Market Conditions for Las Vegas, Nevada Reported by Sean Brown, NARREIA Updated May 15, 2008.

Current Market Rating: 1 1 2 3 4 5 Buyer's Seller's

Current Price Trend: 2 1 2 3 4 5 Falling Rising

MAY 2008 - There is no question, the Las Vegas market has started to rebound, especially in the sub-$300,000 range. Supply has dwindled considerably and continues to do so. Demand, on the other hand, has increased by 250% since the beginning of the year. The trend of the demand curve indicates that the demand will only continue to rise.

Market reactions tend to lag what the data shows by a good 3-6 months. Because of this, the trend in pricing continues DOWNWARD.

Another interesting aspect of the current market is that with the flood of foreclosures in Las Vegas, it is driving rents upward. Rents have increased approximately $100-$150 over the last year and it is anticipated that there will be a similar increase over the next 12 months.

What does this mean for real estate investors? Prices are as low as they were before the boom of 2003. Rents are higher than they were before the boom. The general popluation is still reelilng from the bust and does not yet realize that demand is on the rise, so it's still a very strong buyer's market. If the data continues along this trend, pricing should bottom out some time this year. If you can find a property that you get somewhat below the current comps (say, 5% or more) AND it cash flows, and you should be able to do this, then you might consider investing in Las Vegas again.

The good news for anyone in the Las Vegas market is that the data is finally showing a consistent improvement that would be necessary for a recovery. To locals, it might seem that a recovering market is as nimble as an aircraft carrier, but as we saw during the boom and the bust, things can change in a month. Regardless, the data needed to start to look like this before we recovered, and it has. If the national economy can at least hang in where it is at and if the lending industry can gain a little momentum, we might see the end of this bust.

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APRIL 2008 - I've been holding my tongue for a few months, waiting until I had a good, consistent record to point to, but it seems that demand has returned back to Las Vegas. I would definitely not say that we're out of trouble, but the data is very clear that the demand in Las Vegas has returned, especially in the sub-$500,000 market.

If you are unaware of the free market condition reports that I keep, I highly encourage you to visit my website at www.NARREIA.com and go to Advisors & Reports >> Market Data. There you will find an incredible wealth of data that has been conveniently plotted out in charts and graphs, all thanks to Jerry Rudden, our Market Data Coordinator. Jerry has done some incredible work tracking this data for us over the years, even in these down times. It's the severe up and down times that this data is so critical, as it allows you to see when things are moving even before the market buzz begins.

I'm not trying to hype the Vegas market at all, especially for real estate investment purposes, and if you've followed my reports or have talked to me on the phone, you know that I'm pretty conservative when it comes to market reports, especially Vegas, my home market. As a matter of fact, my candid reports during the bust part of the cycle have been criticized harshly by those agents that would rather blow smoke up your skirts than tell you the facts of what have been going in in this market. What I am trying to do is get you to look at the data so that you can interpret it for your self.

Before we get to the exciting stuff, let's go over the data that should not be overlooked before considering the possible shift in the market.

The Median List Price has steadily declined over the last 12 months, from $350,000 to $290,000. That's $60,000 or a 17% drop. Frankly, I don't think we've hit bottom yet, but I would say that unless the US economy gets considerably worse, I would not think it would be as great of a decline as the last 12 months. I could throw out a further decline of 10%, but that's about as accurate as anyone else's guess. I don't think we'll see appreciation, and the conditions are definitely much more favorable than last year. Furthermore, while we're far from out of the woods in the lending industry, it seems that we're at least getting some programs back, and the people who can qualify are increasing, not decreasing like they did over the last year. This is why I think we'll see a decline of around 10%, and it could be less (LOL, and it could be more, too, but I'm thinking less.)

Warming up to the good news, let's take a look at the Days of Supply (DOS). That's where we take the total units available, divide by the total units under contract, and then multiply by the typical (non-short sale) escrow period of 30 days. What this tells us is how long it will take us to consume every house listed if they were put under contract at the current rate. Make sense? I hope so, because that's what we're talking about now.

One year ago, the Single Family Residence (SFR) DOS was 210. Again, that means that at the end of March, 2007, it would have taken 210 days for the buyers to snatch up every house that was currently listed (and no other house listed during that time.) As 2007 wore on, things got worse and worse, until October 3rd (my brother's birthday, as if that matters) where it peaked at 380 days. Yikes! Over a year to sell every single house IF NO OTHER HOUSE LISTED! What a crappy market, eh? Well, the good news is that I said it peaked there, because the DOS has very consistently decreased since then, all the way down to 135 days. THAT is awesome. Now, the data that I pointed you to breaks it up into much more granular data (that's nerd speak for 'lots of data points instead of clumping things together'), but if you just look at the housing below $700,000, it has been on a very steady decline for six months now. That's pretty solid. The market above $700K is improving, but it has been quite erratic is still over a year and a half. At least it's better than it was six months ago when it was about 2.4 years (that's not dog years, either).

So, what has been driving this improved Days of Supply data? Well, let's look under the hood at the raw data (kinda like sushi for the housing market.) Supply of SFRs has dwindled from about 22,000 units a year ago down to around 18,000 units today. That's an 18% decrease in the number of houses that are available, which is clearly nothing to sneeze at (unless, of course, you're home, sick in bed with bronchitis like I am right now.)

Now, a considerable drop in supply is exactly what the doctor ordered (along with the Levaquin for the bronchitis.) But it's what he followed up with that we've really been looking for: INCREASED DEMAND. No matter how you look at it, either comparing it to the beginning of this year, where our demand has DOUBLED, or comparing it to one year ago, where we've had a year-over-year increase of 55%, it is a very good sign. Very importantly, the data is long term and trending consistently. For number crunchers, the data from Jerry's spread sheet shows 2,531 SFRs under contract a year ago, increasing 1,390 units to today's 3,921, as I said, a 55% increase. From the beginning of the year (admittedly, a traditionally slow time of year), we've seen it go from 1,997 under contract almost increasing that much (1,994 units) to 3,921, or a 96% increase.

I've held off doing a report like this because I didn't want to sound the whistle too early, but it certainly seems that there is movement in the Las Vegas market. Would I buy in Vegas right now? It's not a bad time to buy if you're looking for a primary residence. For investors, I think it's a tough call. We've probably taken the brunt of the decline and I think we're going to see an additional 10% decline before it's over (or not, or it could be worse, my attorneys advise I say that). So what needs to happen is that you need to buy well below (heh heh, here comes that phrase) "market value," far enough for you to absorb the possible depreciation and still make out. The key is to figuring out what "market value" is these days, so be VERY CAREFUL you do your home work and you are happy with the price you're getting.

Other good news is that the decline in prices and the mass influx of renters as a result of the foreclosures and short sales means that the Rent-to-Sales price ratio is almost back to normal. What does this mean? Another buzzword (good for the search engine results, but still true) is POSITIVE CASH FLOW. Yes, I have actually seen positive cash flow (with 10% down, Interest Only) deals in Las Vegas.

Again, I pose the question, should you buy in Vegas today? That depends on the type of investor you are, and you already know what kind of investor you are. Either you like to push the edge, find the markets just as they are emerging (or you think they are emerging), and lead the pack getting the deals in a Buyer's market, or you prefer to trade off being first and getting the sweetest deals and wait until there is more solid evidence that the market is right. Frankly, I'm in the wimpier group, but there are some very favorable indications (consistently decreasing supply and increasing demand, better cash flow, buyer's market) that would say that the leaders in the crowd might start jumping back in.

(After I wrote this, one of my more affluent investors contacted me, having NOT read my report, and he has me buying units under $100,000 that are strongly cash flowing. He is the kind of investor that is always first into a market, and he, independent of my analysis, is ready to dive back into the Vegas market.)

Again, I can't stress it enough how insightful the charts and graphs are on Jerry's Market Condition page. Visit the www.NARREIA.com website now. It's free!

If you are interested in the Vegas market, feel free to contact me through the site. Or you can contact one of our other Vegas Advisors like Scott Meservey or Katie James, as we all have our different perspectives and niches.

Cheers and good luck!

Sean



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