LAS VEGAS RESIDENTIAL INVESTOR IQ
March 2012
Case-Shiller Home Price Index—Las Vegas, NV
250
CAPITALIZATION RATES, RENTS AND SALE PRICES (indexed)
10% 2.5
9%
8%
2.0
200
7%
Rent & Sale Price Index
Index Value (year 2000=100)
6%
Cap Rate
1.5
150
5%
4%
1.0
100
3%
50
2%
0.5
1%
Oct-02
Oct-03
Oct-05
Oct-06
Oct-08
Oct-09
Feb-04
Feb-07
Feb-10
Feb-02
Feb-03
Feb-05
Feb-06
Feb-08
Feb-09
Feb-11
Oct-11
Oct-01
Oct-04
Oct-07
Oct-10
Cap Rate
Rent Index
Sale Index
It is well known that home prices in Las Vegas have fallen substantially. After an unprecedented bubble in the early and mid-2000’s, the subsequent crash has pushed prices below it’s long-run, pre-bubble trend. Based on the prior trend and metrics such as price/rent and price/income ratio’s, we believe that Las Vegas is in a severe undervalued condition.
Capitalization rates, or cash-on-cash returns (in the absence of leverage), have grown significantly in the post-bubble environment. This is largely a function of asset price declines rather than rent increases. Rents experienced a mild decline before stabilizing in 2010 and 2011. In some areas we are actually measuring rent increases. As a result, returns are exceeding many other asset classes with possible returns above 7%.
CAP RATE—SALES PRICE RELATIONSHIP—SINGLE FAMILY Q1 2012
25%
Capitalization rates tend to be maximized at the lower end of the home price spectrum. The home prices are a function of age, location and other variables, however rents tend to not reflect these at the same level the asset value does. So, while much of the depreciation of the home is built into the asset value, rents remain fairly stable. Further, some of the lower priced homes do not have association or special improvement fees which cut into operating income. The graph above illustrates the typical tradeoff between sale prices and returns.
Buyers of rental property should have an idea of their probable lease-up period. This chart illustrates days on market for condos and single family homes. Single family marketing times have been on a gradual downtrend since 2009 (increasing recently), with condominium marketing times declining from mid-2010. In Q4, 2011, single family homes leased-up within an average slightly more than 1 month, while condominiums took nearly 50 days. When developing a pro-forma for a property, one should take these values into consideration.
United Van Lines & Atlas Inbound/Outbound Moves 2011
District of Columbia 62.5%
64.3%
Property Example
60.8%
Oregon
59.5%
56.9%
Nevada
54.8%
Actual Sale Sample Previous Sale Date Previous Sale Price Recent Sale Date Recent Sale Price Decrease in Price Current Rent (Mo)* Current Capitalization Rate
50% of Sales are to Investors*
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56.4% North Carolina 57.8%
55.1%
Florida 54.9%
*Existing rent per M LS. Tenant o ccupied at time o f Sale.
2011 Percentage of Inbound Shipments
2010 Percentage of Inbound Shipments
Source: Atlas
Source: United Van Lines.
Indicator New Residents (Drivers License Count) Active Residential Electric Meter Count
Note: Q1 figures will be available next month.
Change Q4 , 2011 Year Ago 13,882 11.4% 741,220 1.5%
Approx. 1,800 transactions per month during 2010-2011 (majority are cash)
Employment and household formation are the two requirements for absorbing housing supply. Employment in the Las Vegas Valley was greatly impacted by the recession. In the past several quarters, we have been measuring a gradual firming in the labor market, a strong positive for housing. Additionally, United Van Lines and Atlas Moving provide surveys of household moves throughout the country. In 2011, Nevada was considered balanced (with slightly more inbound migration in the UVL survey). Recent third fourth data on new residents and electric meters suggests a likely return to inbound migration.
The information and opinions in this report are believed to be reliable and has been obtained from sources believed to be reliable. Coldwell Banker Premier Realty makes no representation as to the accuracy or completeness of such information.