Positive Trends in Southern Nevada

    Other than the commercial mortgage rate, which has gone up slightly since October 1, the Southern Nevada metrics are looking strong. The Valley’s biggest challenge is excess commercial capacity, especially in the office market, combined with only moderate job growth. Companies look to be hesitant about expanding their space footprint – and about hiring. Once President-elect Trump has taken office and any immediate economic shifts play out, Nevada employers will have more of the information they need to make decisions.

    stat highlights

    q over q

    rcg employment index

    The RCG Employment Index 12-month moving average (“12MMA”) for Clark County ticked up by 0.1 points to 97.5 in September. The Index is up 1.2 points when compared to September 2015. The Index peaked at 99.8 in November 2006.

    job growth & headline

    The 12MMA of Clark County’s headline unemployment rate fell in September by 0.1 percentage points to 6.3% after 4 straight months stuck at 6.4%. When compared to September 2015, the headline rate is down by 0.8 points. The rate reached its lowest level in October 2006 when it was just 4%.

    Though the job growth rate in the Las Vegas MSA had been steadily trending downward for the previous 13 months, in September it held at 2.7% (12MMA). Job growth in Las Vegas has been similar to what is occurring at the national level. According to the Brookings Institution, this is mainly due to decreasing demand for unskilled labor.

    u3 and u6

    The U-3 and U-6 unemployment rates for Nevada have both declined in Q3. The U-6 rate fell from 13.1% in Q2, 2016, to 12.5% in Q3. The U-3, or headline rate, fell almost as much, from 6.7% to 6.2%. Nevada and New Mexico are tied with the second highest U-6 rate in the Nation, beating only Alaska. In terms of the U-3 rate Nevada is not doing much better, ranking among the bottom five, ahead of Alaska & New Mexico and tied with Louisiana & Mississippi.

    yoy construction

    Construction jobs in the Las Vegas MSA continue growing at a steady pace as housing and commercial real estate demand rebound. Construction workers in Southern Nevada now number 55,675 in September 2016 (12MMA), up 6,208 jobs (12.6%) since September 2015. Construction jobs have now grown for 50 straight months, and represent 6.4% of the region’s job-base at the end of September. The current number of jobs in the industry is still far below the November 2006 peak of 108,833 when they accounted for 11.4% of all jobs. It is unlikely we will see those pre-recession construction job numbers in the foreseeable future. This should not be cause for concern because construction is not considered a “primary industry” and can be volatile.

    visitor volume

    On a 12MMA basis, Clark County visitor volume grew in September to 3.57 million, or 0.26%. When compared to September 2015, the YOY visitor count was up 2.4% in September 2016. Visitor totals for this year are ahead of the totals during the same period in 2015 with 32.5 million from January through September of 2016 compared to 31.9 million in the prior year. The month of greatest YOY growth since October 2005 was September 2011, when visitor volume grew by 4.5%.

    convention attendance

    Monthly Clark County convention attendance increased by 0.94% in September compared to August (on a 12MMA basis) to 523,134. However, compared to September 2015, convention attendance jumped markedly – by 15.9%. The 12MMA monthly peak attendance of 529,185 was in January 2007. September’s attendance represented 98.9% of the peak.

    Convention attendance has increased significantly over the last 12 months, nearly equaling the growth of the previous 5-year period. This can be attributed to a stronger national economy and business investment in marketing. The previous peak in YOY growth, eclipsed in the first month of 2016, was in February 2006 when convention attendance rose by 10.5%. YOY growth has been above 10% every month in 2016, and has been over 15% since June.

    hotel rev per avail room

    The 12MMA hotel revenue per available room (RevPAR) in Clark County was $111.20 in September, an increase of $1.19 (1.08%) from August. Compared to September 2015, RevPAR is up $8.58 (8.4%) and continues on its streak of YOY growth that began in December 2010. The RevPAR 12MMA peak occurred in December 2007 at $119.43.

    Note: RevPAR is a performance metric in the gaming and lodging industry. It is computed by dividing a resort’s or hotel’s room revenue by the room count and the number of days in the period being measured.

    gaming revenue

    Gaming revenue net of baccarat continues to post meager growth, increasing in September 2016 by 0.44% to $702 million on 12MMA basis. YOY growth in September was 2%. Gaming revenue net of baccarat remains well below the October 2007 peak of $834.4 million.

    The net baccarat revenues are largely comprised of slot revenues, which generally reflect wagering of typical gamblers, especially U.S. gamblers. Slot revenues continue to remain lackluster for two reasons: constrained disposable income and changing spending patterns, especially among adults under 35. Millennials are preferring to spend their money on, club scene, shopping event and show experiences rather than gambling.

    home sales

    According to Home Builders Research, in September total (new and resales) Clark County home sales (closings), which numbered 4,448 (12MMA), are up by 0.99% from the previous month. When gauged on a YOY basis, the improvement is more pronounced, with total home sales up by 8.2% compared to September 2015. Resales saw a 7.2% YOY increase to 3,821, while new homes sales jumped 14.9% to 628. This was the 15th straight month of increasing YOY new home sales after 14 months of declines and the 12th straight month of YOY gains of over 10%. The most recent monthly peak occurred July 2012 with 4,777 sales.

    median home price

    Per Home Builders Research, the 12MMA median home price (new and resale) in September was $217,507, an 8.1% gain over September 2015. The peak of $305,333 was recorded in February 2007.

    The median new home price in September was $318,955, up 4.6% from the previous year. The peak of $327,066 occurred in February 2007. This means that the current median new home price has recovered to 97.6% of its pre-recession peak.

    The median resale home price was $200,715 in September, an 8.3% increase during the last 12 months. The peak of $286,833 was in April 2007. This means that the current resale price has recovered to 70% of its pre-recession peak. By comparison, the Reno-Sparks average resale price for September was $299,079.

    The combined rate of home appreciation for new and resale homes had slowed considerably in mid-2015, but then started to accelerate again. In September 2015, the YOY price increase from 2014 was 8.2%. This is 0.1 percentage-point more than the 2016 figure. The annual peak of 35.8% growth occurred in February 2005.

    30 year fixed rate

    The 12MMA 30-year fixed rate mortgage in the Western Region fell 0.03 points to 3.64% in September. The 10-year peak of 6.4% occurred in October 2006. This rate has been steadily decreasing for the last 9 months and should remain relatively low.

    case shiller home price

    The 12MMA Case-Shiller home price index for the Las Vegas MSA reached 147.8 in August, a rise of 5.8% compared to August 2015. The index peaked at 233.2 in December 2006. The latest index is 63% of the peak, making the region a competitive housing market. The greatest positive annual change (44.5%) in the index occurred in March 2005, while the greatest negative change (-31.8%) occurred in August 2009. These trends are similar to those reported by Home Builders Research.

    multi indicator

    Freddie Mac’s 12MMA Multi-Indicator Market index (MIMI) for the Las Vegas MSA increased to 62.9 (42% of the peak, see below) in August, a spike of 12.5% compared to August 2015. However, Las Vegas is still ranked near the bottom of the 100 rated metros. Growth is still not quite as much as the 15.8% increase recorded between July 2014 and 2015, much like with the Case-Shiller index. The index peaked at 148.4 in March 2006. The greatest (45.1%) change in the index was in May 2014 and the fastest 12MMA decline (-51.2%) was in December 2009.

    The MIMI index measures the stability of local housing activity by combining current local market data with Freddie Mac data; specifically, by looking at home purchase applications, payment-to-income ratios (changes in home purchasing power based on house prices, mortgage rates and household income), proportion of current mortgage payments in each market (healthy loans vs loans in default), and the local employment picture.

    4 qma housing opp

    The Housing Opportunity Index (“HOI”) for the Las Vegas MSA improved for the 6th quarter in a row in Q3, 2016 after 7 quarters of decline. It changed from 66.3 in Q2, 2016 to 67.0 in Q3, 2016 on a 4-quarter moving average basis. The Las Vegas HOI peaked at 86.2 in Q1, 2012. It bottomed out at 15.4 in Q1, 2007 at the height of the housing boom. The 10-year average is 65.3.

    The U.S. index dropped from 63.1 in Q2, 2016 to 62.9 in Q3, 2016. Housing prices nationally appear to be stabilizing.

    The HOI is based on the share of homes sold that are affordable to a family earning the median income in Clark County, assuming standard mortgage underwriting criteria.

    4 qma apartment market

    The Las Vegas Valley’s 12MMA apartment vacancy rate continues to decline gradually, from 7.9% in Q2, 2016 to 7.8% in Q3. This is a 0.6-point drop compared to Q3, 2015. Apartment vacancies are slowly recovering. Over the last 9 years, the apartment vacancy rate peaked at 10.8% in Q2, 2010. It hit its lowest mark of 5.1% in Q1, 2007. The region’s apartment market could be moving toward a supply-constrained market in some areas if this downward vacancy trend continues.

    4 qma commercial market

    Commercial vacancy rates in the Las Vegas Valley mostly fell in Q3, 2016.

    The Industrial market vacancy rate fell by 0.1 points to 5.1% in Q3. The situation was the same on a 4-quarter moving average basis with vacancy falling by 0.1 points to 5.1% in Q3.

    The Spec Office vacancy fell by 0.2 points to 20% in Q3. On a 4-quarter moving average basis the vacancy rate was unchanged at 20% in Q3.

    Vacancy in the Anchored Retail market increased slightly for the quarter, growing by 0.1 points to 11.1% in Q3, 2016; however, the 4-quarter moving average Retail rate fell 0.1 points to 11.2%.

    Overbuilding of Office units during the boom continues to prevent the vacancy rate from dropping faster. It will take years of natural growth to get the Spec Office rate under 10%.

    current commercial

    As of November 2, 2016, the prime rate remained at 3.5%. The 10-year treasury bond rate rose by 0.23 points to 1.83%. The 30-day LIBOR ticked up slightly to 0.54%. Most lender rates increased since the start of October. Still, these rates remain relatively low and continue to benefit the commercial real estate industry in terms of the cost of borrowing. The challenge: excess capacity, especially in the office market, combined with moderate job growth and companies remaining hesitant about expanding their space footprint.

    taxable retail sales

    Taxable retail sales in Nevada and Clark County continued to rise thanks to increased visitation, as well as local resident and business spending, but the YOY change is slowing as the local economy reflects uncertainty due to national and global trends. Sales hit $3.29 billion in August, up 4.3% compared to August 2015 on a YOY basis using a 12MMA. This year’s taxable sales total through August was approximately $26.0 billion, while in 2015 the total over the same period was approximately $24.9 billion, a more than $1 billion less and putting taxable sales in Clark County on pace to exceed the previous year’s total.

    Current taxable sales are the highest ever recorded by the State of Nevada on a nominal basis (not inflation-adjusted). As such, they have boosted local and state government budgets. Steadily improving local, regional and national job markets are key to this improvement. This is especially true regarding the regional and national job markets since they are primary drivers of tourism spending in the region.

    average weekly earnings

    The Las Vegas MSA 12MMA average weekly earnings (not inflation-adjusted) in September were unchanged from August at $738, but are up $20 (2.7%) from September 2015. On an inflation-adjusted, YOY basis, earnings increased 1.8% in September 2016 compared to September 2015 to $649 (in 2007 dollars). Las Vegas’ average weekly real wage remains $102 (14%) below the most recent inflation-adjusted peak of $751 that occurred 9 years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas is still closer to the trough than the peak.

    average weekly hours

    On a 12MMA basis, the number of average weekly hours worked in Las Vegas (Clark County) remained at 33.2 for the third month in a row. On a YOY basis average weekly hours are unchanged from September 2015. The 7-year peak of 36.9 hours occurred in October 2008. As we’ve noted, stagnant and declining average hours worked have, at least, been accompanied by a slowly declining headline unemployment rate. In Q3 of 2016 the U6 unemployment rate recorded a 0.6 point drop, so we remain optimistic that we will soon see increases in weekly hours worked. At this point in the recovery; however, Reno (35.2 hours) is bucking state and national trends and beating Las Vegas.

    Implication: Companies continue to depend heavily on part-time workers. For this reason, Nevada’s U-6 unemployment rate (includes discouraged and part-time workers), though declining, remains among the nation’s highest at 12.5% as of Q3, 2016.

    regular unleaded fuel

    As of November 10, the price of regular unleaded continues to tick upward, increasing by $0.04 (1.8%) from $2.45 a month before. When compared to the previous year, the average price per gallon for regular unleaded gasoline is down by 10.2%, or $0.28, from $2.77 to $2.49.

    According to AAA, “Weighing on the market are the continued negotiations amongst OPEC and non-OPEC members. The Secretary-General of OPEC announced today that the group was still committed to developing an output deal to cut oil production, but no formal agreement has been reached. Traders will keep a close eye on the Colonial Line 1 restart and upcoming OPEC meetings. At the close of Friday’s formal trading session on the NYMEX, WTI was down 59 cents to settle at $44.07 per barrel.”

    electric meter hookups

    Electric meter hookups’ 12MMA in September reached 792,961. Total hookups were up 1.9% over September 2015. The annual growth rate has been steady over the last 9 months at 1.9%. This hints at stable population growth and household formations in the Valley. The annual peak growth rate occurred March 1990 at 10.5%.

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