Editor's Note: The commentary below is from a recent note written by Hedgeye's Gaming, Lodging & Leisure research team led by veteran analyst Todd Jordan. For more info on our institutional research email firstname.lastname@example.org.
Home price acceleration in the locals Las Vegas market is real and seems sustainable.
Indeed, excluding the brief sequential dip in January of this year, Las Vegas home price growth (as measured by Case Shiller) has accelerated for nearly 16th consecutive months. Additionally, since October of last year, home prices have been tracking up double digits on a consistent basis, which is a big step up from the growth experienced for the prior 3 years.
As we’ve noted many times, with home prices continuing to expand at this rapid rate, we could see more and more local citizens escape the burden of what had been a “negative wealth effect.” For years post the financial crisis, home price growth hadn’t translated into much gross gaming revenue growth (GGR) (as it had in prior cycles), predominately because at one point over 60% of mortgages were actually underwater, creating a meaningful drag on consumer spending trends.
We continue to see a reversal in the negative wealth effect as one of the largest catalysts for GGR performance at Locals casinos, with refreshed hardware coming online in the next quarters. Red Rock Resorts (RRR) should be the biggest beneficiary of these trends.