How Las Vegas real estate analysts arrive at their predictions of the future of Las Vegas real estate and why the factors that they fail to account for skews their analysis and predictions.
Before I get into the statistics of Las Vegas residential real estate in 2012, I am going to discuss a few important factors that don’t necessarily show up in these numbers or news articles. However let’s discuss the factors that these analysts account for.
Most Las Vegas real estate analysts try to predict how many Las Vegas homes, condos or townhomes are or will be under water (owe more than the home is worth) in the next 5 years and then try to make a prediction of the real estate market based on their prediction of this number !!! Don’t believe me, read any newspaper article in Las Vegas in the past month.
They also correlate unemployment numbers with Las Vegas real estate market and keep saying nothing changes until unemployment numbers go down, hence the new prediction that our meaningless median price will go down and will not recover until 2013. They predict another 10%-14% price drop in 2012.
Let’s summarize this: Say we have about 100,000 under water homes and condos in the Las Vegas metro at this time and our unemployment is at 13.6% which has dropped 2% from last year. Unless Las Vegas can replace one of two major industries, namely the construction industry, unemployment numbers will not go down to 2006-2007 levels for a long time and that we will burn through about 25,000-35,000 distressed homes and condos, so we will have a supply of foreclosures and short sales for the next 3-5 years. Thus it will take that long for real estate prices in the Las Vegas Metro to recover. Sound logical and good, ha? WRONG!!!
I reject this approach for the following reasons:
1: The problem is that Las Vegas was a two industry town, gambling and construction; however they built what should have been built in 10-15 years in 3-4 years and are done. The construction industry has to be replaced by something else. However, the unemployment number is not the deciding factor in future real estate pricing. The UNDER EMPLOYMENT number that no one really discusses is.
For example, one of our clients was a server in a casino who used to make more than 80K per year. This dropped to about 25K since her hours were cut severely and her home was foreclosed. Now she is getting busier and makes more money. The Las Vegas real estate market will improve when people like her get more time and can set money aside to buy a home and this will not show up in unemployment numbers since people like her already have a job.
Las Vegas casinos have had their 2nd or 3rd best year ever and even the Center for Business and Economic Research at UNLV, which is pretty conservative, stated “Clark County showed positive growth when compared to a year earlier. Gaming revenue was up by 7.8 percent, taxable sales by 8.6 percent, and employment by 1.8 percent. Business activity in Clark County is beginning to show signs of improvement over the previous year, but it is still susceptible to national and international uncertainties”.
Additionally these real estate analysts base their prediction on a static economic environment in the next 5 years while our experience clearly shows that our economic trends are highly dynamic. For example, just last week it was announced that Nevada is going to get 1.5 Billion dollars to help with these under water homes so not all 100,000 under water homes will end up on the market.
Las Vegas real estate market 2012 is a multi part blog series. In the next blog I will discuss why we have broken the all time sales record for Greater Las Vegas homes and condos while news articles try to scare the Jesus out of prospective Las Vegas real estate investors and these people are not stupid. I was recently telling a client about the fact that the vast majority of our clients have a master degree or higher and he said that he has an MBA degree. Actually we have had several Harvard MBA graduates and these guys are investing in Las Vegas real estate now.