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 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 Wages and Employment

Center for Regional Studies (CRS) at the University of Nevada, Reno recently released an update of employment and wage information for the Reno-Sparks MSA and Washoe County (the difference between Reno-Sparks MSA and Washoe County is that the MSA includes both Washoe and Storey counties).

A graph summarizing employment data for the Reno-Sparks MSA is shown below. Due to seasonal fluctuations in monthly employment data, it is important to compare employment for the same month over multiple years.  As December typically has the highest levels of employment, the below graph emphasizes results for December months across the study period (2006 to 2014).  The highest level of December employment was in 2006 at 228,100 employees.  December employment fell by over 36,000 jobs to its lowest point in 2011 (191,500).  The MSA reached the highest level of December employment since the recession of 204,800 in 2014, gaining over 13,000 jobs between 2011 and 2014.  While we are still approximately 23,000 jobs below the December 2006 level, this trend is encouraging.  As of June 2015, year to date average employment increased by 4,700 jobs (2.4%) over the same period in 2014.


In terms of income and wages, CRS reported data for Washoe County on an annual basis between 2006 and 2014.  The below graph shows countywide median household income peaked at $57,392 in 2008, before declining to $49,026 in 2012.  Median household income is estimated for 2014 at $54,727, an 11.6 percent increase over 2012 levels and a 4.6 percent decrease since 2008.

Average wages in Washoe County increased from $39,520 in 2006 to $44,980 in 2014, growing steadily over this period, with a total increase of 13.8 percent.  While this is positive, wages are reported in nominal terms, unadjusted for inflation.  Consumer price index for All items, West Size Class B/C as reported by the Bureau of Labor Statistics increased by 14.8 percent between 2006 and 2014.  This indicates that wages are increasing at a rate below inflation.  While this discrepancy still exists, it is lower than the difference between 2006 and 2013 wage and inflation growth.  During this period, wages in Washoe County increased by 11.4 percent, while inflation increased by 13.3 percent, a difference of almost two percentage points.  The difference decreased because for the first time since 2009, Washoe County wage growth in 2014 exceeded inflation, with wages increasing by 2.1 percent between 2013 and 2014, compared to inflation increase of 1.3 percent.


Western Nevada Regional Wages Post Recession

Last week’s blog discussed the evolution of Western Nevada region’s[1] post recession economy in terms of its industry employment.  The blog discussed that in 2002, the region’s five largest employers were the Gaming, Retail, Health Care, Construction, and Manufacturing industries.  These industries made up 47% of all regional employment.  By 2013, this mix changed to Retail, Health Care, Gaming, Manufacturing, and Bars and Restaurants.  These industries made up approximately 46% of total regional employment.

[1] Includes Carson City, Douglas, Lyon, Storey, and Washoe counties.


Note: It should be noted that this list does not include all jobs in the region, a number of industries with low percentage of employment in the region (such as Mining) are excluded from the table.  The table is sorted by 2013 employment amounts.

As mentioned in last week’s blog, it is not only the number of jobs created by these industries that determines the region’s recovery and future success.  Wages paid for new jobs are also important.  For example, the Retail industry is now the biggest employer in the region.  However, wages paid by the Retail industry were $13.91 per hour in 2013, an 11% increase over the 2002 wage of $12.57.  Given a rule-of-thumb 3% annual inflation, the estimated 1.0% average annual increase for this industry over an 11-year period is well below inflation.  Additionally, this wage is less than the average hourly wage in 2013 for the State of Nevada of $21.22.  While it creates jobs and is necessary to provide services to the growing population, the Retail industry may not be an ideal candidate to target for future growth.

The Health Care industry, the second largest industry in the region, on the other hand had an average hourly wage of $25.13 in 2013, above the average State wage of $21.22.  The wage increased by an average of 2.3% per year since 2002, slightly lower than the inflation.  Giving the high wages in this industry, its growth through the recession, and its expected growth in the future, this is a good industry to target for expansion in the region.

The Gaming industry, the third largest industry in the region, had an average wage of $13.34 in 2013, an increase of an average of 1.7% per year since 2002, lower than the average inflation for the period.  Given this industry’s historic decline in employment, lower than average wages, and lack of expectation for future growth, this is not a good industry for targeted regional expansion.

The graph below shows average hourly wages for various industries in the region.  The graph shows that the average wages for the Management of Companies and Enterprises industry has significantly exceeded wages for all other industries, despite fluctuations between 2002 and 2013.  The average wage in 2013 for this industry of $60.10 was significantly higher than the State average of $21.22.  Wages in this industry grew by an average of 3.0% per year since 2002, in line with inflation.  This industry has the lowest employment of all regional industries considered in this analysis.  However, a positive growth trend exists for this industry, having gained 1,500 jobs or 82% of its employment between 2002 and 2013.  This industry deserves a second look to determine whether anything can be done to make the region more attractive to companies in this industry, thus encouraging future employment growth.


Other companies with wages of note are the Health Care industry, discussed above, and the Finance and Insurance; Professional and Technical Services; Government; Manufacturing; and Construction industries.  All of these industries had an average wage greater than the State average in 2013.  Similar to the Management of Companies and Enterprises industry, these industries should be considered for expansion, with an analysis for each industry to determine whether the region can be made more attractive for that industry to grow and hire more employees.