Reuters published a special report this morning on a new housing bubble that is taking form in Nevada, particularly around the city of Las Vegas. Nevada was one of the states hardest hit when the housing bubble burst in 2007/2008. Now investors are coming in and inflating a new bubble, leading to fears that the whole industry may collapse again.

Housing bubble pop

Big investors have, according to the report, accounted for around 10 percent of the single family homes purchased in the Las Vegas area in the last twelve months. Firms behind the deals, like The Blackstone Group L.P. (NYSE:BX), are hoping to rent or flip houses when the market recovers. With signs that the market is overheating already, the company and the people of Las Vegas may be hurt by the strategy.

Home prices in the Las Vegas metropolitan area have risen by 30 percent in the last year, adding fuel to the fire that speculation in the city’s housing market is driving a bubble. In the country as a whole, house prices are up just 10 percent in the same period.

The rise in prices, caused by the massive influx of investment money, is making it much more difficult for ordinary home buyers to get into the market in the city. Investors originally began buying single family homes at foreclosure auctions, but are now bidding for houses sold by private auction and banks.

The origin of these investments, according to the Reuters piece, is the Federal Reserve quantitative easing program. The program is causing the prices of safer investments to rise, and with money so cheap, investors are using credit to fuel much riskier strategies in order to pull in returns.

The bubble is causing lots of little problems in the Nevada desert and in other communities hit by the housing bubble in 2008. If the market falls apart, as it very well may do, there will be problems for investment firms, and everybody in Las Vegas.

Cracks are already showing in the Las Vegas residential market. Rent is down 1.9 percent in the last year on average, and it is taking a long time for investors to get houses renovated in order to make them fit for rental. Las Vegas is on the cusp of another bubble, it seems, and there is little anyone seems willing to do about it.