America loves hyping snapshots, and all the news and pundit’s discussions of it are focused on such events of the moment. The problem is that a snapshot is a picture of a moment and misses the big picture and long term trends. Same hype resulted in the irrational exuberance of 2003-2005 in Las Vegas real estate and momentary doom and gloom about the same.
In the huge run up in prices in 2003-2005 I kept asking the same question, why the prices are going up at such breakneck speed. The answer was three fold:
1: US is the wealthiest country in the world, where mountains of cash are ready to be invested, except that in this country they have really four places to go, stock market, bonds, real estate, and funding new businesses. The stock market and new businesses field the investors, thus the money is poured in to real estate and bonds.
2: Las Vegas real estate at the beginning of 2003 was undervalued, so some of the correction in the prices was justified.
3: Greed. Sellers were competing with each other in raising prices. Sellers of parcels of land that were on the market and unsold for months kept raising prices every month. Some remain unsold to this date.
However, this run up in the prices was not supported by economic fundamentals and what happened was prices came down to early 2004 levels with the notable exception of Las Vegas Boulevard (Strip).
What is today’s reality in Las Vegas real estate
1: Well, this is like déjà vu all over again. The stock market is weak and is kept standing only by being hand fed with consecutive rate cuts by the FED. When there are no good stock market or real estate opportunities, money goes to bonds. Bonds don’t pay well due to rate cuts and real estate is getting reasonable so guess where the money is going next?
2: “Deutsche Bank Securities, in a report to its investors, said the Las Vegas casino industry will need to hire some 113,500 workers for the positions being created by the new resorts. Analysts for the Wall Street investment house believe if the current growth rate in Clark County’s population continues unabated, there will be a shortfall of some 25,000 jobs left unfilled”. Source, Las Vegas review Journal.
These numbers are about a year old and since then MGM got a great deal of cash infusion from Dubai. Now the joint venture is starting to build the parcel on the corner of Sahara and the Strip In 3 to 5 years the number of new employment should reach 125,000. Many of these new jobs will be well paying.
3: Greater Las Vegas Valley’s employment numbers at this time is about 900,000. As you can see, the addition of 150,000 new employees by 2010 is statistically significant. As it comes to jobs in Las Vegas, we are short.
New investments which should come to fruition in2010-2011 are upwards of $35,000,000,000, and will attract extremely rich visitors to Las Vegas to shop and dine in word class facilities and buy very expensive stuff, and then come back and do it again and again, you get the idea.
As I wrote, economic changes have to be supported by economic fundamentals, and my assertions are supported by the new reality.
I am not an economic expert nor do I have a “Crystal Ball”, thus I don’t like to predict what will happen short term, but am a good handicapper and know numbers, as a matter of fact I have studied PHD level mathematical subjects and my opinion is that the current market conditions are just a hiccup and that Las Vegas is real estate is ready to go Pluto.
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1 Changes made to Las Vegas home, condos and commercial real estate to help the public avoid pitfalls in their real estate deals, such as foreclosures // Mar 20, 2008 at 7:20 pm
[...] is snowballing and is starting to do damage to other housing related segments. As I have stated in Why Las Vegas real estate’s future in three to five years is so bright, you need to wear shade… at some point all these foreclosure properties will be absorbed by new money from investors and [...]
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