WRDC Nevada Economic Outlook: 2006

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WRDC Nevada Economic Outlook 2006

• Prepared by
• R. Keith Schwer
• The Center for Business and Economic Research
• University of Nevada, Las Vegas

http//cber.unlv.edu
October 28, 2006
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Storyline

• Growth
• Change
• Increased Risks

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Current Conditions
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Business Cycles Nevada U.S.

• Nevada out-of-phase with U.S.
• Nevada leads all states in growth (1979-2004)
• Nevada lags the U.S.

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Job Growth Las Vegas U.S.
Source Bureau of Labor Statistics
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Construction Jobs as a Share of All New Jobs
Source Blue Chip Economic Forecast
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Tourism Overview

• People are traveling at unprecedented levels

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International Incentives to Visit Vegas

• 9/11 Effect/Safety and Accessibility
• Favorable Exchange Rate
• Development of Gaming Abroad

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Geographic Distribution of International Travelers
Gateway States
Source International Travel Agency
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Las Vegas Resort Openings
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Tourism Conclusions

• Constraints
• Short Run Room Capacity
• Medium Run Airport Capacity
• Long Run National and International Competition

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Gaming
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Gaming Conclusions

• High Occupancy
• Demand High Relative to Supply
• Profitability Signals Expansion
• Travel Vulnerable to Risk

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Employment
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Change in Employment by State April 2005 April
2006
Source Bureau of Labor Statistics
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Employment Business-Tax Climates
Source taxfoundation.org
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Employment Conclusions

• Relatively high employment growth will continue
  to drive economic growth in Southern Nevada

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Population
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Population Leading Population Growth States
Percent Change 2005
Nevada leads U.S. in population growth for the
19th year
Source U.S. Census Bureau
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Population Conclusions

• In-migration to take advantage of available jobs
• Growth becoming more sustainable

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Housing Market
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Average Rents in Western Markets
Source RealFacts
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Source U.S. Census Bureau
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Housing Conclusions

• Growth Continues
• Price Appreciation Slows
• Soft Landing but Risk Remains

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Concerns
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Home Investing Las Vegas
Source www.builderonline.com
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Concerns
Nevada ranks second in the nation in the
percentage of potentially negative amortizing
mortgages, including interest-only and products
with ARM options (FDIC).
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Concerns
Nevada was 48th lowest out of the 50 states in
terms of foreclosures at the end of 2005
(MBA). Nevada also showed one of the lowest
home-loan delinquency rates in the country (MBA).
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Concerns
7 percent of subprime ARM loans were 30 days or
more past due in Nevada at the end of 2005
(MBA). The U.S. averaged a 12.6 percent
delinquency rate in subprime ARM mortgages as of
December 2005, which was up from 10.7 percent the
year before (MBA).
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Concerns Delinquent Mortgages
Source www.builderonline.com
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Concern Conclusions
Middle-aged, middle-income households are the
driving factor in the second home market.
Boomers believe in diversifying their assets,
and most see their purchases as being a better
investment than stocks. 6/9/06 Realtor.org,
Walter Molony
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Concern Conclusions
Half of vacation homes are located in resort or
recreational areas. Six out of 10 investment
properties are located within metropolitan
areas. 6/9/06 Realtor.org, Walter Molony
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Residential Construction and Costs
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High-Rise Condos

• In Q1 2006, 74 were permitted or approved
• Only 26 were under construction or constructed

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Construction Pricing

• Asphalt, diesel, and rubber prices soaring
• Goodyear Raw materials account for 2/3 of cost
• Prices rise 5 times within one and a half years
  5 to 6 percent each time

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Materials Prices Show No Signs of Abating

• Prices Up
• Supplies Short

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Residential Construction Conclusions

• Market Still Strong
• Construction Costs Still Rising
• Multifamily to Watch

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Commercial Real Estate
Commercial real estate has increased
significantly in importance as an investment
medium in recent years. Haver Analytics 4/5/06,
MIT Center for RE Report
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2005 Commercial Rent and Vacancy in Las Vegas
Percent Change 2006 Ask Rent Apartment 4.5
794 Office 4.7 22.4 Retail 4.1 21.01
Sources Marcus Millichap Research Services,
REIS
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Commercial Real Estate
Source MIT Center for Real Estate
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Commercial Real Estate Conclusions

• Strong Growth
• Increasingly Sophisticated?

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Income
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Capturing Economic Opportunity
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Opportunity

• Las Vegas Welcomes Large Numbers of New
  Residents
• Native U.S.
• Foreign-born Authorized
• Foreign-born Unauthorized

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Opportunity

• Assimilating large numbers of students with
  diverse preparation, language skills, and
  cultures is challenging.

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Opportunity

• Nevada student achievement and graduation rates
  remain low and not conducive to creating a
  competitive workforce.

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Opportunity Recommendations

• Education Investment
• Professional Development of Teachers and Schools
• Measure What We Value
• Address Teen Issues
• High dropout rate
• High teen-suicide rate
• Business Social Responsibility

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Risk of Avian Flu to Las Vegas
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Avian Flu

• Bird flu much more diverse than previously
  thought, with at least 4 distinct types of the
  deadly H5N1 Virus
• 142 million lives 2/15/06 CNN

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Avian Flu
Leavitt States will ration bird-flu
vaccine Theres only a very low chance that
doctors could contain a human bird-flu outbreak
and then stop a pandemic at its source. 6/6/06
Leavitt CNN
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Avian Flu

• Las Vegas Has Unique Risk
• Global city
• Diverse community

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Avian Flu

• Necessary Conditions The but
• Needs to develop the right mutation
• Timing is important
• Geography is important
• Technology is important

Asia LDCS/Wealth
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Forecast
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Risks to the Forecast

• Terrorism Event
• Oil-Market Disruption
• Fed Mistake
• International-Finance Event

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Risk to the Forecast
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Risk to the Forecast
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Risk to the Forecast
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WRDC Nevada Economic Outlook 2006

• Prepared by
• R. Keith Schwer
• The Center for Business and Economic Research
• University of Nevada, Las Vegas

http//cber.unlv.edu
October 28, 2006