Assessor’s Data on New and Existing Home Sales:

Single family home sales were down across the board in 2007 – both new and existing homes experienced price decreases coupled with reduced sales. New single family home sales were down 38% in 2007 and existing single family home sales were down 29% — those are some pretty significant decreases in units from 2006. The median price of new homes was down 13% last year, and existing homes sold for roughly 7% less. That’s more than the decrease we saw in 2006 compared to the peak year of 2005, but overall that’s a fairly moderate decline in value relative to the increases immediately preceding the fall.

Regionally, the “New Southwest” part of town actually saw a 7% increase in new home sales and the median sales price remained flat from the previous year – not bad at all in light of how the rest of the Truckee Meadows performed. The rest of the area mostly saw fewer sales of new and existing homes coupled with lower transaction prices than in 2006.

Condo sales were a mixed bag. Existing condo sales were up in the second half of 2007 with a slight increase in sales price. New condo sales, though, were down 31% in the 4^th quarter with a median sales price 3 percent greater than the previous year. This is good news for the area because it demonstrates that there is at least some sign of life in the market. With several new condo and townhouse projects slated for 2008 and 2009, this segment of the market should do relatively well.

It’s interesting to note what’s going on up at Incline Village at Lake Tahoe – if you’ve ever wondered if sales of high end homes performed differently than the rest of the market, here’s your proof that the ultra-rich are largely above such petty concerns as “markets,” “mortgages,” and “foreclosures.” Last year, sales of single family homes in Incline Village were up 10% from 2006, and the median sales prices were up 11%! Those are really strong numbers when you consider just how poorly the rest of the market has been performing. Lake Tahoe real estate is certainly still in high demand, economy be damned!

Foreclosures:

You’ve all seen the headlines and, yes, there was a sharp increase in the number of foreclosures in Washoe County in 2007 – a 614% increase for the year – and the number of foreclosures has been steadily rising each month since the beginning of 2006. Regionally, the Truckee Meadows have seen increased foreclosures in all areas of town; even the higher end communities were not immune to the effects of the careless lending practices.

Still, it’s important to keep in mind that although foreclosures were up 600% last year, the actual number of foreclosed homes was only 750 (compared to 105 in 2006). Considering there are over 160,000 housing units in Washoe County, having 750 foreclosures isn’t that dramatic relative to the total number of units.

There were 225 foreclosed homes which sold in 2007, amounting to roughly 5% of the total number of MLS resales last year. As of December 2007, 14 percent of the active listings in the Reno-Sparks area were bank-owned homes…and this number is sure to grow in 2008.

This book is one of the required texts for one of my classes this semester here at USC - Policy Planning and Development 639, Introduction to Community and Economic Development. Although it smacks somewhat of a highly “Keynesian” bias of the role of government - federal, state and local - I am impressed by how comprehensive it is in addressing the many issues surrounding local economic development. I’ve never been totally sold on the Keynesian approach to economic stimulus - i.e. government intervention (I know and acknowledge that’s a simplistic summary of Keynesian economics) - but the authors do take a somewhat balanced view in their observations and conclusions and, what is probably most important, is that they expand the definition of economic development to include many issues - homelessness, social capital development, human capital development, literacy, education, technology and information development, etc - which go well beyond what the lay-person would consider “economic development”.

I was particularly amused about a month ago when I was reading in the Reno Gazette Journal that the City of Reno’s Mayor, the Honorable Robert Cashell, and other elected officials in Northern Nevada had begun to pressure the State of Nevada to consider changes to the State’s fiscal system – the way in which tax dollars are generated, collected and apportioned – to prevent the inevitable financial problems the State, and state-wide local jurisdictions, face during times of economic decline or slowdown.  I was amused primarily because about two years ago the NSBDC hosted a regional “property tax summit” to discuss these same, various issues.  Well, that was during a time of economic expansion and public monies were so large that no one wanted to talk about it.  Oh my how times have changed.  I applaud the efforts of the Mayor and other elected officials to broach this highly politically sensitive issue but I fear that without sustained discussion little positive change will come of it.

One of the major results or conclusions of the NSBDC’s “property tax summit” was that Nevada’s fiscal system is in need of MAJOR revision.  The State’s current fiscal system is almost identical to the fiscal system that was developed at the turn of the 19^th Century during the State’s forming.  Little has changed.  Other than the “shift” from property tax dependency to sales tax dependency in the 1980’s, Nevada’s fiscal system has remained unchanged for the better part of 200 years.  Like then, the system we have in place today is dependent on a current stream of tourists and visitors to support the State’s spending needs.  It assumes a small “home grown” population and assumes that the “home grown” population is young and eager to spend a large portion of its income.

Now that the calendar has finally changed to 2008, it’s important to realize two important changes that have occurred in the past 20 or so years.  First, Nevada NO LONGER HAS A MONOPOLY on gaming!  All but two states throughout the United States have some form of casino gaming.  Washington, Oregon, Arizona, New Mexico and, of course, California, have all legalized casino gaming to some extent.  Nevada as a state, and its local jurisdictions, can no longer assume that gaming and tourism will pay all the bills.  Although Las Vegas remains an international destination for tourism and gaming, Northern Nevada has long since lost that designation.  That means Nevada, especially Northern Nevada, must diversify its fiscal system to “wean itself off” the proverbial “teat” of gaming and tourism.

Second, Nevada’s population is growing.  We are no longer a “small state”.  Our population is also aging and that means the population as a whole is shifting its spending from taxable retail expenditures to non-taxable retail expenditures like pharmaceuticals, food and housing as more and more Nevadans move to a fixed income.  That means Nevada, especially Northern Nevada, must diversify its fiscal system to “wean itself off” the proverbial “teat” of sales tax revenue.  As Northern Nevada’s population ages and more and more Northern Nevadans begin living on fixed incomes, sales tax revenue receipts will begin to decline.  Fewer automobiles will be sold, fewer “home improvement” materials will be sold and fewer taxable retail sales per capita will be generated.  In the end, we can expect consistent declines per capita in the amount of sales tax revenue local jurisdictions and the State of Nevada generate annually.

So what are we to do?  The first step has to be the recognition that Nevada is no longer a small state.  For everyone out there that wishes Nevada could remain the “big empty” state of vast expanses and rural living, stop fooling yourself.  If you live anywhere in Northern Nevada near Reno, Sparks, Carson City, Lake Tahoe or Fallon, it’s time to accept the realities we are faced with today.  The houses and suburbs that have been built over the past 20 years are NOT going to be torn down.  They are here to stay.  It’s time for Nevada to grow up and develop a fiscal system that, although maybe not “recession proof”, can at least tolerate some intermediate shocks to its economy.  If we don’t accept these realities then the next time you dial 911 you might not see a police officer, paramedic or firefighter for awhile.

The second step is to put ALL options on the table.  That means considering (I didn’t say accepting – just CONSIDER) the potential of a statewide income tax for citizens and businesses alike.  I know that everyone is going to freak out now that I’ve said that but consider that California has a state income tax for citizens and businesses alike and, by themselves, are the 9^th largest economy on the planet.  For those that have persistently argued that a state income tax would destroy Nevada’s economy, I have only one question:  Where is your proof?  State’s like California that have state income taxes seem to be economically no better or worse than Nevada.  We may also have to consider expanding the sales tax base to begin to consider those retail expenditures that are currently non-taxable.  Remember:  Taxes = Tax Rate * Tax Base.  We could up the Tax Rate to increase Taxes.  Or we could expand the Tax Base.  Just a thought.  We may also have to reconsider how personal property – homes and businesses – are taxed.  Why is it that when a business’s income declines it can reduce its property tax burden but an individual whose income declines can’t get the same break?  Just a thought.

In any case, it’s time for a serious and frank discussion regarding the State’s fiscal system.  Caving to political demands and making “cute” political speeches on protecting the pocketbooks of Nevadans is not responsible governance.  To ensure Northern Nevada’s economic future, we must make the hard and serious choices today concerning our fiscal system.  To not do so only threatens the future of Northern Nevada’s economy and the economic future of all Nevadans.

This deal goes to show you just how difficult it is to do development and redevelopment in a built-out downtown urban environment. It took four public entities – the City of Reno, the Reno Redevelopment Agency, Washoe County and the State of Nevada – and at least four public entities – SK Baseball, Nevada Land, Siena Communities and even the Men’s Club – to put this deal together. And this doesn’t count all the private consultants. Oh yeah, it will likely also require the support of the Reno Transportation Committee (RTC), the Reno Sparks Convention and Visitors Authority (RSCVA) and other private property owners to further complete the “little” details that apparently still need to be worked out.

And to make matters even more complicated, the Reno Redevelopment Agency has not had a lot of “extra money” lying around as the Agency’s revenue from incremental property tax revenues from the downtown redevelopment district have declined by nearly 50% since 2001. And oh yeah, the deal involved the preservation of a historic structure – the Freight House. Combined with these obstacles, numerous parcels owned by the City, the Agency and Siena Communities along with several other individual property owners added to the deals complexity.

Deal-Killing Points

We could go back and forth and debate for ever on whether or not the Agency and the City gave away too much or not enough but we can learn one thing from this deal. Complexity is always expected in downtown redevelopment efforts. Remember Chambolle? Here’s a list of the “complexities” that led to the “quick and quiet death” of that 10-storey condo complex that was planned for the vacant lot next to the Riverside Artist Lofts:

• Prelim site analysis found old “wing walls” underground supporting the adjacent Riverwalk. Changing the Chambolle’s foundation to accommodate those wing walls would’ve added nearly $10 million to the project cost.
• Residents at the Riverwalk with westerly views of the Sierra Mountains weren’t too happy about losing their view and forced several changes to the project’s designed. Result – more costs!
• The City and the Agency wanted more brick in the final exterior. Result – more costs!
• Construction costs – namely for cement and steel – jumped considerably from the time the project was first proposed to the time earlier this year when the developer finally called it quits.

So remember, when developers try to do “big deals” in downtowns – be it Reno, Las Vegas, San Francisco, Los Angeles, Boston or New York – keep in mind that it isn’t cheap! More than likely, the project’s cost will rise dramatically and there is always difficulty in dealing with the complexity and unknowns of doing development in the urban environment. $91 million for a ballpark in downtown Reno? That’s cheap relative to what it could cost. Anyone remember the “Big Dig” in Boston? The underground freeway project that had an original price tag of just $4 billion? Well, that project ended up costing nearly $14.6 billion.

The fact that Washoe County’s housing market slowed even more in the third quarter of 2007 is hardly even newsworthy – it’s evident everywhere you look and I am starting to sound like a broken record each month with my “more of the same” analysis of the market.  There are, however, a few bright spots on the bleak landscape of housing in Washoe County.

From the second to the third quarter of this year, the median sale price of new and existing single family homes held virtually steady.  Sure, there were 20 percent fewer sales over that time, but the fact that pricing has held the line is good news no matter which way you look at it.  The median sale price of a single family home in the greater Reno-Sparks area was $323,857 in the third quarter of this year – about 9 percent below where it was a year earlier, but at least it’s holding steady.  Spanish Springs was the only part of town which posted an increase in existing home sales over the quarter, with nearly 4 percent more home sales than in the second quarter.

Also, sales of new and existing condo units were up 15 percent in the third quarter, with average transaction prices 4.4 percent higher than in the second quarter.  The real strength, though, was with existing condo units (versus new units), which is likely a function of the greater supply of existing units on the market.  While there is a ton of condo units planned for the Reno-Sparks area, there simply aren’t many new units on the market right now.  Look for this change in the coming months, though.

Sales of existing condo units were up 22 percent in the third quarter with sales prices averaging 5 percent higher than in the previous quarter.  When you compare the third quarter to the previous year, the picture looks even brighter – 24 percent more sales and a 10 percent appreciation in median sale price.  Third quarter sales were strongest in the New Northwest, New Southeast, North Urban, North Valleys, and the Old Southwest parts of town…and by “strong” I mean that sales were up 10 to 80 percent over the previous quarter.  I find that especially impressive in light of the utter lack of sales in the single family market over the same time period.

The condo market in the Reno-Sparks area is going to surprise people – I see SO many new units ready to hit the market at a variety of price points and I can’t help but feel like the timing is going to be pretty good for them.  The Reno-Sparks area is still experiencing positive in-migration from other states – people are relocating here every day because of the employment opportunities in the area as well as for the outstanding quality of life that the area offers – and many of these people are going to be buying homes.

For the most part, condo living is a new concept to the Reno-Sparks area and we’re just beginning to see how well these new units absorb in the market.  The Palladio – a higher end development in Downtown Reno – has enjoyed very strong sales since the units became available a few months ago, and the same can be said for the high-rise luxury condos in the Grand Sierra Resort.  If these early indications hold true for the rest of the condo market, this is a product that will do very well in the Truckee Meadows.

• source: Washoe County Assessor’s data, compiled by the Center for Regional Studies, UNR

But with the spread of Indian Gaming – in California, Oregon, Washington, Arizona, New Mexico and Idaho – and the spread of gaming abroad in markets like South East Asia and with mining be so subject to the “boom and bust” cycle, can Nevada remain economically competitive? Can the “Nevada Economy” of today, or should I say the Nevada Economy of yesterday, deliver the goods and services demanded by a radically different population with diverse needs today?

Nevada is not a small state anymore. The days of the wild, wild west are gone and although some have termed Northern Nevada as “America’s Adventure Place”, it is an adventure place with air conditioning, sport utility vehicles, expensive gear and $200 a night dinners. With the wealth of a “grown up state”, there comes plenty of bad with plenty of good. Local jurisdictions are flush with new sources of sales tax revenue and property tax revenue as Nevada’s population has grown tremendously and median family incomes are up. But so are the number of homeless people living in our communities and so are the number of methamphetamine addicts and so are the number of inmates in Nevada jails and prisons and Nevada still lags behind almost all other states in the performance of our public schools.

Economic development means many different things to many people. Small business development, job training, redevelopment and urban revitalization, tourism development, housing development, the upgrading and expansion of key infrastructure including airports, rail-ports and freeways, and the development and protection of Nevada’s vital natural resources are all aspects of economic development Nevadans as a whole have to explore and pursue to remain competitive in this new century. But economic development is much more than just dollars and cents, spending here and investing there.

Economic development at the local level and the state level is greatly impacted by a number of forces including public policy decisions our elected officials at the federal, state and local level pursue. It is affected by the type of education offered to Nevada students at the K through 12 level as well as the college and university levels. It is influenced by the values our communities hold sacred. It is influenced by the number of people we incarcerate. It is influenced by the weather and it is also influenced on what we fail to do. It is my hope that this blog can provide some insight into how Nevadans could pursue economic development. Who benefits? Who pays the price of pursuing economic development? (Yes, there is a cost to economic development.) What strategies should we pursue in lieu of others given limited financial, human and natural resources? These are the topics and the questions I hope to explore with all of you.

In 2001, nearly 100 years after Romanzo Adam’s 1918 publication, Frank Partlow wrote and published, “Observation Point” where he chronicled his “reflections” on the political and economic “goings-on” of northern Nevada. Partlow’s forward concluded with the following statement: “My hope is that these reflections from my observation point on local government here in northern Nevada will help citizens throughout the New West better understand public policy in their own local communities.” Sound familiar?

In my own way, I hope to add to Partlow’s observations and help citizens throughout the “New West” – our New Nevada – better understand economic development policy in their own local communities in relation to the many issues that face us collectively today.

]]> http://blog.nsbdc.org/2007/10/23/new-nevada/feed/ http://blog.nsbdc.org/2007/09/28/washoe-county-housing-market-summary-%e2%80%93-august-2007/ http://blog.nsbdc.org/2007/09/28/washoe-county-housing-market-summary-%e2%80%93-august-2007/#comments Fri, 28 Sep 2007 17:34:28 +0000 bkaiser Housing http://blog.nsbdc.org/2007/09/28/washoe-county-housing-market-summary-%e2%80%93-august-2007/ Washoe County’s resiliency has been put to the test in 2007 as the slumping housing market has continued to grab the headlines month after month.

Following three extremely hot years for real estate, no one was surprised to see things start to cool off, but the cooling trend is starting to look like a deep freeze and the worst may be yet to come. By mid-year 2006 it was apparent that the housing boom was over and the market was beginning to cool off, but a year later it’s obvious that this slowdown has been more pronounced and will be longer lasting than most analysts predicted early on.

The fact that data for the preceding three years show such phenomenal appreciation rates makes this market correction seem worse than it really is, though, and when the dust finally settles we’ll be left with more “normal” (or “historically average”) appreciation and sales rates.

Until we’re back on track, though, the housing market is likely to get somewhat worse as record numbers of foreclosures hit the market and shell-shocked consumers wait to see where the bottom truly is.

• In August 2007 there were 45 percent fewer new single family home sales and the median sales price of those homes had dipped 12 percent from the previous year. Existing home sales looked much the same – 24 percent fewer sales and 10 percent lower sales prices in Washoe County.

• Sales of existing condos were better in August, with a 29 percent increase in sales of existing units, with a 10 percent higher median sale price. The condo market could wind up being the one bright spot in Northern Nevada real estate by virtue of their lower prices relative to traditional single family homes. With several new condo projects in the works, the Truckee Meadows will soon have more variety at the lower end of the market. In August, only 16 new condo units sold (a 57 percent drop from a year ago), but the small sample size makes it particularly sensitive to changes in units and pricing.

• The inventory of new homes available for sale has remained somewhat high by historical standards, although new home builders have all but stopped building homes in 2007 in order to clear out standing inventory and reduce their exposure to the market. Single family building permits issued through the first half of the year were about 46 percent off pace from 2005 and 2006 levels and several new projects slated to begin construction in 2007 have been put on indefinite hold.

• In the second quarter of 2007 new and existing home sales were dramatically lower than one year earlier and pricing continued its continuous slide from the peak in 2005. There were 29 percent fewer existing single family homes sold in the second quarter of this year compared to last, and the median sales price was 16 percent lower. For new construction, sales were down 27 percent and reported pricing was down 11 percent according to data from the county assessor’s office. Condos performed similarly – 28 percent fewer sales with a median price 9 percent below the previous year.

• At the end of June 2007 there were approximately 14,800 residential units with final approval to start construction but had not yet started to build and an additional 35,000 residential units with tentative approval to begin construction that were not yet final mapped with the county. Many of these units will be phased in over the next decade, and many will never come to fruition based on market conditions.

• There were just over 1,000 units in standing inventory at the end of the second quarter – which are newly built units ready for occupancy but still owned by the builder. Builders had slowed their construction dramatically by the end of 2006 to try and reduce this number of standing units, but given the slower sales rate this year it could take several months to absorb these units.

• Applying an estimate of 2.5 persons per household to these approved-but-not-built units yields a population increase in the area of nearly 125,000 people – and this does not include projects that have not even begun the planning phase. Clearly there is still tremendous growth potential in the Reno-Sparks area over the coming years.

• The sales rate of new homes has slowed significantly from the pace of previous years, but the steady stream of new residents from California and the Pacific Northwest has provided builders with a qualified pool of buyers ready to take advantage of the generous discounts and incentives being offered. With the rest of the Northern Nevada economy on solid ground, it’s just a matter of time before we see an end to the housing slump.

• As the availability of vacant land within or near the McCarran ring diminishes, land values on parcels large enough to contain a residential development have skyrocketed, forcing most of the new development to the outskirts of town. The North Valleys, Spanish Springs, and the Damonte/Double Diamond areas are all slated for thousands of new homes in the coming years and there are several thousand units planned east of Sparks along the north side of the Truckee River canyon towards Fernley.

Raising capital through a public offering can help with an expansion or the launch of a new business. In Nevada, there are three ways to accomplish this: registration by filing, registration in coordination with the U.S. Securities and Exchange Commission (SEC); and an intrastate registration by qualification.

The “registration by qualification” process is business friendly. This is a cost-effective alternative to a national IPO. It takes only a couple of months to process and you can theoretically raise an unlimited amount of capital. The benefit of this process is that as properly qualified officer or director of the company, you can approach investors - anyone living in Nevada - through telephone calls, direct mail, seminars, and advertising.

As with any capital mechanism, a business owner needs to determine the risks and costs associated with the venture. For a variety of reasons, the securities markets provide an excellent source of capital for small business. But accessing that capital presents small and large business alike the responsibility of compliance with applicable securities laws. Understanding those laws is the first step toward raising capital, and the Nevada Secretary of State, Securities Division is committed to helping legitimate businesses, after they have consulted with their won attorney and accountant, chart an appropriate course in gaining assess to public capital.

The content of this post was provided in its entirety by the Nevada Commission on Economic Development and is used by permission.