Home prices soaring, inventory shrinking: Is Las Vegas back in a real estate bubble?
Anthony Simmons knows a thing or two about housing bubbles.
While he was a linebacker for the Seattle Seahawks a decade ago, Simmons also flipped houses in Las Vegas. He had no real estate expertise but became enmeshed in the frenzy of the go-go years, buying and selling 10 houses in five years.
Then came the crash and the near destruction of Las Vegas’ economy.
Now housing prices are soaring again, but Simmons is wary of the surge.
“We’ve been there before, and it didn’t turn out too well,” said Simmons, who now owns Sharkey’s Cuts for Kids, a Henderson hair salon.
After several ice-cold years, Las Vegas once again is one of the hottest housing markets in the country.
Prices for new and used homes have jumped 37 percent and 33 percent, respectively, over the past year. Existing home values rose 29 percent, the second-fastest rate among major metro areas. Land prices in parts of the valley have more than doubled since December alone.
Home values typically rise 2 to 5 percent in a normal year.
Despite the rapid gains, analysts say Las Vegas is not mired in another housing bubble. Prices and values simply are rising from historic lows, they said. Some think the market still is underpriced.
Gone also are the days of rampant house flipping and sloppy mortgage lending that let almost anyone buy vastly overpriced houses.
These days, prices are soaring as investors buy cheap homes in bulk to turn into rentals, crimping the inventory of homes for sale. Availability also has been limited by homeowners who refuse to sell or can’t sell because they’re underwater or stuck in foreclosure processing delays.
Some experts, however, say the valley could be on the cusp of another bubble. Yale University economist Robert Shiller, co-founder of the closely watched S&P/Case-Shiller Home Price Index, said in late June that Las Vegas is one of several cities at risk of another false housing boom.
One sign is the valley’s skyrocketing land prices, said Dennis Smith, president of Home Builders Research. Prices in some neighborhoods have jumped from $175,000 an acre to $400,000 in recent months.
“Anyone who thinks that isn’t a bubble, I don’t know what they’re looking at,” Smith said.
Practically every house up for sale gets multiple offers, sometimes within minutes of being listed, and many locals complain they can’t buy anything because cash investors keep beating them out.
What’s more, local housing prices haven’t climbed this fast in years.
Existing home prices rose just 6 percent from June 2011 to June 2012 after tumbling 11 percent the year before and plunging 38 percent from June 2008 to June 2009, according to the Greater Las Vegas Association of Realtors. The median sales price of previously owned single-family homes peaked locally in June 2006 at $315,000. It hit bottom in January 2012 at $118,000 but bounced up to $175,000 this June.
The gains reflect Las Vegas’ recovery from a horrendous market, but not a bubble, said Dave Tina, co-owner of Urban Nest Realty and president of GLVAR.
If it were a bubble, people once again would be buying houses to sell for profit a few months later, Tina said. That hasn't been the case. Flipping has slowed down amid limited inventory.
Nevada had a 34 percent drop in house flips during the first half of 2013 compared with the same period last year. Flipping increased 19 percent nationally during the same period, according to research firm RealtyTrac.
Many would-be buyers can’t get a mortgage now, in part because of past credit woes. That’s a far cry from the last decade, when banks lent money left and right, often to people who couldn’t afford it and frequently without down payments.
“If you could breathe, they were giving you mortgages,” Tina said.
Las Vegas’ current growth rate is “insane” and might feel like a bubble to local residents, said Svenja Gudell, senior economist at Zillow. But the valley would need rapid increases in value for a lengthy period of time before it would be safe to declare that a bubble had formed.
Zillow experts expect the market to cool down, with home values rising only about 9 percent by next summer.
Simmons entered the real estate game during the last bubble. His agent had moved here from California and told him he could buy property and sell it two months later for a profit.
Simmons was a first-round NFL draft pick in 1998. He signed a five-year contract with the Seahawks for a reported $23.75 million in 2003 but was plagued by injuries. The team released him in spring 2005; he retired from football the next year.
“(Flipping homes) was more of a hobby, almost like you didn’t have to put a whole lot of thought or effort into it,” Simmons said.
He also started building a 10,000-square-foot custom house in Southern Highlands. Eventually, he left his stagnant football career, sold his real estate holdings and moved to Las Vegas to work on his home.
Simmons cashed out of the real estate market just before it crashed. He moved into his mansion, lived on his football earnings and opened his Sharkey’s franchise in 2010.
He has no plans to buy investment properties again, he said.
“Things were moving so fast, prices were going up so fast,” Simmons said. “I look back now, and I’m so glad I got out.”