Forget renting, it’s now cheaper to buy in valley
It’s cheaper to own a home than to rent in Las Vegas, signaling a return to housing fundamentals that drove population growth here for decades, Trulia.com online real estate listing service reported this week.
Las Vegas is ranked No. 10 among the 50 largest U.S. cities by population in terms of price-to-rent ratio comparing average list prices with average rents for two-bedroom apartments, condos and townhomes listed on Trulia.com.
The website showed an average list price of $128,815 for Las Vegas, compared with an average rent of $983 a month, or a 10.92 price-to-rent ratio. Minneapolis was No. 1 with a 7.54 ratio and New York was last with a 32.59 ratio.
At the peak of the real estate bubble, cities such as Miami, Phoenix and Las Vegas saw home prices rise to a level that was not affordable, Trulia spokesman Ken Shuman said from San Francisco.
Now it’s the opposite. Home sellers in those hardest-hit areas have been forced to lower prices to compete with foreclosures on the market, he said.
Home prices in Las Vegas have dropped 19.3 percent in the last year and 39.7 percent in the last five years, the Federal Housing Finance Agency reported.
“The other part is while you have price cuts in condos for sale, you also have a bigger rental market with people who lost their home, which is causing competition among renters,” Shuman said. “So there is a higher rental price than we’d expect. Put it together with competition from foreclosures that’s caused (downward) pricing pressure on sellers and the cost of ownership is pretty low.”
The ratio is determined by multiplying rent times 12 months and dividing that figure into average list price. A price-to-rent ratio of less than 15 indicates that it is much less expensive to own than to rent a home in that city. A ratio of 16 to 20 means costs of ownership are greater than the costs of renting, but it might still make financial sense, depending on the situation. Anything over 21 means owning a home is much more expensive than renting.
While the price-to-rent ratio is certainly a good benchmark to use, renting might still be a better option for a lot of people in Las Vegas, said Mario Malatesta, executive vice president for Terra West Property Management.
“Sure, prices adjusted and interest rates are low, but I think for someone who owns a home, the first time they have to replace a water heater or air conditioning unit, they might change their mind,” he said. “Some people are renting for a lifestyle choice. Something breaks, you call the property manager. They take care of the landscaping and pool.”
There’s also investment risk of owning property, Malatesta said. This last housing cycle soundly registered with people as some 70 percent of Las Vegas homeowners are “underwater,” owing more than their house is worth, he said.
Shuman of Trulia.com cited a two-bedroom condo near Summerlin Parkway and Buffalo Drive listed for $82,000. He estimated mortgage payments of less than $500 a month, plus taxes and interest, compared with $850 rent for a condo in that area.
Cost of ownership factors in mortgage insurance, real estate taxes, principal and interest, closing costs and other fees.
“It’s still better (to own). If you can afford a down payment and can afford to buy in Las Vegas, now is the time to do it,” Shuman said.
Tim Kelly Kiernan of Re/Max Pros has a VA-financed buyer in escrow on a patio-style home in North Las Vegas for about $69,000. His mortgage payment will be about $110 cheaper than his current rent and he’ll own it, Kiernan said.
Luxury high-rise condos at Panorama’s north tower are selling for much less than what the same units sold for in the first two towers, said Marc Ehrlich, president of Panorama North Marketing.
“For the first time in the history of high-rises in Las Vegas, it now makes financial sense to own versus rent,” Ehrlich said. “Reduced prices, combined with historically low interest rates, have created ideal conditions for buyers.”
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
