Las Vegas and the Real Estate Bubble

As real estate values have increased across the nation the media has created a buzz about a real estate "bubble". We have been asked time and again, "but what about the bubble?" or "is Las Vegas affected by the real estate bubble?" Though there is no crystal ball and future unknowns can affect this market, our claim is that there is no "bubble" and the Las Vegas real estate market is not at risk of a catastrophic decrease in home prices.

Analysts who claim there is a bubble that will burst and cause a precipitous decrease in values and demand base their claims on factors that describe the stock market. They pose that real estate is purchased and sold just like stock. If we look a little deeper we learn this isn't true. Stock purchase and sale occurs when certain information becomes available. This information usually becomes available to a large audience who can all go to the same location to buy or sell. One piece of distasteful information to a large group is going to cause a mass rush to the markets. Just the same, great information (i.e the latest tech stock) will cause a mass rush to purchase. Stocks are for investment and are easily disposed of.

Most real estate agents will agree that real estate is not the same as stocks in nature. Purchases and sales are made based on familial circumstance, job growth or decline, or other factors which may or may not relate to others in the market. People need housing and though it is an investment they will buy or sell to put a roof over their head, in many cases even when their situation is difficult. People are not able to just rush on line and place their house sale. It takes time and emotion and threatens a livelyhood.

Very few real estate markets will ever experience a bubble. This bubble describes a rise in prices so drastically that tention is created by all of the hype and once the tention becomes too great for the market it bursts. Buyers no longer are able to buy or want to buy and sellers have to hack at their home prices to get them to sell creating a rapid decrease in values. Every real estate market on all scales experiences cycles. Interest rates, job markets, entertainment opportunities, weather patterns, market saturation, etc. will affect the growth of a market. The Las Vegas market is no different. The rate of growth will rise and drop and typically always continue to grow positively at some rate. In a rare occasion prices will grow negatively to adjust to the market demand. However, baring any events like 9/11 or the entertainment industry demand drying up over night, Las Vegas will usually experience a positive growth in land and home values. The question then becomes, "at what rate will Las Vegas home prices rise?" This answer is more complicated and left for another discussion. The point is that rarely will home prices decline and the bubble effect is extremely unlikely in the valley.

In a situation where Las Vegas home prices do decline the positive swing in the cycle is typically just around the corner. Las Vegas has begun to follow the California market so just as our western neighbor we will see the changes on a cyclical basis. Today's market has Las Vegas real estate agents getting creative to sell homes while buyers are eating up the incentives and negotiating powers they have. In time the opposite will be true once again and sellers will be able to stand firm in their position. It's all part of the real estate cycle.