Las Vegas Homes – One is tempted to think that in Las Vegas it is all about gambling and good or bad luck. While Las Vegas does make a living from gambling, to be able to do it, it cannot rely on luck, only.
Similarly, the future of the Las Vegas real estate market does not depend on the whim of the gods, only. There are quite a few economically grounded circumstances that make a strong case for qualified, committed and long-term buyers to seriously consider the purchase of a Las Vegas home now.
Las Vegas has seen one of the biggest drops in housing prices across the entire nation: up to 60% drop on average sending prices of homes in Las Vegas below January 2000 levels. Apart from the anecdotal evidence of rock-bottom prices, several, widely used indicators of home affordability clearly underscore just how reasonable home prices have become in the Las Vegas region.
The price-to-income ratio as of March 2011 stood at a low of 2.4 in Las Vegas. The price-to-income ratio indicates the relationship between median home prices and median household income. This ratio is a key in understanding how cheap or expensive homes really are relative to household income. In general, housing expenses – rent or mortgage – is expected to consume around 28% of the available household income. Based on this rule-of-thumb, economists and bankers can calculate ‘maximum’ affordability ratios for various interest rate levels as obviously the monthly mortgage expense depends on the value of the mortgage and the applicable interest rate. The accepted maximum affordability ratio for rates of 6% and a 20% down payment is around 4.67. Compared to this, the current 2.4 ratio is much lower, indicating that at current prices and interest rates – which can be much lower than 6% for qualified buyers – Las Vegas houses and condos are extremely favorably priced and affordable.
Another interesting ratio to look at is the rent-to mortgage payment ratio. This ratio compares the adjusted monthly rent against the costs – mortgage and principal payments – calculated for a 100% loan-to-value mortgage for a home of median price. If this ratios value is 1, renting a property costs exactly the same as buying a comparable property with 100% financing. Values above 1 indicate that renting is more expensive, values below 1 show that renting is cheaper. The ratio does not take the impact of taxes into account. Under current tax laws, mortgage payments result in tax deduction, thus making home ownership cheaper.
The current rent-to-mortgage payment ratio for Las Vegas homes as of March 2011 is estimated at 1.33. The ratio – even at a currently impossible 100% loan-to-value ratio and without allowing for the tax benefit of mortgage payments – clearly favors home ownership in Las Vegas based on the currently available homes for sale in Las Vegas .