An interesting look at the effect of vertical housing in Las Vegas and its affects our market. This was taken from a report created by Larry Murphy of Sales trac.

While it is critically important to understand that the Las Vegas housing market performed badly in July, it is even more important to understand why. Most analysts point to a variety of negative economic factors. And, in large measure, they are right. But, the impact of vertical construction on housing sales, prices and especially inventory in Las Vegas -- and Nevada -- appears to be consistently underestimated. Almost unnoticed on the canvas of the Las Vegas housing picture are nearly 38,000 high and mid-rise homes in various stages of development. They paint a very different portrait of every aspect of the market-- sales, prices, and -- again -- especially inventory. Indeed, in large measure, the trend to vertical is a powerful contributor to a number of the negative changes occurring in the market that have been widely -- and sometimes incorrectly ---- publicized. Certainly the recent notation that Nevada ranked sixth highest in the second quarter's national housing sales slump would be part of that publicity. Virtually every story about that subject in the national media this month correctly interpreted negative economic conditions. However, virtually all of those stories failed to mention that Las Vegas is also undergoing a dramatic transition in housing development. As of July 1, 5,058 vertical units had closed escrow. Another 11,734 were under construction (of which 90%+ are in escrow). Still another 11,620 are actively being sold. And, 19,326 -- a number which grows almost daily -- are being actively pursued.
WHY PRICES CONTINUE TO RISE
The most easily understood impact of the Vertical "trend" is in the price of new homes. While July new home prices plummeted 11.3% to $299,152, they are still 3.2% above last July and ahead 11.3% for the year. The impact of 282 vertical sales -- generally at much higher per square foot prices than single family -- helped keep the median price of new homes up. Not surprisingly, as the cost of land becomes more and more expensive, resale prices have continued to rise. Indeed, in July resale prices reached an all-time high of $289,000 -- a 3.2% increase over last July and 7.1% ahead year-to-date.
WHY SALES APPEAR TO BE DECLINING
There is no question that economic conditions have impacted sales of both new and resale homes. But, sales of both new single family and resale homes are also being siphoned off by vertical construction. The problem is that these sales are neither being shown as closed escrows or, in Wall Street terminology, as new orders. As of right now, there may be as many as 14,000 such sales. Why don't we know about them? 1. Because it takes from 2-4 years to build a high rise and anywhere from 10 months to 2 years to build a mid-rise. 2. And, as of right now, no one is actually measuring these sales, although that may change within the next few months. The number of resales has remained relatively constant, declining 35.1% from last July to 3,400 -- but dipping only 16.7% for the year thus far. But, the number of new homes closed in July fell to a 30 month low -- the first time new home sales have been below 2,000 since January 2004. July over July sales dropped 41%, to 1,808, bringing the total for the year into negative territory (.3%) for the first time. In part, that is certainly a result of economic conditions in the market. The conflict in the Middle East may have put some buyers off. But, what is being completely overlooked is the impact of the second home/investment buyer. NAR estimates that 40% of all US homes purchased last year were second and/or investment homes. Our own research over the last decade shows one in four to one in five NEW homes purchased in Las Vegas were second and/or investment homes, reaching a peak in the second quarter of 2004 (38%). Last year, however, the market saw only 4% second and/or investment home activity in the "new home" sector here. The first half of the year showed scant improvement to 8%. In other words, virtually that entire portion of the market is economically challenged and/or being siphoned off to vertical construction -- particularly over the last 12-18 months. Interestingly, the only study by a local firm on vertical buyers (conducted in 2005) showed nearly 37% of the purchasers were locals (i.e., Las Vegas buyers).
HOW THIS AFFECTS INVENTORY
Beyond the standard economic theories, the Vertical "siphoning" effect increases inventory in two ways: 1. Those who are purchasing vertical as a primary residence now have a home to sell. Inventory increases. 2. Those who purchase vertical product as an investment put units back on the market almost immediately after they close escrow. Inventory increases. That last statement includes both condo-tels and purely residential product. The number of new home subdivisions reached an all-time record high of 515 in July. At the same time, the number of new home permits (down 41% July over July and 13.3% for the year) are decreasing. Market conditions are just now beginning to slow inventory growth in the new home sector EXCEPT for vertical. The number of resale homes in inventory has been bouncing around the 20,000 level for several months, reaching a record 20,609 in July. But, no matter how you look at it, Vertical will continue to expand inventory in the short run.
THE BOTTOM LINE
Let us be very clear here. We are NOT saying that the trend to Vertical Construction is the only reason this market is experiencing difficulty. But, beyond the standard economic explanations, one key to understanding July's statistics is that -- unlike other cities -- Las Vegas is in a major transition to vertical construction. Whether that transition takes a decade or two decades is immaterial. The impact of that transition is being felt now. From the average sale per subdivision (3.51, the lowest in the six years) to a major increase in the number of units in final map (+34% this year), vertical is impacting virtually every facet of the Las Vegas market. And, because Las Vegas accounts for 71% of the population of the state of Nevada, vertical here impacts statistics for the State as well.

Respectfully submitted,Larry Murphy Steve Bottfeld SalesTraq Marketing Solutions

The Fed Finally Takes a Break

The federal reserve finally has stopped raising rates, leaving the short term interest rate at 5.25%. About time, considering the fact that they've increased it 17 straight times. There has been a definite correlation between higher rates and lower sales in my opinion. Hopefully people interested in buying homes will see this as a good sign and start getting serious about purchasing before the end of the year. The latest rates I've been seeing are around 6.5%, down a bit from the 7's we were starting to get into.

The Las Vegas and Henderson Real Estate Market is an excellent opportunity for investors again.
The Las Vegas & Henderson resale home market has some of the highest inventory totals we've seen in a while and the builders are offering everything but their first born to get realtors to bring clients into their subs. To sellers, this news is about as much fun as Fiberglass underwear, but it's great news to investors. Sellers are willing to pay closing costs, buy discount points for buyers, not to mention the fact that dropping the list price is just expected now. We are even seeing buyers having the ability to bargain with builders...that was about as likely to happen a couple years ago as walking unharmed through a cage of rabid rottweillers smothered in meat sauce. I mean one builder is actually offering a free swimming pool with purchase.

This isn't the buy and flip investment of 03 and 04 though...nooo you have to actually commit to the investment for longer than 10 minutes before cashing in...ya I know what a buncha #%$#!!!
This is the old scenario of putting a tenant in to cover all or most of your mortgage, allow the market to continue to create equity, and then in a couple of years either pull the equity to buy more investment property, 1031 into something commercial, or just sell it outright when the winds start blowing from the sellers side of the campfire...

There are always things to be aware of though, make sure the HOA you are buying in allows for rentals in the complex. How many rentals are currently in the complex, what are the comparables renting for, how much work will it need, and most importantly are you going to do the property management or have someone else handle that aspect.