Market Outlook
This Month's Spotlight Market: Las Vegas, NV
The Las Vegas economy is still expanding, but at a much slower rate than previous quarters. Most of this change is the result of a cooling in the housing market, rather than the loss of a major employer or dramatic economic change. For example, year-over-year employment increased 3.5% during the first quarter of 2007, versus the 1.5% gain nationally. However, this is substantially less than the 7.1% gain that the market recorded a year earlier. Approximately 7,500 jobs were added during the first three months of the year. Most of these gains occurred in the service, trade and government sectors. It should be noted that the service industry already accounts for over half of the area’s total employment. Even though employment growth slowed during the year, the unemployment rate remained fairly level, at a low 4.2%.
The construction industry was a major contributor to the area’s economic success over the last few years. However, with new home permits in the first quarter being less than half the number recorded a year earlier, the construction industry is now posting job losses. Some of this is the result of new home closings being off 44% for the quarter, with over 500 active subdivisions. The condominium conversion market performed even worse as closings are down over 70% for the quarter. The declines were not limited to the new home market as existing home sales fell by 30%. As a result, the median sales price declined 2.5% during the year, which followed a 0.8% loss the previous quarter. The change in market activity also pushed the current inventory of homes to just over 12 months. It has been estimated that over half the homes for sale in the market are currently vacant. Most of these changes are due to the reduced activity from real estate investors and speculators. It has also been reported that Las Vegas has had a significant exposure to the subprime market, which resulted in a growing number of mortgage delinquencies and foreclosures. This, in turn, will further slow any recovery in the housing sector. On a positive note, apartment rents were up 4% for the year, with a vacancy rate near 6.5%.
Beyond housing, the gaming industry has been the other primary economic driver. However, with the slowing national economy, this industry has also come under some pressure. Most recently, gaming revenues have been slowing. This is a direct result of flat visitor volume and lower convention attendance. Still, with hotel occupancy running close to 90%, the hospitality industry remains positive.
Most experts are forecasting that the housing market will not show signs of recovery until 2008. Tighter underwriting standards, rising interest rates and increasing default activity is expected to keep this sector in check, therefore, putting more pressure on home prices. In contrast, the job market is forecast to increase between 3% and 4% in each of the next two years, with an unemployment rate between 4% and 5%. The projected improved population growth, as well as solid in-migration trends, should help ease the pain in the housing sector. The construction industry should also see some recovery as there are plans to add nearly 20,000 hotel rooms by 2010. Overall, the economy is expected to expand, outperforming the nation, but some risks remain.
Market Outlook is prepared by Neil Siegel, MGIC Senior Market Analyst
