Las Vegas home prices have reached all-time highs during the pandemic. This is has happened despite an unprecedented pandemic-related recession, with an unemployment rate that reached an all-time high of 34.2% and still sits at roughly double the national average.
While housing has grown more unaffordable for most over the past year, it’s luxury Vegas real estate that has been driving the market.
Luxury and “uber luxury” real estate. “Las Vegas and Southern Nevada has not only blown away records on its luxury market for 2020 that are up 38 percent for $1 million and above,” according to Mashvisor, “but the uber-luxury market of $4 million-plus has hit heights never seen before in the valley and doubled its performance from 2019.”
In December alone, according to the Multiple Listing Service cited in the Las Vegas Review-Journal, 129 homes priced $1 million and above changed hands in Southern Nevada, which includes the Vegas Valley as well as the smaller cities of Pahrump, Boulder City, and Mesquite. These are often second, third, or fourth homes for wealthy, often international investors that may get rented out or stay vacant much of the year.
Driving this luxury-tilted real estate boom? Low interest rates, along with a pandemic-related and remote work-related exodus from coastal cities like San Francisco, Los Angeles, and New York, as well as several factors unique to Las Vegas.
Housing and unemployment rate. Unsurprisingly, housing prices and unemployment rates tend to show a strong inverse relationship. According to October 2020 data, Nevada’s statewide unemployment declined to 12% statewide and dropped from 14.5% to 13.9% in Clark County, which includes greater Las Vegas and two-thirds of Nevada’s 3.3 million people. That’s down two-thirds from its April peak of 34.2%, but still higher than any major US metropolitan area, and double the national average of 6.7%. In Vegas, leisure and hospitality continue to be hit the worst, with 21.4% less employment than a year earlier, pre-pandemic. Leisure and hospitality make up over 25% of Nevada’s employees, so that’s over 62,000 fewer jobs.
“Because these house price trends do not match the current economic climate in Las Vegas, which continues to struggle, this price growth is not sustainable,” writes Mashvisor, a real estate analytics firm. “So it’s very likely that home prices will drop in the Las Vegas real estate market in 2021.”
CoreLogic, which showed a 6.4% increase in Vegas real estate year-over-year in 2020, predicts a 6.5% drop by August 2021. But that view is not universally held. There remains a divergence of opinion, as well as the possibility of greater divergence on different types of residential real estate – including rentals, standard, and luxury.
Real estate gained 4.7% nationally year-over-year in October, the last month with data available, with housing starts up 14.2% year-over-year, according to the University of Nevada’s Center for Business and Economic Research (CBER). But in Clark County, residential housing permits/units dropped sharply – down 17.2% – relative to previous months and year-over-year. This is one indication the real estate market may be peaking. Inventory is increasing even as non-construction unemployment remains high, as builders work to meet demand.
Real estate prices continue to climb, according to CBER. Existing home sales were up, but new sales went down from the month before and year-over-year (from October).
Median home prices have reached around $300,000, according to CBER, with actual homes sold averaging around $285,000. Zillow currently features over 5,000 home listings. According to Zillow and Fox 40, 61% of Vegas searches on their website come from non-local sources, and nearly 18% of those searches come from the Los Angeles/Orange County area of California.
Las Vegas: unique factors. Keep in mind that Las Vegas, because of its reliance on tourism and construction, tends to have one of the most volatile economies in the US. But Sin City’s cost of living is much lower than most major cities – nearly half the cost of living as San Francisco, for example. Nevada also has no state income tax and low property taxes – ranking in the top ten, according to William Margita at Berkshire Hathaway Home Services in Las Vegas. It also has a favorable climate, with mild winters balancing out long hot summers. And Vegas has so much to do in and around The Strip, as well as being a unique major city surrounded on all sides by the great outdoors. “Why are we doing so well?” Margita writes. “We’re affordable. We give a better lifestyle for the money and we still have everything that makes Las Vegas.”
Las Vegas is also unique, being in the middle of the vast Mojave Desert, in that it is not “built out” like New York, San Francisco, or other geographically circumscribed urban areas. The Vegas Valley, which includes Vegas, North Las Vegas, Henderson, and unincorporated communities, has more undeveloped land available from in-fill and the Bureau of Land Management to subdivide and create homes. This can put an upward brake on home prices – but a rush of new developments can create a glut of inventory and massive price crash, as it did during the Great Recession when home prices crashed over 60 percent.
At the same time, because summers are hot and land has been historically cheap, people build and buy bigger houses here. Just don’t expect a lawn due to water conservation measures.
Note on Commercial real estate. Vegas, like other cities, is seeing a shift in commercial uses as brick-and-mortar stores and commercial offices already declining in use, accelerated trend during pandemic.