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Nevada Outlook
Summer 2008
Bad Combination
 Nevada’s economic downturn has become more pronounced in recent months, negatively impacted by U.S. economic stagnation, a plunge in Nevada home construction, high energy prices, declining home values, and consumer caution tied to constant negativity from the national media. Current Nevada economic sluggishness is anticipated to continue over the balance of the year, before modest improvement in 2009.
Job Loss
Current estimates suggest total Nevada employment has declined by roughly 9,000 jobs during the past 12 months, the weakest performance since 2002. Recent data also pales versus net average employment gains of 57,000 jobs annually during the 2003 to 2006 period.
The state’s goods production sector has been hit hard during the past 12 months, with the loss of nearly 13,000 construction jobs only partially offset by small gains in manufacturing and natural resources & mining employment. Nevada’s service providing sector performed better during the past year, led by modest employment gains in trade, transportation & utilities; education & health services; and local government.
Nevada’s tight labor market has loosened in recent months. The state’s unemployment rate averaged 5.7% during 2008’s first five months. By comparison, the Nevada unemployment rate averaged 4.8% in 2007, 4.2% in 2005 and 2006, and 5.0% during 2000 to 2004.
The most painful change of the past 18 months has been the sharp slowing in new home construction, with depressed levels of activity the weakest in a generation. An excess supply of new homes, combined with high levels of existing homes for sale (including foreclosures), suggest that new home building activity could remain weak well into 2009.
Outside Forces
While some Nevada residents may feel that The Silver State is largely insulated from the outside world, developments in the housing and mortgage industries tell a different story. Negative media reporting, weak home prices, wider credit spreads, more limited credit availability, and tighter lending standards are all at play across Nevada and the nation.
Numerous national magazines and newspapers constantly berate the housing market with a view to consumers of “Why would you consider buying a home today when they will be cheaper in 6-12 months?” Such negative reporting has done a major disservice to the nation’s real estate industry.
Estimates of American home values vary widely. The Office of Federal Housing Enterprise Oversight (OFHEO) noted recently that the average U.S. home value fell 4.6% during the 12 months ending April 30, 2008. Mountain region homes (including Nevada) were down an average of 4.9%, while Pacific region homes were down an average of 15.0%.
The OFHEO data includes only conventional conforming purchase and refinance transactions of single-family homes, with mortgages up to $417,000. As a result, it does not include transactions of higher-priced homes wherein much of the nation’s housing weakness has been centered.
The S&P/Case-Shiller index of home values saw prices fall an average of 15.3% in 20 major cities during the 12 months ending in April. Las Vegas and Miami had nearly 27% price declines. The National Association of Realtors noted recently its estimate that the median American home value (half cost less, half cost more) declined 6.3% during the 12 months ending in May.
Adding to housing frustration is the fact that average mortgage interest rates are roughly one-half percent higher versus U.S. Treasury note rates (or yields) than was the case during 2001-2006. In addition, many aggressive mortgage lenders have closed their doors, while many more traditional lenders have tightened lending standards, some resulting from regulatory pressure.
Nevada Outlook
A media fixation with U.S. economic weakness and home price declines in many states has hurt the Nevada economy. Prior excesses in Nevada home building and home price appreciation have also come home to roost. Weak performance of the Nevada economy is expected over the balance of the year, before a likely return to modest growth next year.
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