watson:
Originally posted by @Phillip Dwyer:

@Mary Jay supply is actually going down and prices are going up.  I could see this changing by spring 2021, but for now the local residential real estate market is moving counter to the economy. 

Phil, I see you are in Henderson. I have been watching props there and Summerlin very closely. What price range are you referring to with your comments? Curious. I am seeing tons of supply, but on the higher end. Every day my Zillow alert is ringing. Prices not going up. Most of what I have seen in person or following is stagnating, dropping a bit, or going contingent / off market (pulled unsold). But I assume you are talking $250-500k range?

 

not sure if this is germane but my daughter is working 3 buyers right now that are all looking at 1.2 to 2.0  with one in contract.. she is super busy.. I have heard this from others in other markets too that counter to popular thought the higher end lux market is doing pretty good.


 

Jay, I am one of her buyers :) plenty of inventory sitting on the higher-end LV market, many with 100+ DOM, I just happened to run into the worst seller of my RE career. But Miss Kahli has been great! Made a few trips out to see tons of properties. Hoping the next one is to close escrow... 

I will say here in Socal the higher end market is such -low- inventory (counter to LV) that is is a good time to sell here. Tons of buyers unaffected by 'rona, and most sellers are sitting on the sidelines, at least in my coastal area. 

Originally posted by @TJ Watson :
Originally posted by @Jay Hinrichs:
Originally posted by @TJ Watson:
Originally posted by @Phillip Dwyer:

@Mary Jay supply is actually going down and prices are going up.  I could see this changing by spring 2021, but for now the local residential real estate market is moving counter to the economy. 

Phil, I see you are in Henderson. I have been watching props there and Summerlin very closely. What price range are you referring to with your comments? Curious. I am seeing tons of supply, but on the higher end. Every day my Zillow alert is ringing. Prices not going up. Most of what I have seen in person or following is stagnating, dropping a bit, or going contingent / off market (pulled unsold). But I assume you are talking $250-500k range?

 

not sure if this is germane but my daughter is working 3 buyers right now that are all looking at 1.2 to 2.0  with one in contract.. she is super busy.. I have heard this from others in other markets too that counter to popular thought the higher end lux market is doing pretty good.

 

Jay, I am one of her buyers :) plenty of inventory sitting on the higher-end LV market, many with 100+ DOM, I just happened to run into the worst seller of my RE career. But Miss Kahli has been great! Made a few trips out to see tons of properties. Hoping the next one is to close escrow... 

I will say here in Socal the higher end market is such -low- inventory (counter to LV) that is is a good time to sell here. Tons of buyers unaffected by 'rona, and most sellers are sitting on the sidelines, at least in my coastal area. 

Well as you can tell she does not divulge client info to me other than in general terms.. I am glad she is doing a good job for you.. !!

 

@TJ Watson Define higher end. I think we've had this conversation previously in this same thread. The luxury market here makes up a much smaller portion of the overall market. If you look at houses $1million and up, there has been an over supply for years. That hasn't changed much. In the past 30 days, 42 houses have sold over $1mil, and there are currently 542 houses over $1 mil on the market. Now, if you're talking about resale SFR (all price points), the median price did increase last month overall


@Phillip Dwyer  - fair, and yes we've discussed similar topic / price points upthread. That's why I am always curious when statements are made about market movement or pricing, what price point does that marry to? That's the only reason I am asking for clarity on your last post, just to compare notes. Not to be critical at all. Yes I am eyeballing 1M+ end, which as you noted, is at 11% closure rate and dropping. Your numbers - 42 against 542 on market - is even lower ~7.75% closure rate. Bad time to be selling, good time to be buying at that range. Would love to grab a deal in Anthem/GVR if everything wasn't 10-20 year old dated Italian bougie marble! :)

@Jay Hinrichs ... text her "how's it going with the Reverence seller" and see what she says .. :)

Market Update

Below are charts from our latest trailing 13 month market statistics, including June data. Remember that this data is only for the property profile that we target, not for the entire metro area.

Rental Statistics

Rental rates saw a slight decrease in June compared to May, but the inventory and time to rent continue to decrease. Both property managers that we work with are reporting extremely low inventory and multiple applications for most properties.

Rentals - Median $/SF by Month img
Rentals - List to Contract Days by Month

The time from list to contract is about 13 days. An amazingly short period of time. There is a lot of demand and little inventory.

img
Rentals - Availability by Month

The number of rental properties available has continued to fall since January. This is likely to continue, which will drive up rental rates.

img
Sales Statistics

Interestingly, prices decreased slightly in June even though the median sales price for the entire Las Vegas market hit an all-time high, if you do not consider inflation. Inflation adjusted, prices are at about 77% of peak 2006/2007 prices.

Sales - Median $/SF by Month img
Sales - Median List to Contract Days by Month

This is an amazing chart. 5-10 days is an extremely short time between listing and contract.

img
Sales - Availability by Month

Inventory declined in June.

img
Sales - Closings by Month

Closings by month rebounded strongly in June.

img
Sales - Months of Supply

With less properties on the market and more sales, months of supply dropped sharply.

img

Looming Price Decline?

Several clients asked if an all-time high price for Las Vegas combined with the uncertainty brought by the corona virus, unemployment, forbearance, $600 Fed unemployment benefit to end, etc., means that the housing prices will fall significantly?

In our opinion, not likely.

  • Contrary to sound bites from the press, we are nowhere close to 2006 prices. $315,000 in 2006 dollars is $407,000 in todays dollars (using the governments Bureau of Labor Statistics CPI calculator). Adjusted for inflation, we are only at about 77% of peak prices.
  • Inventories are low, which differs greatly from the situation in 2008. In 2008, housing inventory was piling up before the prices started crashing. With COVID-19, inventory levels were at 2 months just before the crisis hit, and 6 months inventory is considered a balanced market. Today it is 3 months. Like in early March before COVID-19, good properties priced correctly are again selling in 1-3 days with multiple offers.
  • Prices are up 6.9% from the same time last year.
  • Las Vegas has $24B under construction and more is planned. This will create thousands of new jobs, many of which will match our target tenant pool.
  • Large numbers of people are fleeing high-price / high tax / over-regulated states like California. Some will choose Las Vegas, which will increase demand for both rentals and purchases. Nevada has the second highest rate of population growth in the US and 80% of the population lives in Las Vegas. So, with limited inventory and increasing demand, prices will continue to rise.
  • COVID-19 sped up changes that may have otherwise taken years. For example, remote workers. I looked through a few of the job sites and a high percentage specify remote as the location. This means that people can live where they want and many will flee high-tax states. Some will choose Las Vegas, which will also increase demand for rentals and homes.
  • The amount of land available for development in the Las Vegas valley continues to decrease. Today, total undeveloped land in private hands (87% of Clark County land is federally owned) is about 26,000 acres. Las Vegas consumes between 5,000 and 7,000 acres per year. It will not be many years before the only option Las Vegas will have for expansion will be redevelopment. The shortage of land and rising demand will continue to drive up prices and rents.

How We See the Economy

  • The US economy remains the worlds strongest.
  • The EU central bank rate is -0.75% (yes, a negative interest rate). So, anyone wanting to make money is investing in the US stock or bond market, which is part of the reason it is doing so well.
  • Because of the 2018 tax act, companies brought back over $1T (trillion) dollars into the US economy. A trillion dollars in government hands could be easily squandered. Businesses will use this vast sum of money to expand, which will create more jobs and some will be in Las Vegas. For example, Google is building a $600M data center in Las Vegas.
  • The personal savings rate is at an all-time high in the US. This is a lot of disposable capital that people will want to spend.
  • The EU is/will block American tourists due to COVID-19. This will force people to vacation domestically. Las Vegas should do well under these conditions.

Foreclosures?

We've heard some concerns about foreclosures. According to Zillow, there are 992 properties in pre-foreclosure. In a report published by Clark County in June 2019, there were 886,250 housing units, which included 188,555 apartments. If I subtract apartments from the total housing units, I get 697,395. If all 992 properties were foreclosed (doubtful since very few properties are under water, the owners would just sell the properties and take their profit.), the percentage of foreclosed properties would be about 0.1% (992/(886250 188855)), an insignificant percentage of the total properties.

Income Security in Uncertain Times

What if the prices fall significantly?

Below are two charts that show the impact of the 2008 crash on our clients. The left chart shows the median $/SF for properties sold that conformed to our property profile. As you can see, prices fell about 45%. On the right is a chart showing median $/SF for rentals that conformed to our property profile. As you can see, rents were virtually unchanged for properties that match our property profile.

The point is that if you target the right tenant pool, a "crash" is likely to have little impact on your income stream. However, C Class properties and most B Class properties fared badly in the 2008 crash and appear to not be doing well today. Low paid hourly workers, the target tenant pool of C and many B Class properties, are the first to be laid off and the last to be rehired.

How We See It

Based on everything we see today, a significant price decrease is unlikely. Las Vegas should continue to do well long term and continues to be one of the best locations for long-term buy and hold investments. The combination of all time low interest rates and low rental inventory make this a good time to buy Class A properties.

@Eric Fernwood thank you for all the info you provide on this thread. 
can you please tell us a little bit more about the tenant pool you keep mentioning that you target?

What kind of jobs do they have?

What neighborhoods do they live in?

Price range of the homes they live in as well as rent range. 

Thanks again. 

The Las Vegas Convention and Visitors Authority (LVCVA) has published their May YTD data and statistics. Visitor's volume down 96%, occupancy down 88%, gaming revenue down 99%, and convention attendance down 100%. The numbers are bad and expected when your close down the strip. June 4th was the go ahead date for reopen. June and July's numbers will show a starting point of recovery. 

Despite all the efforts to diversify, Las Vegas still lives and dies by tourism. 


https://www.lvcva.com/research/visitor-statistics/

Hello @Noam Ofan ,

The simple answer is that we target families of mission critical employees in companies that have performed well and are likely to perform well in the future. Not really much of an answer, so I decided to explain an approach you could use to determine such a tenant pool. However, keep in mind that the tenant pool is only 1/3 of what is required for a performing target tenant pool. See the image below.

A tenant pool that performs in good times and bad is a combination of three factors. In order of importance:

  • Location - Unless appreciation is greater than the rate of inflation, your actual income (buying power) is declining.
  • Jobs - If your tenant pool is not employed at the same or higher income, they cannot pay the rent. So, unless new companies are creating jobs that match the income and skills of your tenants, rents will decline or, at best, not increase. Companies only last a few years and when they die, the jobs die too. The typical life-span of a company is 10 years. The typical life-span of an S&P 500 company is only 18 years. So, every non-government job in every location will probably end within 10 to 18 years, in the best situation. Unless new companies are opening up operations in the location, all that remains over time are lower paying service sector jobs. When pay declines, rents follow.
  • Tenant Pool - Selecting a tenant pool that performs mission critical jobs (the actual workers who deliver income) is critical. In times of economic stress, everyone else is expendable. Low skilled hourly workers are the first to be laid off and the last to be rehired (typical C Class properties). High end jobs that are not directly producing income are vulnerable too.

So, assuming you selected a location where appreciation is greater than inflation, job creation is ongoing and population is increasing, how would you find the “mission critical” jobs of the major employers? Conceptually, it is easy. Determine the people doing the “mission” of the company. For example:

  • In a pharmacy, the pharmacist.
  • In an auto repair shop, the mechanic.
  • In a medical clinic, the doctors.

In practice, it is more difficult. We did a lot of analysis to pinpoint our target tenant pool. One example, we ran heat maps of the Las Vegas valley that showed how many years tenants stayed. The result looked something like the image below; green for the longest and red for the shortest. This is not the actual heat map, the real heat map is far more detailed and complex. In 2006 time frame when I started the research, the rent range for tenants that stayed multiple years was $900 - ​$1400, now is more like $1200 - $2000.

How could you approximate what we did? By interviewing multiple local property managers. A starting point on the questions you would ask all property managers:

I am considering buying an investment property. What would you buy if your key tenant pool criteria includes:

  • Tenants stay multiple years
  • Pay all their rent on schedule
  • Continued paying the rent during COVID-19
  • Take care of the property
  • Rarely have to evict

What can you tell me about the properties that attract these tenants? What is the typical rent range? Locations?

I hope this helps. If not, ping back and I will do my best to answer.

@Eric Fernwood Amazing data and analysis as always! I absolutely love your statistics and graphs in your posts. One observation I noticed in that heat map (I know it's an approx.) is that it seems people love to stay for many years near the 215. As someone who has been a local for 27 years, I also have always tried to live within 10 minutes of the 215. Definitely a well desired location! (At least the band from Cheyenne on the west side to where it terminates in Henderson!)