Commercial PropertyViva Las Vegas Housing
From mid-2003 to mid-2004, Las Vegas, Nevada, experienced an eye-popping 52 percent appreciation, fueling as much flipping, speculation and gold-rushing as the area would allow.
The fact that many of those homebuyers came from California drew even more attention to the boom, as Governor Arnold Schwarzenegger declared that his state was losing too many residents.
There"s plenty of reason to think that Las Vegas is leading the bubble.
In the National Association of Realtors" bubble report of Las Vegas - Paradiso, it was found that like other bubble suspects, housing prices have risen faster in Las Vegas than incomes. Home values have risen 88 percent against a national average of 32 percent over three years. The home price-to-income ratio is 3.4 where the national average is 2.3.
But while incomes relative to housing prices is certainly important, the NAR considers that a more important measure in assessing housing bubbles is mortgage servicing costs relative to income. In other words, are borrowers overstretched to purchase a home in the area?
In Las Vegas, the mortgage debt servicing cost is 25 percent of income. While higher than the national average of 16 percent, it is well below the Top 20 metros" servicing cost of 30 percent of income.
The NAR cautions that a high use of interest-only loans (34 percent) and ARMS (50 percent) places greater exposure risk to interest rate changes, but that the risks are somewhat mitigated by an increase of more than 175,000 jobs being created in the valley in the last 5 years. Only 12 percent of loans had a loan-to-value ratio greater than 90 percent, which implies minimal foreclosure risk.
Las Vegas homes priced at $300,100 are 40 percent above the national average, and the median home price rose 46.4 percent in 2004. Home prices may be "catching up" from flat pricing for most of the 1980s and 1990s.
With a 12 percent increase in the number of jobs created in Las Vegas since 2002, compared to a national average of about two percent, there"s just as much reason to suspect that Las Vegas is in a boom, not a bubble.
With between 5,000 and 7,000 people moving to Las Vegas every month, there is a continued demand for housing, which squares with David Lereah"s assessment as NAR chief economist. "These market fundamentals, combined with relatively tight inventories of available land and homes available for sale in Southern Nevada, means there is solid demand from buyers compared to the supply of homes," he says.
After 18 years of steady growth, and record-setting growth in and around the city of Las Vegas, there"s no housing bubble, agrees the Greater Las Vegas Association of Realtors (GLVAR) President Myrna Kingham. "It would take drastic changes in the Southern Nevada economy, such as a reversal to the area"s strong growth in population, tourism, jobs and the overall economy," she says.
That doesn"t mean Las Vegas housing won"t plateau, or even recede for a while, but as long as people want to move there, and as long as there are jobs to support families, there will be a market for housing.