Report confirms strength of Nevada’s economy

Kevin Rademacher

Wednesday, June 29, 2005 | 11:03 a.m.

For the second time in two days, economists singled out Nevada as a strong point in the nation's economy.

Also for the second time in two days, economists expressed caution about the effect of soaring Nevada housing prices.

The Federal Deposit Insurance Corp. on Tuesday issued its Summer 2005 Nevada State Profile. In the report, the state received its quarterly congratulations for its nation-leading 6.7 percent job-growth rate in the first quarter. Las Vegas also was singled out for creating jobs at a rate of 7.6 percent in the quarter.

A day earlier, UNLV economist Keith Schwer also pointed to the state's better than expected economic expansion coming off record growth in 2004.

As did Schwer's forecast, Tuesday's FDIC report also examined the issue of soaring home prices.

Since the fourth quarter of 2003, FDIC statistics showed double-digit, year-over-year housing appreciation rates in Nevada, with the biggest gain coming with a 37 percent year-over-year jump in the third quarter of 2004. During that time, however, the greatest gain in per capita personal income came with a jump of 6.1 percent in the fourth quarter of 2004.

"Annual home price appreciation in Nevada moderated slightly in the first quarter 2005, but gains still ranked first nationwide," the FDIC report said. "However, home price growth far outpaced increases in per capita personal income, suggesting continued declines in housing affordability."

Barbara Ryan, associate director of the FDIC's Division of Insurance and Research, said that the run-up in Nevada home prices caused affordability in the state to decline by 24 percent.

Richard Brown, chief economist for the FDIC, emphasized that while Nevada's situation is dramatic it is not uncommon. He said several metropolitan areas along both coasts and Florida are experiencing similar booms.

"It's not unprecedented," he said, also indicating that a housing boom does not mandate a bust. In fact, Brown said busts are almost always accompanied by "severe economic distress," such as oil market collapses or military cutbacks.

Should a correction occur in the Las Vegas -- or Nevada -- market, it is more likely to come slowly.

"There's a question with affordability. Are prices likely to snap back suddenly?" Brown said. "It usually happen with what we call a sticky downward. People are reluctant to part with their homes at depressed prices. Then the disparity is resolved through periods of stagnation, allowing incomes to catch up with prices."

"Now, that may seem like a bust for people who can't sell their homes," Brown added.

The FDIC report pointed to investors and speculative transactions as a significant factor in rising home prices.

"DataQuick Information Systems estimates that investors who re-sold homes within six months accounted for 11.5 percent of Las Vegas-area home sales during first quarter 2005, versus 2.4 percent 5 years ago," the FDIC report said.

The national average for speculative transactions in a market is 3.7 percent, the FDIC report said.