Why the Las Vegas Second Home Market Hasn't Tanked

Las Vegas has long been the most maligned city when the housing bubblers do their maligning. The logic of complaints/fears goes something like this:

1. Housing demand of 2000-2005 was driven in large part by second home buyers
   
2. Off the charts levels of new construction keeps supply high
3. When the bubble bursts, those second home buyers are going to be the first to run.
4. Demand will crater. Prices will surely follow.

While no one is popping the champagne any time soon, a year into the housing market burst...erm...correction... and prices for second homes (mostly condos) in Las Vegas are still hanging tough.

This investigation was triggered over breakfast with Altos client Aaron Wheeler of Oakville Properties who mentioned his Las Vegas team is having a surprisingly strong year. (Oakville is headquartered in California, but does a good business matching people with the right properties in Las Vegas.)

Here's a chart that touches on what Aaron was talking about.

Price trends for condos in Las Vegas, NV in 2007. Each line is a Quartile, or 25% of the market. Some fluctuations at the high end. But we haven't observed the bottom dropping out of the market.

What gives? Why hasn't the Las Vegas housing market tanked yet*?

The answer is that Las Vegas real estate appears to be buoyed by those same second homes that the bubblistas were so afraid of.

When I was a kid, the second home market was a cabin on Lake Somethingorother in Northern Wisconsin. Somewhere in the '90s Las Vegas became the second home city of choice for vacation-bound Chicagoans. And Angelenos. And Hong Kongers.

So it turns out that this housing bubble is deflating in unexpected ways. And the Las Vegas housing market is an exaggerated version of the country's experience. Let's sum it up this way:

The economy is pulling real estate, not the other way around. Las Vegas is a global destination and the world's economy is BOOMING.

The pressure is building at the low end of the market. Mortgages are getting tougher and more expensive. But investment is strong, people are working. And the top-end globally is rolling. The whole country benefits from global economic strength. Vegas real estate maybe more so. Who knew?