Reno MSA Industry Indices-August 2019

To answer the demand for economic trends in Northern Nevada, Ekay Economic Consultants and the Center for Regional Studies created Business Activity, Construction, and Housing Affordability indexes for the Reno Sparks MSA. 

Reno MSA Business Activity Index-August 2019 Provides historical and current trends for business activity in the Reno MSA region.

Reno MSA Construction Index-August 2019 Provides historical and current trends for the construction industry in the Reno MSA region.

NEW: Reno MSA Housing Affordability Index-2Q 2019 Provides historical and current trends for single-family housing affordability in the Reno MSA region.

For the full Industry Trends report, including methodology, historical trends, and graphs, please click here.

Reno MSA Leading and Coincident Indices-August 2019

To answer the demand for economic trends and outlook in Northern Nevada, Ekay Economic Consultants and the Center for Regional Studies created Reno MSA leading and coincident economic indexes covering the regional economy.

Reno MSA Leading Economic Index-August 2019
Provides an economic outlook for the region by signaling future movements in the Reno MSA economy over a six to twelve month period.

Reno MSA Coincident Economic Index-August 2019
Provides historical and current trends for the Reno MSA economy.

For the full Economic Outlook report, including methodology, historical trends, and graphs, please click here.

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.

Reno MSA Industry Indices-July 2019

To answer the demand for economic trends in Northern Nevada, Ekay Economic Consultants and the Center for Regional Studies created Business Activity, Construction, and Housing Affordability indexes for the Reno Sparks MSA. 

Reno MSA Business Activity Index-July 2019 Provides historical and current trends for business activity in the Reno MSA region.

Reno MSA Construction Index-July 2019 Provides historical and current trends for the construction industry in the Reno MSA region.

NEW: Reno MSA Housing Affordability Index-2Q 2019 Provides historical and current trends for single-family housing affordability in the Reno MSA region.

For the full Industry Trends report, including methodology, historical trends, and graphs, please click here.

Reno MSA Leading and Coincident Indices-July 2019

To answer the demand for economic trends and outlook in Northern Nevada, Ekay Economic Consultants and the Center for Regional Studies created Reno MSA leading and coincident economic indexes covering the regional economy.

Reno MSA Leading Economic Index-July 2019
Provides an economic outlook for the region by signaling future movements in the Reno MSA economy over a six to twelve month period.

Reno MSA Coincident Economic Index-July 2019
Provides historical and current trends for the Reno MSA economy.

For the full Economic Outlook report, including methodology, historical trends, and graphs, please click here.

Introducing Reno-Sparks Housing Affordability Index

Ekay Economic Consultants, Inc., in partnership with the Center for Regional Studies at the University of Nevada, Reno, is pleased to introduce our new Housing Affordability Index (HAI) for the Reno Sparks MSA. The HAI compares family income necessary to purchase a median priced home in Washoe County to the median family income in the region. This index will be updated quarterly and was recently created due to non-credible home values and sometimes inconsistent data provided by other indexes from non-local sources.

The Reno MSA Housing Affordability Index is based on a ratio of median family income to qualifying family income, the income necessary to purchase a median priced home in Washoe County. Qualifying income is estimated using a proprietary mortgage calculator with inputs for median home price, average 30-year fixed mortgage rate, and housing-related expenses (property tax, utilities, and mortgage insurance). The index is based on annual data between 1997 and 2018, with data starting in the 1st Quarter (1Q) 2019 reported on quarterly basis.

The following variables are included in the index:

A ratio of 100 indicates that median family income is sufficient to purchase a median-priced home. A ratio below 100 indicates median income is less than qualifying income and affordability issues exist. For example, the 2Q 2019 index of 84.89 indicates median family income is 15.11% below the income necessary to qualify for median priced home.

The index increased by 0.16% between 1Q and 2Q 2019, making homes in the region slightly more affordable. This is due to a small increase in estimated median family income and a larger decline in the quarterly mortgage rate, which declined more than the median home price increase. The index increased by 3.51% compared to 2018, mainly due to declines in the mortgage rate.

Historically, the index saw its lowest period of affordability since 1997 (63.65) in 2006, indicating median area income was 36.35% below the level required to buy a median priced home. The highest level of affordability was reached in 2012 at an index of level 176.50, with median income 76.5% greater than necessary to purchase a median priced home in the area. These affordability levels (up and down) were driven primarily by significant home price growth and declines in the area during the time.

 

We are back

After a long hiatus, our blog is back. We will return to publishing our Northern Nevada leading and industry indices, as well as other relevant economic data on this blog. In the meantime, find what you missed on our website:

http://ekayconsultants.com/research

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

Reno MSA Economic Outlook Presentation

Brian Bonnenfant, Center for Regional Studies at UNR, and I did a presentation this morning for the Northern Nevada Network.  The presentation focused on an overview of the economic performance of the Reno MSA, including a look at historical economic indicators, including taxable sales, gaming revenue, visitors, single family home sales, home prices, employment, wages, and more.  The presentation also considered future population and employment projections and issues in the region associated with this growth.  A copy of the presentation is included below:

Reno MSA Economic Outlook Presentation

Washoe County Commercial Building Permit Trends

Our most recent industry index for the construction industry in the Reno MSA showed that while the index increased slightly between December 2015 and January 2016 (0.35%), it actually decreased by 5.31% compared to January of previous year.[1]  Historical graph for the construction index is shown below, showing the index declined since July 2015 with a slight increase in January 2016.

constr graph

The major reason for this decline, as shown in the table below for January 2016 is a decline in the number of commercial building permits between December 2015 and January 2016.  Both the number of commercial building permits and commercial permit valuation declined between January 2015 and 2016.

const table

The graph below shows Washoe County’s number of commercial permits issued and the value of these permits.  The data is the graph is monthly moving average (MMA) data, which means that for each month, the data is the average of that month and the 11 previous months.  Based on MMA data, the graph shows a peak in commercial building permits and permit valuation in July 2015 (consistent with the index) before falling through January 2016.  Commercial building permit data has been released for all three jurisdictions (Reno, Sparks, and Washoe County) for February 2016 showing a total of 13 building permits issued and valuation of $11.0 million.  This is greater than in terms of the number of building permits of 9 in January 2016, but lower in value compared to $15.1 million.  March 2016 commercial permit data has been released for the City of Reno only, showing 26 building permits valued at $15.2 million.  As a result, March 2016 will exceed both January and February permits data.

Comm.jpg

While of some concern, the decline in the number of commercial permits needs to be considered in its historical context.  Permit data for 2014 was at the highest level since 2008, just before the full impact of the recession in the region.  There were 240 commercial permits valued at $365.4 million issued in 2014.  In 2015, 196 permits were issued with a value of $231.9 million, representing another strong year of activity, but lower than 2014.

The total number of permits in January and February 2015 of 34 was higher than the 22 permits issued in the first two months of 2016.  However, the valuation of these permits in the first two months of 2015 was $20.5 million compared to $26.1 million in 2016.  As a result, while our late 2015 and 2016 commercial permit levels have been lower than the stellar commercial permit year we had in 2014, these levels are still the highest commercial permit activity the region experienced since 2009.  If March 2016 City of Reno activity is any indication, this activity will continue to improve.

On the residential construction front, single family permits continue their increase since the bottom in 2010-2011, with permit activity increasing in terms of both the number of permits and value of permits issued, as shown below on an MMA basis.

SF

Multi-family permit activity spiked in 2015, before declining to permit valuation levels seen during the real estate boom.  The decline in the number of permits issued is attributed to normal construction cycles of the large number of multi-family projects approved and planned for the area, not because of lack of demand for these projects.

MF.jpg

[1] Please find our economic and industry indices on our website: http://ekayconsultants.com/research.