From a small northwestern observatory…

Finance and economics generally focused on real estate

Nevada

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Just came back from a day in Reno. (Hard to type that without hearing Johnny Cash in my head.) Sitting in the airport, I struck up a conversation with a young man sitting next to me. He asked what I did for a living, and as soon as I told him, he wanted to know my “economic prognosis” for Nevada. Whether I had a good one or not, I gave him my two cents worth.

Nevada — and Florida, for that matter — primarily make their living from three things: tourists, retirees, and people who care and feed the first two categories. (One might be tempted to add Arizona into the mix, but that would be a bit of a mistake. Arizona’s economy is a bit more complex. One might argue that Florida and Nevada’s are, too, but let’s go with it for a while.)

One immediate “hit” to the economies of both Florida and Nevada was tourism, as families (and in the case of Las Vegas, conventioneers) had to tighten their belts. However, this segment is actually coming back a bit, albeit not totally to pre-recession numbers. For example, Florida’s Gulf Coast Panhandle (the nine counties in western Florida) were actually seeing a resurgence of tourism until the Gulf Oil Spill. Occupancies in the Gulf Coast region on Memorial Day, 2009, were quite good, but then the oil spill hit, and occupancies were dismal on that same weekend, 2010.

Las Vegas is certainly in trouble, but some of that came from overbuilding. The Saraha just closed — it had been slated for a makeover, but the owners have decided to “go dark” for a while instead, waiting for the economy to turn. The Las Vegas City Center continues to be a prime example of speculative overbuilding, both rooms and casino space.

But, Reno isn’t Las Vegas. Sure, Reno has casinos and some gambling, but it’s more of a retiree area. This segment of the population has been hurt in two ways. First, they can’t sell their houses. Moving to Reno (or Ft. Lauderdale) generally requires selling a house in Los Angeles or Groton. As I’ve noted previously, the supply of existing homes is pretty stable, and even though new construction has tanked, the demand for owner-occupied homes is actually shrinking from its pre-recession peak of about 69.5%. Thus, retirees may WANT to move to Reno, but no one will buy their home in Los Angeles.

Second, POTENTIAL retirees look at their 401-K’s and start thinking, “wow, I guess I’ll need to work a few more years.” This has some long-term issues for the economy. First, every retiree who “stays” on the job means one applicant at the beginning of the work-force pipeline who can’t “get” that job (or at least the job that leads to it.) Second, early retirement is more care-free (both personally and financially) than late retirement. Thus, early-retirees generally spent financial assets into the system without making many demands ON the system (health care being the biggie). Now, many retirees will defer retirement until the fateful day when they start demanding more of the system than they are able to put into it. If we think medicare and social security are problematic NOW, wait until that reality takes hold.

From a housing perspective, large parts of the U.S. (Nevada, Florida, and, yes, big swaths of Arizona) have been built to accommodate retirees in between the time they “sell the big house” and the time they move into assisted living. A prolonged “work-life” means a significant lowering of demand for this segment of the housing market.

Written by johnkilpatrick

April 11, 2011 at 4:25 am

One Response

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  1. A very good analysis about Reno and Nevada and good comparison with Las Vegas.

    Reno Homes

    April 11, 2011 at 6:29 am


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