Las Vegas is now a city of renters, though it’s far less expensive to buy a home here than to rent one.
From a peak of 64 percent in 2000, as measured by the U.S. census, Las Vegas Valley home ownership is now at 48 percent — and will continue to fall.
About half of the 100,000 existing homes sold in the region over the past two years have been all-cash transactions, an indication that they’re being bought by investors rather than primary residents, and that most will end up as rentals.
The decline in home ownership is a concern because it threatens the fabric of a community, said Kolleen Kelley, president of the Greater Las Vegas Association of Realtors.
Renters tend to be less meticulous about home and yard maintenance and not as committed to neighborhood preservation. And home ownership fosters stronger communities, creates social stability and contributes to a stronger economy, she said.
Jeremy Aguero, principal analyst with Las Vegas-based Applied Analysis, said Las Vegas isn’t like New York or Los Angeles, where home ownership is out of reach for moderate-income families.
“Those markets evolved to become more renter-oriented as a result of relatively high prices compared to incomes,” Aguero said. “Our sharp decline in home ownership is largely the result of a historic economic downturn and the resulting credit challenges for consumers. Relatively speaking, we have low prices relative to income. Consumers have a problem with credit, not cash flow, which suggests growth in the share of renters over the next five years.”
Of the 821,486 dwellings in the greater Las Vegas area, 394,082 are now owner-occupied, according to Applied Analysis. Those numbers include single-family homes, condos, townhomes and apartments.
For now, owners still outnumber renters in the single-family home market. The Clark County assessor’s office shows 289,962 single-family homes occupied by owners, compared with 190,782 rentals.
Aguero said he noticed a tipping point in the fourth quarter of 2011 when the majority of single-family homes sold in the region were being taxed at 8 percent — the rate for rentals or second homes — rather than the 3 percent maximum for owner-occupied homes. That’s an indication that even single-family residences are shifting to renters.
“Renters have gone up considerably in the market due to people losing their home from foreclosure and short sale, and they can’t get a loan again for a couple of years, and with so many investors coming in and buying, I would say we have probably escalated from the 2010 census numbers,” Kelley said.
Yet a combination of record-low home prices and lending costs have made buying a home relatively cheaper than renting in nearly 100 major U.S. metro areas, including 11th-ranked Las Vegas, according to Discovery Bay, Calif.-based Trulia.com, an online listing service.
Trulia calculates the price-to-rent ratio for 100 major U.S. metros by estimating the ratio of asking sales prices to asking rents, adjusting for attributes of the properties and their locations. A home with an asking sales price of $200,000 and monthly rent of $1,500 would produce $18,000 in annual rent, for a price-to-rent ratio of 11.
Anything under 15 indicates that buying a home is a better deal than renting for people planning to live in a home for at least five years. Even if the buyer plans to live in the home for less than five years, buying could be a better deal if the index is 10 or less, depending on moving and closing costs.
Las Vegas has a price-to-rent ratio of 7.0.
“There’s no reason not to own,” said Zolt Szorenyi, president of Lenders Clearing House Las Vegas, a company that sells foreclosed homes for banks. “It’s much cheaper than renting. The mortgage could be as much as half the rent.”
But cost isn’t the only factor.
Aimee Romero, a young public relations professional, said she wouldn’t feel comfortable buying a house right now. She rents in east Henderson because she doesn’t want to make any sort of financial commitment in such a volatile economy.
“A renter can give 30 days’ notice and pack up and drive to another area for a cheaper place, if you need to,” she said. “I’ve had a couple different jobs in the last five years, and I’ve lived in three different homes as a renter. You don’t want to hang your credit out there when you don’t know what your employment situation is going to be.”
A 1,400-square-foot home rents for about $1,000 a month, Szorenyi said. That same home purchased for $100,000 at
5.5 percent interest would carry a mortgage payment of about $650 a month.
That’s if the would-be buyer can get a mortgage.
“Even if buying is much more affordable, you have to save for a down payment and qualify for a mortgage, and that’s hard to do if you’ve lost your job in the recession,” said Jed Kelko, chief economist for Trulia.com. “The homeowner rate has fallen, but not as low as places like New York (39.7 percent), which has always been primarily a rental market. But there’s a clear shift from home ownership to rental in Las Vegas because of the foreclosure crisis.”
While credit conditions have loosened slightly, many potential homebuyers are struggling with credit requirements. Roughly 8 percent of contract cancellations are the result of a buyer not qualifying for a loan, according to a March report from Capital Economics analytics firm.
The average credit score required to obtain a mortgage loan is 700. It’s higher than scores required before the mortgage crisis, but constant with requirements a year ago.
While indicators in the Las Vegas region point to a continued decline in home ownership, there indications that a loosening of credit availability may help slow the trend, Capital Economics noted. Banks are lending amounts up to 3.5 times borrower earnings. That’s up from a low during the crisis of 3.2 times borrower earnings.
And Joel Sarmiento, senior vice president for Wells Fargo Home and Consumer Finance Group in Tucson, Ariz., who was in Las Vegas last week for a foreclosure workshop, said he has seen a reversal from investor purchases of Wells Fargo-owned homes around the West to more individual families buying.