Analysts’ projections sour

The year of the city’s rebirth, when tens upon thousands of new residents march toward Las Vegas to fill new resort jobs, thereby lifting the housing market out of its doldrums.

Or so local economists and housing analysts believed before Friday morning, when they heard news of a nine- to 12-month delay in construction of Boyd Gaming Corp.’s $4.8 billion Echelon resort on the Strip.

Echelon’s plight, combined with Tuesday’s revelation of more than $3 billion in financing hurdles for MGM Mirage’s CityCenter, threw off analyst projections of a local housing recovery set for mid-2009.

Asked if economic and housing prospects in Las Vegas turned bleaker Friday, area experts expressed concern.

"The answer is an unequivocal yes," said Jeremy Aguero, a principal in local economic-research firm Applied Analysis. "Much of the optimism about Las Vegas is based on the future and the amount of investment going into our core industry. With that being curtailed or moderated in any way, people most certainly have to rethink their expectations.

"The housing recovery absolutely is delayed. We need to revisit our projections as they relate to employment and housing altogether."

Keith Schwer, an economist at the University of Nevada, Las Vegas, agreed: "As the building process lengthens out, that creates the greater probability of a slowed housing recovery."

And Dennis Smith, president of local analysis firm Home Builders Research, said Boyd’s news could alter the timing of his predicted housing trends by six months or more. Where Smith was once predicting a stop to the local housing skid in late 2009 or early 2010, he now says the market might not see measurable price gains until late 2010 or early 2011.

Aguero said he’s loath to hazard a new guess on housing renewal before he plugs the latest details into his forecasting models.

Schwer’s sticking to projections of a housing revival by the end of 2009 if CityCenter opens on time — "and that’s a big if, though they have been fairly well on target," Schwer said. He added that partners and lenders who already invested in CityCenter would be bound and determined to ensure the project opens on schedule.

Here’s why industry observers must readjust their expectations.

First, the construction pause delays by as much as a year the hiring of Echelon’s 10,000 workers, thus postponing a major influx of prospective home buyers into the housing market.

Second, banks’ reluctance to lend money on major local resorts signals concern that today’s wave of hotel-casino construction might not generate the kind of massive market expansion prior building booms created, Aguero said. Instead, the new resorts might simply cannibalize existing properties, shifting market share rather than increasing the universe of tourists who visit Las Vegas. Financiers seem to be voting with their dollars for slower economic growth than the 115,000 or more new jobs some gaming analysts predicted for the resort sector through 2012. And if resorts and their vendors need fewer workers, then home builders could see fewer customers.

Either way, locals would see slower job growth than housing experts anticipated when they crafted projections of a solid housing recovery, one with rising sales, increasing prices and dwindling inventory, by mid- to late 2009.

The market could still dodge serious housing fallout. Once Aguero draws up new analyses, he said, his firm’s housing outlook might not change much, because the market should bring on thousands of new jobs without Echelon.

MGM Mirage officials said Tuesday they expect to iron out their financing shortfall in the next few weeks, and they plan to begin hiring for the 12,000-employee CityCenter in early 2009. Executives at Turnberry Associates also pegged early 2009 as the start for staffing up 6,000 positions inside the company’s $2.9 billion Fontainebleau on the Strip. The $1 billion M Resort at Las Vegas Boulevard and St. Rose Parkway will accept applications in September for nearly 2,000 posts before its spring launch. The $675 million Aliante Station will add 1,200 jobs to the local market when it opens in North Las Vegas Nov. 11, and Wynn Encore is scheduled to open Dec. 21 with 5,300 workers.

"Projects in the pipeline are still pretty material," Aguero said. "I don’t want to discount them too much."

Schwer said the resorts that remain on track will likely form enough jobs to absorb today’s inventory of vacant homes, as long as builders don’t add to that supply.

"The more people who come in, and the fewer additional units we build, the faster we’re going to handle the housing problem," Schwer said.

Also boding well for the housing market: More than 70 percent of the local economy lies outside the leisure and hospitality sector, in industries ranging from manufacturing and education to telecommunications and transportation. Fields including professional services and health care continue to grow well, Aguero said. And though the number of businesses moving to Southern Nevada has waned in recent years, the state’s tax environment still appeals to a wide variety of out-of-state operations, Aguero added.

What’s more, housing already showed signs of "preliminary improvement" in recent months without big hiring gains at planned resorts, Aguero said. Home sales increased every month in 2008 through June, the latest month with available statistics (though many of the gains came from a surge in short sales and foreclosure sales). Supplies of existing homes on the market have stopped rising, staying at about 23,000 units for the last few months. Thanks to a jump in sales numbers, the inventory of homes listed on the Greater Las Vegas Association of Realtors’ Multiple Listing Service dropped from 18 months in the winter to 13.7 months in June.

But it’s tough to look at local office-market vacancy rates approaching 17 percent and miss indicators of instability outside tourism as well, Aguero observed.

"If the commercial markets falter significantly and population growth continues on its current path of dropping, it’ll be a huge problem for us," he said.

That problem won’t include sluggish home sales alone; it’ll encompass higher government payouts for the unemployed on top of lower revenue from property taxes and sales and use levies, as vacant land goes unimproved and construction materials go unsold.

"More and more economists seem to think that this recession we’re in is going to be a long and painful one," Smith said. "How long it lasts depends on the credit situation. We’re in the hands of the banks."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.