Las Vegas home prices most overvalued in US, report says

Fueled by cheap money, Southern Nevada’s housing market has accelerated for months with record-high prices and rapid sales.

And, according to a new report, prices here are increasingly — and significantly — overvalued.

Fitch Ratings estimated in a report Tuesday that Las Vegas-area home prices were 30 percent to 34 percent overvalued in the first quarter, highest among the 50 most-populated metro areas in the nation.

Las Vegas’ overvaluation range was up from 25 percent to 29 percent in the fourth quarter of last year, when it also led the pack nationally, Fitch previously reported.

U.S. home prices have been climbing at a record pace because of a limited supply of properties for sale, increased construction costs, and strong demand stemming from low mortgage rates and “permanent remote-work opportunities,” the credit-rating firm said in this week’s report.

Fitch also said that the factors behind “the rapid growth” seen over the past 12 to 18 months “are not considered fundamental to sustained values” and that potentially higher interest rates and increased inventory “could take the steam out of future home price growth.”

Rising prices, high unemployment

Las Vegas home prices have catapulted in the past year despite huge job losses sparked by the coronavirus pandemic, which devastated the tourism industry, the backbone of Southern Nevada’s casino-heavy economy.

The valley’s unemployment rate has shrunk dramatically since the early chaos of the public health crisis, and tourists have been flocking back to America’s casino capital. But Las Vegas’ still-elevated jobless rate remains among the highest in the nation, all while rock-bottom mortgage rates have fueled a homebuying binge by letting people stretch their budgets.

House hunters have showered properties with offers and routinely paid over the asking price, and resale prices are hitting all-time highs practically every month. Homebuilders, meanwhile, have regularly raised prices, put buyers on waiting lists and taken bids for lots, multiple sources have said.

The median sales price of previously owned single-family homes — the bulk of the market — was a record $395,000 last month, up $10,000 from the previous all-time high, set in May, trade association Las Vegas Realtors reported.

For newly built homes, the median sales price in Southern Nevada was a record $402,990 in May, according to Las Vegas-based Home Builders Research.

Meanwhile, Las Vegas’ jobless rate in May, 8.9 percent, was second highest in the nation among large metro areas, federal data shows.

‘Value is relative’

Fitch told the Review-Journal that it uses an internal model to calculate a “sustainable” home price — the price level that “fundamental factors” can support — and that if current prices are higher, it deems them overvalued.

It looks at several factors as part of the analysis, including unemployment, rent and income.

Rents have also accelerated in Las Vegas. According to listing site Zillow, the typical rental rate of a Las Vegas-area home soared by more than 17 percent year over year in May, one of the biggest gains in the nation.

All told, supply and demand are affecting home prices, but broader economic issues “aren’t necessarily catching up as quickly,” Kevin Kendra, a managing director with Fitch, said in an interview.

Brian Gordon, a principal with Las Vegas consulting firm Applied Analysis, said the pace of home price growth in Southern Nevada is “clearly” unsustainable, but the “question of value is relative.”

Demand for houses remains strong and is being driven by low inventory, cheap borrowing costs and a continued inflow of new residents, especially from California, according to Gordon.

Locally and nationally, the market showed some signs of cooling off during the normally busy spring buying season. But Las Vegas house prices are still hitting record highs, homes are selling fast, and buyers last month reversed a recent drop in sales.

Southern Nevada’s housing market imploded more than a decade ago following a rapid run-up in prices and construction. But just because home values are accelerating now doesn’t mean they will collapse again, Gordon indicated.

The doomed boom of some 15 years ago was fueled by easy money, as practically anyone could get a mortgage. Las Vegas builders were putting up far more homes than they are now, developers envisioned a forest of skyscrapers in the valley, and house flipping was an easy moneymaker.

Today, inventory is low in Las Vegas, but as Gordon noted, “that wasn’t the case” during the mid-2000s.

Supply and demand “are much different today than they were a decade-plus ago,” he said.

Contact Eli Segall at esegall@reviewjournal.com or 702-383-0342. Follow @eli_segall on Twitter.