Cover, Nevada Department of Business and Industry Nevada Housing Stability Index

March 2015

Current Assessment
Nevada’s housing market was a little less stable in the first quarter of 2015, as the Nevada Housing Stability Index (“NHSI”) dropped slightly to a “C” grade. Overall the composite index fell modestly to 2.26, but the NHSI remained slightly higher than the 2.17 index reported one year ago. Median home prices statewide slipped slightly from the fourth quarter, with the median price falling 1.2 percent statewide, 3.6 percent in Clark County, and 2.6 percent in Washoe. Notably, the drop in prices directly impacted two index components, and potentially lured further investor purchases in the area. Despite some modest period-to-period adjustments in most recent quarter, conditions overall appear more stable than at any point since the past economic downturn.

Positive Signs
The only measure to earn an increase in grade level was the new-to-resale price ratio. The metric that measures that gap between median new home prices and resale prices demonstrated the distance between the two is shrinking. The ratio during the first quarter was 156.3 percent (new-to-resale), which was down from the last quarter and prior year. This change increased the index component’s grade from a D- to a D. In Las Vegas, the ratio stood at 157.8 percent, while northern Nevada posted a 139.0 percent value. Southern posted a decline of 4.5 percentage points while Reno fell 3.8 points. Even with the larger improvement, new homes in Las Vegas command a higher premium than those in Reno. On the supply-side of the housing equation, statewide availability has remained relatively flat in recent quarters. However, it is worth noting the number of effective months of inventory in the northern Nevada market has started to trend down at 3.5 months, compared to 4.5 months one year ago. Assuming the demand side of the equation expands in response to new investments taking place in the northern end of the state, overall pricing has the potential to rise given tightening availability trends.

Negative Signs
The share of homes sold to investors (cash buyers) increased in the current quarter, rising to 34.3 percent of all homes sold. Las Vegas drove the increase as northern Nevada witnessed a decline in the share of cash buyers (from 23.0 percent in Q4 2014 to 18.7 percent in Q1 2015). The introduction of additional non-occupants in southern Nevada has the potential to create instability in the housing market down the road when these investors wish to sell their investments. In addition, the premium for renting versus owning a home increased nearly 9.5 percentage points from the prior quarter. Meanwhile, the housing affordability ratio fell slightly during the quarter, signaling that the cost of a mortgage relative to local wages has grown too small, and that there is room for pricing growth. Finally, there were fewer new employees in the state for each housing unit permitted, with the ratio falling to 2.58 new jobs for each additional new home, but remaining at an A- grade overall.

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December 2014

Current Assessment
Nevada’s housing market stayed the course in the fourth quarter, as the Nevada Housing Stability Index (“NHSI”) remained at the same “C” grade. The composite index maintained a 2.24 value reached in the prior quarter, but the most recent rating reflected a slight increase over the 2.12 value reported one year ago. Median home prices in the past quarter increased 4.1 percent to $195,750 across the state, with an increase of 4.2 percent reported in Clark County and 2.1 percent in Washoe County during the past three months. During the past 12 months, the statewide median price increased 12.5 percent with southern Nevada appreciating by 12.1 percent and northern Nevada trending up 14.8 percent. The majority of housing performance metrics improved modestly, but not materially enough to cause gains in their relative grades, barring a few. By the close of 2014, the Nevada housing market demonstrated its ability to balance supply and demand while improving the profile of conditions from those reported in 2013. Improving fundamentals in the economy, including population and employment growth, will be keys to the housing market’s stability during 2015.

Positive Signs
Two measures showed marked improvement during the past quarter. Resale housing availability improved during the month from a D+ to a C grade, with 6.1 effective months of availability on the market trending closer to the historical balance between supply and demand (inventory levels include homes under contract). Much of the increase was sourced to the Las Vegas area, which increased availability to 6.6 months from 5.4 months in the prior quarter. In Reno, housing availability was flat at a relatively low 3.8 months of effective inventory. Another key measure to improve was the share of distressed home sales, which fell to 18.5 percent of all sales activity during the past quarter, earning an A- grade. Distressed sales stand at their lowest level since the run-ups began in the 2007 timeframe.

Negative Signs
While the majority of performance metrics witnessed improvement or held their ground, only one ratio experienced negative results during the quarter. The employment and housing construction stability ratio, or the ratio of employment changes-to-permits, dropped to 1.99 jobs created per house permitted during the fourth quarter. In the previous quarter, there were 3.04 jobs created for every home permitted. Fewer jobs in the economy suggest the supply of new homes may outstrip the demand for them at some point in the future. However, the measure remains reasonably high and supply-demand conditions do not appear to be a near-term concern.

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September 2014

Current Assessment
The Nevada housing market continued to demonstrate increased stability during the third quarter of 2014, with the Nevada Housing Stability Index (“NHSI”) remaining at the same “C” grade it first achieved one year ago. The index itself has risen from 2.14 a year ago to 2.26 during the third quarter of 2014. Median prices in the past quarter increased 3.8 percent to $189,000 across the state, with an increase of 2.8 percent in Clark and 5.9 percent in Washoe County during the past three months. During the past 12 months, the statewide median is up 8.0 percent with southern Nevada expanding by 8.8 percent and northern Nevada trending up 13.7 percent. Since the second quarter, only one indicator has experienced a worse performance, three have improved, and eight held their ground over the period. Overall, the NHSI has remained in a relatively tight range as improvements are more measured and supply-demand conditions are better aligned than at any point in the post-recession environment.

Positive Signs
The share of homes acquired by cash buyers (investors) fell from 37.3 percent in the second quarter to 29.9 percent in the third quarter of 2014. More notable, the share of cash buyers plummeted from 44.6 percent during the past 12 months. During the same timeframe, the grade improved from a D+ to a B. The increasing stability of the housing market and higher price points have dampened the pace of investor acquisitions in Nevada, providing greater access to homes to end users (owner-occupants). The share of cash purchases in southern Nevada stood at 31.7 percent during the third quarter, while northern Nevada experienced a lower 21.9 percent. The housing affordability ratio increased modestly to 24.0 percent on a quarter-to-quarter basis, suggesting mortgage costs are more in alignment with wages; as a result the measure’s grade improved to an A. Finally, resale housing availability also increased during the most recent quarter to 5.1 months, improving to a D+ grade as it moves toward the historical long-run average. Effective availability in southern Nevada reached 5.4 months as compared to 3.8 months in northern Nevada.

Negative Signs
The number of negative performances within the NHSI continues to diminish with only one metric reporting a decline in its overall grade from the preceding quarter. The new-to-resale price ratio increased slightly from 154.4 percent to 161.3 percent. The premium for new homes is still considerably higher than it was prior to the recession for a couple of key reasons. Size is a factor that has led to higher prices in the new home segment as larger homes are being built as compared to their resale counterparts. The market, particularly in southern Nevada, has experienced rising land values that are also likely contributing to recent pricing dynamics.

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June 2014

Current Assessment
The Nevada housing market posted a relatively flat performance during the second quarter of 2014 when compared to the first quarter of the year. Compared to a year ago, housing conditions within the Silver State are much improved. At the close of the second quarter, the housing index maintained a C grade with a composite value of 2.18. The index is up considerably from the second quarter of last year, when the index was at a D+ and the composite score stood at 1.68. Statewide home prices increased from a median of $174,000 to $180,000 (+3.4 percent), with Clark County increasing to $179,000 (+3.8 percent) and Washoe County declining modestly to $220,000 (-2.2 percent) during the past three months. The statewide median value of $180,000 (+12.5 percent for the year) represents the highest value since November 2008. Similar to the first quarter, seven of twelve indicators reported no grade change during the second quarter, with three indicators showing positive signs; two indicators dropped in grading during the quarter. Overall, the Nevada Housing Stability Index trended sideways during the quarter.

Positive Signs
Distress within the Nevada housing market pulled back during the second quarter. Foreclosure volume in the market continued to fall, with 2.3 percent of mortgages in foreclosure during the second quarter (down from 2.7 percent three months earlier), bringing the grade up to a C-. Similarly, the share of loans that were 90 days or more delinquent fell to 6.3 percent, also increasing to a C- grade from a D+ grade. Finally, investor purchases continued to fall during the latest quarter to 37.3 percent of all sales, improving a full letter grade to a C+.

Negative Signs
Components of the index that offset gains in other areas generally centered on the volume of homes being financed and availability within the market. The community borrowing ratio fell for a sixth straight quarter, as job growth outpaced the rate of mortgage loans within the state, moving further from the long-run average of 46.0 percent. A lack of availability may be partially responsible for the disconnect, as resale housing availability fell sharply in the latest quarter. Effective availability dropped from 6.4 months to 4.7 months, or a below-average grade of D. As supply of homes tighten, incremental homeowners have a more difficult time finding quality homes that best fit their needs.

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March 2014

Current Assessment
Improvements in the overall Nevada housing market stalled during the first quarter of 2014. By the close of the quarter, the Nevada Housing Stability Index (NHSI) reported a composite value of 2.14, remaining at a C grade when compared to the fourth quarter of 2013. Compared to the same quarter of the prior year, the NHSI is up significantly from a value of 1.48 (D+ grade). The median sales price in the Silver State remained at $175,000 quarter-to-quarter. The flattening trend in total median prices was the result of a modest price increase in the resale segment, which was offset by a slight decline in the new home segment. In northern Nevada, the median price increased from $208,000 to $220,000, while southern Nevada pricing increased from $173,995 to $175,000 in the past three months. Consistent with statewide pricing trends, overall market stability remains relatively flat, with 7 of 12 indicators reporting no grade change in the most recent quarter. Results were mixed for the other 5 indicators, resulting in a flat performance in the overall index value.

Positive Signs
Although a number of index measures maintained the same grade as the prior quarter, measures relating to the share of distressed property sales and relative new home prices improved this quarter sufficiently to earn a higher mark. Foreclosure volume continued to decrease, with only 2.7 percent of mortgages in the foreclosure process. The number of distressed home sales also plummeted by 5.2 percentage points to 22.2 percent in the first quarter. The new-to-resale price ratio fell 8.7 percentage points to a 55.8-percent premium for new homes. Although the grade remained unchanged with an A, the employment change-to-permits ratio increased since last quarter to 3.61, suggesting the economic climate is pressing ahead of equilibrium construction levels. Finally, though delinquency rates across Nevada continued to drop by 0.7 percentage points to 7.0 percent, southern Nevada continues to struggle more in this area, with a 7.8-percent delinquency rate compared to 4.9 percent in northern Nevada.

Negative Signs
The two indicators that turned negative in this quarter’s index suggest a reluctance or difficulty for potential homeowners entering the market. The community borrowing ratio fell this past quarter to 41.1 percent; currently, the Nevada housing market is significantly underleveraged compared to historical norms. The share of investor purchases also rose by 3.1 percentage points to 43.9 percent in the first quarter. In Clark County, the share of investors actually fell to 46.6 percent of all home sales, but in the Reno-Sparks area, investor purchases rose 7.0 percentage points to 29.7 percent of all home sales.

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December 2013

Current Assessment
Overall stability in the Nevada housing market edged up slightly by the close of the final quarter of 2013. The Nevada Housing Stability Index (NHSI) rose from a composite score of 2.00 in the third quarter to 2.03 in the fourth quarter. The index maintained a C grade for the second consecutive quarter, while the latest scorecard was up from a D+ in the fourth quarter of 2012. Price gains in the residential market continued in the latest quarter, albeit at a slower rate than the balance of 2013. Recent price dynamics have resulted in improved personal balance sheets, trimmed investor purchases and fewer distressed home sales. Mortgage delinquencies and foreclosure activity remain on the watch list. The housing profile heading into 2014 has improved from one year ago.

Positive Signs
Overall stability in the Nevada housing market edged up slightly by the close of the final quarter of 2013. The Nevada Housing Stability Index (NHSI) rose from a composite score of 2.00 in the third quarter to 2.03 in the fourth quarter. The index maintained a C grade for the second consecutive quarter, while the latest scorecard was up from a D+ in the fourth quarter of 2012. Price gains in the residential market continued in the latest quarter, albeit at a slower rate than the balance of 2013. Recent price dynamics have resulted in improved personal balance sheets, trimmed investor purchases and fewer distressed home sales. Mortgage delinquencies and foreclosure activity remain on the watch list. The housing profile heading into 2014 has improved from one year ago.

Negative Signs
Overall stability in the Nevada housing market edged up slightly by the close of the final quarter of 2013. The Nevada Housing Stability Index (NHSI) rose from a composite score of 2.00 in the third quarter to 2.03 in the fourth quarter. The index maintained a C grade for the second consecutive quarter, while the latest scorecard was up from a D+ in the fourth quarter of 2012. Price gains in the residential market continued in the latest quarter, albeit at a slower rate than the balance of 2013. Recent price dynamics have resulted in improved personal balance sheets, trimmed investor purchases and fewer distressed home sales. Mortgage delinquencies and foreclosure activity remain on the watch list. The housing profile heading into 2014 has improved from one year ago.

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