Case Study - Las Vegas and the 2008 Market Crash

In this article we look at the impact on rents during and after the 2008 market crash. Specifically, we look at how real estate fared in one of the hardest hit cities in the US: Las Vegas, NV.

Las Vegas, NV

Las Vegas was one of the hardest hit metro areas during the 2008 real estate market crash. We choose Las Vegas because of this fact and because we have reliable and detailed data covering the period from 2008 through 2014.

One of the challenges we have with most reporting sources is that they use metro averages which combine different types of properties (single-family, condos, multi-family) in very different price ranges. We choose to base our data on one of the prime rental areas, which is shown in the map below. The property profile we selected is: 3 bedrooms 2 car garage, 1,200 to 1,500 SqFt:

Property Prices

Below is a chart showing the monthly average $/SqFt sale price between 2008 and 2014 for the conforming properties in the selected area above.

During the crash in 2008, conforming properties in the selected area were selling for an average price of approximately $120/SqFt. By 2012 the average price fell to approximately $70/SqFt.

Rental Rates

Below is a chart showing $/SqFt rental rates for conforming properties in the same area for the same time period as the above.

As the above shows, rental rates were virtually unaffected by the 2008 real estate market crash. So, if you purchased an investment property in late 2007, at peak price just before the crash, and the property was generating an 8% return in 2007, it would still be generating an 8% return, even if the market value of the property went down over 40%.

Summary

We looked at the impact on rents during and after the 2008 market crash. Data shows that the crash had little effect on rents or returns. Rental rates are very stable despite other market conditions unlike traditional fixed income investments.