Residential housing continues to rebalance. US housing starts are down 18 percent, measured December 2006 to December 2005. Meanwhile, residential permitting in Las Vegas and Reno is down by more than 60 percent, January 2007 to January 2006. The more severe contraction for the Nevada housing market shows the better economic prospects of the Silver State compared to other regions of the country since 2000 and the stronger run up in housing activity. Housing became an asset for short-term investment rather than its traditional role as an asset with long-run services and an asset to be sold if need arose.
Though the housing downturn is only a few months old, it seems to be fully formed. Sharp drops in housing, other things equal, might signal a recession. Also, the US automobile industry has experienced weakness of late. Still, the forward and backward linkages from the weak housing and auto sectors to other industries have not been severe to date. The current majority view, therefore, believes that we face a future of slower growth, not a recession.
The Silver State’s travel and tourism sector, having softened after 9/1, is in great shape. Recent strength in travel and tourism makes up for the recent weakness in the residential construction and real estate sectors. For example, gaming revenue for December 2006 posted a strong month, up 17 percent for the same month a year ago. So long as nonresidential construction activity remains strong and other key economic sectors continue to post strong sales records in the months ahead, the greater is the chance that the housing market imbalance that has grown over the past three years or so will not derail the current good economic conditions.
All in all, the indicators point to continued economic expansion in 2007.