More than any other U.S. city, Las Vegas epitomized the housing boom and bust of the last decade. Housing prices were on a seemingly unending growth spree, a trend fueled by speculators flooding into the market and reaping profits off the bubble. Then, the bubble popped, cratering prices and pushing thousands of homeowners into foreclosure.
Now, nearly a decade after the crash, home prices are rising again in Las Vegas — and the speculators are back.
At the peak of the bubble, nearly 20 percent of homes sold in Las Vegas were “flipped,” meaning they were bought as investments and sold in under a year. That number cratered after the market collapsed, but it is now making a comeback. Almost ten percent of homes sold in Las Vegas were flipped in the last quarter of 2017, up from 8 percent the prior year, according to Attom data solutions. That places Vegas second on the list nationally of cities with the highest rates of flipped properties.
The return of flipping shows how the Vegas home market is at last recovering from its prolonged slump, with prices rising at one of the fastest rates in the country. But experts say flipping and other types of speculation contributed to the last bubble, and some worry their return could put healthy growth on the wrong path.
“It’s never good—that means that more and more people who are buying, are being driven by speculation and investment, rather than consumption, and that adds risk to the market,” said Vivek Sah, director at the Lied Institute for Real Estate at the University of Nevada, Las Vegas. “And anything that isn’t consumption-driven isn’t sustainable.”
Tom Payne has been on the Vegas real estate scene for over 25 years and has been flipping homes on and off since then. He’s currently a broker at Croteau Real Estate, a real estate firm based in the city, but in the years leading up to the housing crisis, he was flipping properties full-time.
“We were making millions and millions and millions of dollars-worth of flipping,” he said, often working with out-of-state investors and splitting the profits once a home was sold. He took a hiatus after the crash, but seeing home prices once again on an upward trajectory, he’s recently returned to flipping part-time.
Still, Payne says, the market is a far cry from what it was leading up to the peak.
“Many times when we were buying those houses, we were buying for $500 [thousand], selling for $550, buying for $550, selling for $625,” he said. “That’s not the market we’re seeing today.”
The median home value in Las Vegas was around $250,000 in April, according to data from Zillow, a real estate website. That’s a 15 percent rise from last year. And the Vegas metro area continues to top the list among cities where home prices are rising the fastest.
The chart below shows percent change in average home prices across ten major metro areas. Las Vegas has one of the fastest rates of price growth in recent years, but is still far from its pre-recession peak when compared to other cities.
Craig Depken, a professor of economics at the University of North Carolina, Charlotte who has researched home flipping, said flipping in a more stable market isn’t necessarily harmful, but when it’s coupled with the “frenzy” of rapid price growth, a greater reliance on financing and the rise of other types of speculation, it can be a cause for concern. Flippers in that kind of environment, he said, are more likely to simply buy homes and sit on them, waiting for prices to rise, rather than adding any tangible improvements.
“Flippers can be a healthy form of market churn,” he said. “That individual is serving a purpose, they’re increasing the value of that property, taking an older property and rehab-ing it to so it meets modern, more current demand. What gets us a little anxious is when you have speculators that seem to be more, just kind of free-riding on what’s going on as opposed to creating value.”
Payne said he’s never flipped a home without making some change or renovation to the property, but acknowledged the goal is always to turn the most profit from the least possible amount put into improvements.
“It’s a business, we’re not going to live in the house, it’s not going to be our own, so we really treat it as a business situation, and we don’t look to over-improve the property,” he said.
Despite the recent upswing, the Las Vegas real estate industry argues the recent rebound in flipping looks very different from the bubble years. During the mid-2000s, plummeting interest rates and looser lending requirements led many to purchase homes they would not have been able to afford otherwise. Since then, Payne said, changes in mortgage lending that have taken root nationally have changed the environment for home flippers in the area.
“You’d have one person buy up five or six houses [to flip]. You can’t do that today, unless you’re paying cash, because of stricter lending,” he said.
Nationally, about a third of flippers used financing to flip homes in 2017, according to Attom. That’s compared to 63 percent of flippers between 2004 and 2006.
While prices have risen significantly in Las Vegas in recent years, home prices in Vegas are still 27 percent below where they were at their pre-crash peak. To flippers, that might suggest the best opportunities for profits are still on the horizon. Sah, however, said the pre-recession height should not be a goal for the area, because it was so reliant on outside, often risky, investment.
“I don’t think the peak should in any way be our benchmark, because it was a false peak,” he said.
Jason VanZant, a realtor who has been working in the area since the early 2000s, recalled the city’s housing market when it “went crazy through the roofs.” He said the forces behind the growth today seem to have changed for the better. He hopes it stays that way.
“It’s driven by people actually wanting to live here, rather than park their money here or profit off the growth,” he said. “I think it’s healthy that we’re not in that frenzy.”