The Las Vegas real estate market has been impossible to predict and, in my view, defies logic. In an attempt to provide valuable guidance, we explore both macroeconomic and micro-market considerations.
Supply v. Demand
Las Vegas is becoming increasingly appealing as the state of Nevada is tax-friendly. Supply-side challenges include geographical obstructions to expand residential development, and available locations are increasingly further from the city’s core.
We evaluate supply by factoring in residential home building permits acquired, which provides insight into future supply juxtaposed by the number of driver’s licenses surrendered at the Nevada DMV from states people are relocating to Las Vegas from.
A recent study claimed that 130 residents relocate to Las Vegas per day, or 47,450 annually. The supply-side challenge is that it appears only ~15,000 new home permits were acquired, creating a 3-1 new resident to new home ratio.
Factoring this and the lack of planned luxury condo developments, it is reasonable to infer that appreciation should continue, even if it is modest. There are 336 active listings in the luxury condo market, while 1,199 condos sold during the prior 12-months.
Eviction Moratorium Impact
I was flat-out wrong. I thought that 40,000+ evictions would occur as soon as the eviction moratorium expired. In my view, we were going to see a minimum of 10,000 new listings entering the sale market, which would put downward pressure on pricing. That did not happen.
Even the rental market is limited, with projects like The Martin only having two listings for rent.
People relocating to Las Vegas are primarily moving from the following states:
California residents make up ~40% of people moving to Las Vegas. The average home value in California is 2-3x higher, so, despite significant increases in Las Vegas home prices, there is still a perceived value compared to CA. Moreover, Las Vegas and Henderson made the top five related cities retirees are moving to.
Many Bay Area tech companies are allowing their employees to telecommute. Vegas’s cost of living and easy access to the airport create compelling reasons to telecommute from Las Vegas. A study published by a Bay Area firm stated, “45% of the jobs in the Bay Area are eligible for remote work, equating to a total of 1.79 million.”
Institutional Investors Impact On The Market
iBuyers Zillow, OpenDoor, Offerpad, and Redfin are the preeminent operators in this segment. In my view, these programs are glorified flipping programs and unprofitable, even in up markets. ibuyers record the sale price of the home as revenue which created the inference of exponential growth, yet the majority of their transactions negatively impact net profits.
This ‘revenue at all costs” model forces iBuyers to continue to buy as many homes as possible, even when overpaying, as their stocks may implode if they miss revenue projections.
Zillow announced a “pause” in iBuyer and their market cap dropped by $2.1 billion in a single day resulting in stock analysts downgrades.
iBuyers will continue to buy residential real estate aggressively, so inventory may remain nominal for the foreseeable future and put upward pressure on prices.
State & Federal Tax Increases
Tax increases typically benefit Nevada at the state and federal levels as residents of high-tax states relocate to seek relief.
If relocation is part of your wealth management strategy, talk to your wealth manager as relocating in 2021 may be advantageous to 2022, when we believe taxes will be increased.