• Vegasnomics

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  • Housing Squeeze

    By David Grana

    Published on November 29, 2020 at 1:00pm PT

    I hope everyone had a peaceful and enjoyable Thanksgiving holiday. While our state was on economic “pause” and most of us were enjoying the long weekend, our community was dealt yet another blow late Friday evening with the news of the passing of Zappos former-CEO Tony Hsieh. Considered an innovator and visionary by all, Hsieh played a big part in the revitalization of Downtown Las Vegas. And though the development of Downtown is still a work in progress, Hsieh’s investment in the community will not go unrecognized. My deepest condolences to the Hsieh family.

    Tony Hsieh

    Some families in the Las Vegas Valley have more concerns than others, especially those that have been served with an eviction notice. The Review-Journal reported last week that 5,000 orders had been filed since the state’s moratorium had lifted in mid-October, with 2,500 having been granted and a backlog of yet another 1,000 waiting for a hearing. It’s estimated that this represents only around 13% of renters in Clark County, however, it does raise many questions about our rental market.

    Will Rental Vacancies Rise?

    This is a great question, but the answer is not as straightforward as you might expect for a number of factors. The population here in Clark County has seen a near-constant 2% increase since 2010, with current estimates around 2,328,000. As of 2019, around 45% of that population represented renters, which is a considerable drop from a 10-year high of nearly half in 2014. We don’t have the 2020 figure yet, but if we continue trending downwards, then the answer to that question could be a resounding yes.

    The percentage of renters in Clark County peaked in 2014 and has steadily declined over the past decade.

    In complete contradiction with everything I had projected since the onset of the pandemic in early-Spring (yes, I was wrong - boo-hoo), the housing market has been red hot, with median sales prices surpassing 2006 levels.

     

    Clark County Single Family Residential Prices

    In fact, once the economy reopened in June, home prices jumped by leaps and bounds, while inventory supply levels were in the same range as those seen during the summer of 2018 - less than 3 months worth. Coincidentally, the number of listings and the percentage of absorption through sales also reflect the figures seen back in Summer 2018, at around 35%. Considering these factors, if renters are contemplating becoming homebuyers, they may find it difficult, given the current direction of prices and supply.

    The Las Vegas housing market activity is mimicking the Summer 2018 market in many ways.

    The rental market may not be much rosier. 2019 saw vacancy rates at just under 9% and on a continuing downward trend. It wasn’t quite as low as the 2017 vacancy rate of just over 7%, which was the lowest Clark County has seen over the last decade, however, it does indicate that even the rental market is tight. Rents have not seen similar spikes as we've experienced in single family sales properties, however, a quick glance on the Las Vegas Realtors MLS over the weekend showed that the median rental price across all properties stood at $1650. This represents a significant difference from the 2019 median rental figure of $1187. To add insult to injury, out of the 1625 rental properties available on the MLS, only 270 of them (or 16.6%) were priced below that 2019 Clark County median of $1187.

    Clark County currently has less than three months of residential inventory on the market.

    If this is an indication of what the rental market is going to look like in the coming months, we may have actually reached the point where renters have no choice but to buy. Doing some quick math on an online mortgage calculator, the monthly payment on a conventional loan with 20% down for a $325,000 home is around $1380 at today’s low interest rate.

    What Does All of This Mean?

    For starters, renters who can afford to, will likely be pursuing a home purchase, not so much because they want to, but because they need to. We may be faced with the similar predicament of cities such as Los Angeles and San Francisco, where rental properties are simply too expensive for most people to afford. However, much like those cities, we are also facing a shortage of properties for purchase. With the low weekly rate of new listings coming onto the market (less than 600 last week), this will only cause prices to rise even further, which sadly, may force renters to continue to pay higher rents until more supply can come onto the market.

    This, however, is great news for homebuilders, such as Richmond American Homes, who are building more affordable products for these types of buyers. I will also add that we do have a major advantage over those other cities thanks to the fact that we have a plethora of land - albeit Federally-owned - that can be accessed in due course.

    The Local Economy

    This is where it gets tricky for Las Vegas. For renters that work in the resort and casino industry, or those who depend on that industry for their livelihood, this poses a very difficult situation. Decreased hours and pay against the backdrop of rising rents may leave some families with no choice but to leave Las Vegas for greener pastures. The prolonged effects of our current “pause” and any further to come, along with the failures of our state’s unemployment department may not only crush the prospect of home ownership, but quite possibly of having a roof over one’s head. The dire nature of the state of our tourism sector was underscored this weekend when news came out about Clark County dipping into their rainy day fund to make the coupon payment for the bonds used to finance the Allegiant Stadium project. Persistent turmoil in our economy, along with the potential depletion of reserve government funds could open up a can of worms for our economy and the well being of Clark County residents.

    Rent, Buy or Leave

    Without an increase to the housing supply, prices appear to be on the rise in the short-term. The growth of new Las Vegas residents will force rents to follow suit. These two factors, combined with continued economic headwinds may see a considerable portion of the population outpriced from this market and headed elsewhere. If we are to continue to be a resort town, we will need to figure out how to overcome the obstacles set forth by the pandemic, lest we see an exodus of renters and potential home buyers. The only other alternative is to dramatically change the economic landscape of our community, which would be too lengthy an undertaking to resolve the short to medium-term issue of housing that our community is facing.

     

     

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