Las Vegas’ housing market is gaining speed with fast-rising prices and increased construction.
And as Lawrence Yun sees it, prices won’t tumble anytime soon, and builders need to build more to boost inventory.
Yun, the National Association of Realtors chief economist, gave a presentation Tuesday at a Nevada Realtors conference at the M Resort. Before he spoke, he met with the Las Vegas Review-Journal to discuss Southern Nevada home prices, which are rising at one of the fastest rates nationally; the market’s low inventory; and whether another bubble is inflating.
The interview was edited for space and clarity.
Las Vegas house prices were up 16 percent year-over-year in April. What are the pros and cons of that pace?
People who own property are naturally getting this huge wealth gain quickly, but with so many new residents here, people seeking employment, people who are renters, in order to buy, it’s making it very difficult in terms of affordability.
Do you think the price growth is sustainable?
I don’t foresee any price declines in the near term, meaning over the next couple of years. But I would like to see a tamer price growth of mid-single-digit appreciation. That would be much healthier and closer in line with people’s income growth.
Low inventory has been a big issue around the country, including in Las Vegas. Are you seeing any signs that availability is rising or at least not falling so fast?
The builders are building more, but I don’t think we’ve reached the inflection point, or the point where the declining inventory is bottoming out. We’re still seeing year-over-year declines. But by the end of this year, we may reach that inflection point, and next year we may have slightly more inventory as builders add production.
Builders aren’t the only reason for the low inventory. In Vegas we’ve got a huge supply of investor-owned homes that were rented out, and I haven’t seen any major effort to sell them.
If the investors were to unload some of those properties, it would be a very welcoming trend. Institutional investors, when they went into the market during the downturn, their outlook was a 5- to 10-year time frame. We are already past that, yet they are unwilling to unload because rental income is so good and they want to fully catch the price appreciation. So the only way we’ll get more inventory is for the builders to build more.
Overall, what are the strengths and weaknesses in U.S. housing now?
The strength is that housing demand continues to be formed because of job creation, and I think there’s additional pent-up demand in the sense that young adults are living with their parents and eventually want to spring out on their own. The question is whether the supply will be there. Hopefully it can increase, otherwise one will reach a choking point.
There have been some research reports in the last year that Las Vegas’ market is overheated, and locally, there’s an ever-present concern about whether we’re in a bubble or about to enter one. Do you think Las Vegas is in a bubble or on the cusp of one?
If one was to look at the metrics like home prices in relation to income, one might say that Vegas is overvalued. However, in terms of the likelihood of a price decline, the answer is no. It’s fundamentally different from 10 years ago; we don’t have easy lending, and we don’t have an oversupply of homes. Lending standards are very tight, and we have a lack of supply.
Contact Eli Segall at email@example.com or 702-383-0342. Follow @eli_segall on Twitter.