Reno MSA Homes Prices vs Wages

An interesting graph from the Center for Regional Studies at the University of Nevada, Reno compares growth in median homes values in the Reno-Sparks area* with growth in wages.  

First, a little bit of background.  Reno-Sparks existing home values grew strongly pre-recession and declined just as strongly during and following the recession (the recession officially ended in 2009 and area prices did not begin recovering until 2012).  Historically (ignoring the boom and bust of the 2000s), area home prices increased by almost 1% per quarter or 4% per year.  The figure below shows quarterly existing home prices in the region (red line) compared to what prices should have been had they followed the 4% “normal” appreciation (blue line).  The figure shows actual prices reached normal prices by the end of 2015, into the first quarter of 2016.  This is the point where our home values can be considered to be neither overvalued (as they were pre-recession) or undervalued (as they were during the recession) using historical expectations of price growth. 

This brings us to the wages vs. home values graph (below).  The graph shows changes in home values and wages in the area between 1Q2012 and 1Q2019.  However, as discussed above, homes were effectively undervalued until 4Q2015, so the graph ignores this period.  The graph shows that from 1Q2016 to 1Q2019, home values in the area increased by 27%. 

The graph also shows MSA wages increased by 17% over the three-year period. Given the inflation (CPI) growth during the same period of 6.5% (Bureau of Labor Statistics), we can say wages outpaced inflation, which is a great metric for the area. However, wage growth was significantly below growth in home prices during the period.

The graph shows home value growth rates began to decline starting 2Q2018, even becoming negative in 1Q2019 (-0.1%), while wages grew relatively steadily since 2012.  In fact, the MSA has posted six straight quarters with wage increases above 3% (above inflation rates), and nine out of the last 11 quarters are above 3%.  Also, while 2Q2019 wage data is not yet available, 2Q2019 values increased by 4% compared to the same period last year.  This is the type of healthy, but moderate appreciation the market needs.  As we close out 2019 and enter the next decade, hopefully our economy will reach the happy medium between wage growth and home appreciation with both increasing on a similar trajectory. 

*Reno-Sparks MSA includes Washoe and Storey counties. We like to look at wages at the MSA level as it includes employees of the region’s largest employment center, Tahoe Reno Industrial. In 2017 (latest data available from the US Census Bureau), 63% of Storey County employees lived in Washoe County, having significant impact on housing demand in the MSA. Storey County does not have significant home sales, as a result the graph shows only data for the Reno-Sparks area.

Northern Nevada Economic Forecast Podcast

I am honored to have been invited to participate in the podcast by the University Center for Economic Development at the University of Nevada, Reno.  The podcast focused on our economic and industry indices for the Reno MSA.  A link to the podcast is provided below:

Northern Nevada Economic Forecast Podcast

Washoe County Current Economic Review

Brian Bonnenfant with the Center for Regional Studies recently (April 21, 2015) did a presentation for the Reno City Council providing an economic overview of the region including some impacts of the Tesla project.  The presentation also includes a discussion of various economic indicators for the region, as well as population, housing, and employment projections over the next five years.  A copy of the presentation is below:

Economic Overview-Washoe County 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Impacts of Proposed Tesla Gigafactory on the Reno-Sparks Region

Brian Bonnenfant from the Center of Regional Studies at the University of Nevada, Reno and I were recently asked to estimate fiscal and economic impacts of the Tesla gigafactory proposed to be built in Storey County, NV on the neighboring Reno-Sparks region.  The exact impact of the project is difficult to estimate at this point due to the early stage of the development process, the size of the project, and lack of comparable industries in the area.  Our presentation, instead, focused on existing data and areas of potential concern as the project becomes operational.

The biggest conclusion of our analysis is the large number of employees projected for the Tesla gigafactory-6,000 to 6,500 direct operating employees are projected, with approximately another 16,000 indirect employees.  The majority of these employees will reside in the Reno-Sparks area and Lyon county.

New residents will require local government services immediately upon moving to the area, while revenues generated by these residents for local governments may not be immediate.  With the benefits of increased employment, higher wages, higher home values, and additional services, we will also expect growing pains in the form of increased traffic, temporary housing price “bubble”, local government budget concerns, and employee shortages.  These are all expected to recede once the region absorbs the new residents and reach a new, larger population base.

For a full copy of the presentation, please click here: The Impact of Tesla on Reno-Sparks

Filling the gaps-economic development in action

The idea of economic development is to grow the local economy it terms of jobs, standard of living, and other related measures.  This can be accomplished through various means, one of which is import substitution.  Import substitution identifies the goods and services imported into the region and attempts to replace these purchases with those made from local sources.  This keeps money in the region, instead of flowing out to other areas.

This is not always easy; there may be good reasons why purchases are made outside of the region.  One of the reasons is a “gap” in production.  A gap occurs when goods and services demanded locally are not produced locally.  Another is a “disconnect” which occurs when goods and services are produced locally, but are purchased elsewhere.  Gaps may occur due to the fiscal, physical, environmental, governmental or other constraints that prevent local production.  Disconnects may exist because of quality or quantity issues, contractual obligations or other reasons.

A good example of a disconnect in Nevada is in the Processed animal (except poultry) meat and rendered byproducts commodity as defined by the IMPLAN model and database.  IMPLAN shows Nevada industries imported approximately $780 million of these products in 2010.  Local Nevada companies produced $58.6 million worth of this commodity, of which $45.5 million was exported outside of the State.  This shows that very little of this product is produced locally and even less of it is consumed locally.  There is much demand in this market and a need for the expansion of existing facilities or attraction of new companies to the area.

Recently there has been news of the Walker River Meat Processing Inc. plant seeking approval to locate in Lyon County.  Most recently, the Lyon County Commissioners approved a special-use permit for the plant.  According to the Reno Gazette Journal, the plant will employ 600 workers at full operation and 300 to 400 construction employees during construction.  It is important the plant work with local customers to ensure the quantity, quality and other requirements are met and products produced by the plant will be purchased by local companies.  If this occurs, the amount of processed meat and byproduct imports to Nevada can be reduced, keeping more resources local.

Meat plant gets approval from Lyon County

This is a good example of findings the gaps and disconnects in the Nevada economy and filling them with companies that will allow the State to reduce its imports and keep money and its “ripple” impacts local.

Recovery of Business Damages: Valuation vs. Lost Profit

I have noticed some confusion regarding the difference between using the lost profit and business valuation methodology to determine business damages.  I decided to write an article on the basic difference between the two methodologies and some rules of thumb regarding the use of these methodologies.  The article was published in the April edition of the Writ, a  publication of the Washoe County Bar Association.  The link to the article is below on page 16:

Recovery of Business Damages: Valuation vs. Lost Profit-The Writ, April 2012

Report Shows Manufacturing Skills Gap

A recently released report by Deloitte Consulting LLP and the Manufacturing Institute, conducted in July and August, 2011, shows a significant shortage of skilled manufacturing employees.  Based on a survey of over 1,100 US manufacturing companies, 67% of study respondents reported a moderate to severe shortage of available, qualified workers and 56% anticipated the shortage to grow worse in the next three to five years. In addition, the survey indicated that 5% of current jobs at respondent manufacturers are unfilled due to a lack of qualified candidates.

Other notable findings of the study are as follows:

The hardest jobs to fill are those that have the biggest impact on performance-74% of respondents indicated that workforce shortages or skills deficiencies in skilled production roles are having a significant impact on their ability to expand operations or improve productivity.

ImageHigh unemployment is not making it easier to fill positions, particularly in the areas of skilled production and production support-5% of jobs remain unfilled simply because companies can’t find people with the right skills. This means that as many as 600,000 jobs are going unfilled, a remarkable fact when the country is facing an unemployment rate that hovers above 9%.

The skills gap is expected to take the biggest toll on skilled production jobs, and will likely widen as time passes-respondents identified skilled production jobs as those where the skills gap is likely to have the biggest impact in the future-80% of respondents indicated that machinists, operators, craft workers, distributors, and technician positions will be hardest hit by retirements in the upcoming years. At the same time, companies expect the skilled production group to be the hardest to find in the job market, respondents report that the national education curriculum is not producing workers with the basic skills they need – a trend not likely to improve in the near term.

Overall, 68% of respondents report that highly skilled, flexible workforce will be most important to company future success in the next 3-5 years, more than any other company concern.

ImageSource: “Boiling Point? The Skills Gap in US Manufacturing.” Deloitte and The Manufacturing Institute.  A copy of the complete report can be found on The Manufacturing Institute website.