Robust Growth Outlook for Nevada Housing Market

Socotra’s lending activities are focused primarily on the California real estate market, but the company is also expanding its lending operations in Nevada due to that housing market’s attractive growth prospects.

Nevada, and Las Vegas in particular, experienced one of the nation’s largest housing bubbles prior to the 2008 crash and was among the markets hardest hit by collapsing home prices. As a result, while Las Vegas home prices are rising, the Las Vegas metro market has greater opportunities for price gains to reach pre-crash home price levels than any other area of the country.

In the years following the crash and as Nevada’s economy gradually improved, home prices rose at some of the highest rates in the nation. Investors were aggressively acquiring foreclosed houses at deeply discounted prices and converting these homes into rental properties. According to Vegasinc.com, prices for new and existing homes jumped 37 percent and 33 percent, respectively, in 2013. Existing home values rose 29 percent, the fastest growth rate of any major metropolitan region that year.

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While growth in home prices has since slowed to more sustainable levels, Las Vegas home sellers continue to book some of the highest profits in the country. According to RealtyTrac, Las Vegas home owners who sold homes during March of 2016 posted average gains of 23 percent over their purchase price, that market’s highest profit margin since 2007. During March, the average price gain for all home sellers nationwide was 17 percent.

The Greater Las Vegas Association of Realtors recently reported median sale prices for previously-owned, single-family homes at approximately $220,000 versus a national median price for previously-owned homes of about $184,600.

Despite sizable price gains, the value of Las Vegas homes remains nearly 34 percent below pre-crash peaks. The average home nationwide is currently valued only six percent below its pre-crash peak, according to Zillow. The large gap between pre-crash and current prices in the Las Vegas market suggests plenty of room for growth. In fact, the gap between peak and current home prices in Las Vegas is the largest of 35 metropolitan markets covered in a recent Zillow report. Their list included Orlando, Riverside, California and Phoenix.

Foreclosure activity in the Las Vegas market remains at high levels due to many home owners being underwater on mortgages. As a result, foreclosure sales are expected to remain above the national average. Roughly 21 percent of Las Vegas home owners have mortgages that are underwater, according to Zillow. This is down from a 2012 peak of 71 percent, but still considerably higher than other major metropolitan regions.

Between 2009 and 2015, Nevada ranked 11th nationwide in job growth, fueled by a booming construction market. Since the recession, however, the Silver State has made considerable progress in diversifying its economy beyond just construction and gaming.

In Northern Nevada, a $5 billion battery factory being built by Tesla Motors is having a major impact on the region’s housing market. In addition, eBay is building a data center in the Tahoe- Reno area that may create hundreds of new jobs. The Economic Development Authority of Western Nevada (EDAWN) is attracting new technology, data, logistics, e-commerce and manufacturing companies to the region by highlighting Nevada’s low taxes and business-friendly climate. EDAWN said that approximately 10 to 12 new companies visited the state every month in 2015 and nearly 70 percent wanted to move to Nevada. Businesses re-locating to Nevada created more than 3,000 new jobs last year, according to EDAWN.

In Southern Nevada, economic development officials remain cautiously optimistic about the region’s 2016 growth prospects. Companies that re-located to Southern Nevada in 2015 included Premium Waters, which invested $10.7 million in its new facility. EBay is spending $182 million to expand its data center operations in Las Vegas and Faraday Future has announced plans to build a $1 billion electric car manufacturing plant in North Las Vegas. The Faraday manufacturing plant is expected to bring 4,500 new jobs to Southern Nevada.

Nevada’s traditional industries, gaming and tourism, have also staged a comeback. Major gaming strip construction projects currently underway include Genting Berhad’s $4 billion Resorts World Las Vegas and the Las Vegas Convention and Visitors Authority’s $2.3 billion Las Vegas Global Business District.

Las Vegas maintained its track record as the leading destination for business travel in 2015 and was also recently named the number one trade show destination for the 22nd consecutive year, according to the Trade Show News Network. More than $7 billion in current and proposed development projects are booked, including the T-Mobile Arena, TopGolf Las Vegas, renovation of the Julius Tower at Caesars Palace and the Monte Carlo theater. In addition, the Oakland Raiders professional football team wants to move to Las Vegas and the team’s owner recently pledged $500 million towards a new Las Vegas stadium. Plans call for a 65,000 seat domed stadium that would be constructed next to McCarran Airport and a few blocks from the Las Vegas Strip. This $1.3 billion stadium project is being championed by the Las Vegas Sands casino group and Majestic Realty.

All in all, a diversifying state economy and more new businesses moving to Nevada is creating a robust housing market that should support continued strengthening of home prices in the region. One note of caution is the lack of an available supply of vacant land in the region, which is driving up costs for home builders. A solution is being offered by the Bureau of Land Management, which controls thousands of acres in Nevada and has begun auctioning off parcels of land in public land auctions. The BLM is currently offering more than 800 acres of Las Vegas Valley land to the highest bidder. By making more land available for new construction, Nevada officials are helping to keep home prices competitive and sustaining the state’s housing boom.

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