Las Vegas, NV: -7.9% Return on Investment (2011)

The Las Vegas market is very similar to Miami, due to the intense over-building of high-rise condominiums in both markets.  The markets also share a similarity of value trajectories for single-family homes and high-rise units.  The overall market value contractions in Las Vegas are being driven by  high-rise condominiums, with single-family homes expected to stabilize much sooner than the high-rise units.  Currently, approximately 66% of listings in Las Vegas are from foreclosures[1].

The sharp reductions in market prices over recent years has brought values back down to levels that are similar to the year 2000.  This has pulled rental cash flows more in line  with the operating expenses and mortgage payments.  The opportune time for investment in Las Vegas has not yet arrived though, since the ratio between rents and values is still considerably weaker than many other markets.  On balance, this means that Las Vegas may become a viable place for investment in the future but that investors should be very cautious about moving into the market during 2010 and for most of 2011.  With banks holding a large amount of foreclosure inventory in the Las Vegas area, it is likely that there will be low-priced inventory available for quite some time.

The recovery path for Las Vegas is expected to lag many other major markets, due to the high concentration of commerce in the entertainment industry.  Since entertainment is typically a lagging indicator of growth and recovery, we expect Las Vegas to encounter a slower growth path than the economy at large.  It is likely that the ‘bottom’ in Las Vegas will occur at approximately the same time as the larger economy is beginning to shift toward growth.

On balance, there is a possibility that Las Vegas will become a healthy market again at some point in the near future.  However, this can only happen when the market fundamentals re-align to create a growth trajectory.  The time has not come yet for Las Vegas as an investment market.