During a question and answer session at a recent industry conference, a home builder asked Moody’s Analytics chief economist Mark Zandi for his thoughts about the labor
GIANTS Flock to Reno, Inland Empire Markets
Long-term housing demands holds in Riverside-San Bernardino, Calif., and Reno, Nev.
Contact John Burns
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This month, we feature two Western metropolitan markets that are benefiting from the significant increases in home prices throughout coastal California: Riverside-San Bernardino, Calif., and Reno, Nev. Fifteen of the 20 largest GIANTS have operations in Riverside-San Bernardino.
Meanwhile, three of the top 20 GIANTS already have opened for business in Reno in the past two years, making a total of five GIANTS building homes in an area that bills itself as "The Greatest Little City on Earth." We are very bullish on the long-term demand for new housing in both markets.
Featured Major Market: Riverside - San Bernardino, Calif.
The Riverside-San Bernardino market (Figure 1), which has successfully promoted itself as California's "Inland Empire," has a booming construction market that will soon construct more homes on an annual basis than the coastal counties of Los Angeles, Orange and San Diego counties combined (Figure 2). In the last 12 months, Inland Empire builders have pulled 45,853 total permits, compared with 49,581 permits issued in the three coastal counties. Almost 16 million people live in Los Angeles, Orange and San Diego, versus 3.6 million people in the Inland Empire. With 15 of the 20 largest GIANTS building in the Inland Empire, including at least five - Hovnanian Enterprises, D.R. Horton, Lennar Corp., KB Home and Pulte Homes - that are exceeding 1,000 sales per year, the Inland Empire is an important housing market. The median resale price for a detached home was up more than $74,000 in the last year, to $286,900. That means a significant portion of the GIANTS' current profits also come from this market.
Our staff identified more than 250,000 units that are expected to receive entitlements in the next five years in this booming region, so we don't foresee any slowdown in supply. More importantly, with decreasing competition in the coastal markets, we don't see any decrease in demand either. See the chart (on page 14) of historical construction in the three coastal counties: it clearly shows the lack of supply that is occurring.
Featured Up-and-Coming Market: Reno, Nev.
Reno has attracted the eye of several GIANTS recently. Centex and Toll Brothers were the first to enter that market, and they have been followed by Lennar and Pulte in the past two years. KB Home, which closed its Reno operations several years ago, is reopening a division there, and D.R. Horton is one of several other builders seriously considering a new Reno division.
Reno has added 8,000 jobs in the last year, a 4.1% growth rate. With strong job growth in construction, trade and professional services, Reno's economy is slowly diversifying from its heavy dependence on tourism. While in Reno last month, we learned that the recent surge in demand there is driven by San Francisco Bay Area and Sacramento refugees seeking more affordable housing, second homes, or retirement residences. At less than $250,000 for a four-bedroom home, Reno is a real bargain to these consumers. Other demand-drivers include:
- Taxes: With no state income taxes (versus California's 9%+ rate), affluent buyers are also discovering the tax haven.
- Gambling: While Reno casinos are not nearly as glamorous as their recently built counterparts in Las Vegas, gambling remains a popular form of entertainment and a major employer.
- Sierra Nevada Mountains: Lake Tahoe and a plethora of ski resorts are only 45 minutes away.
Barker Coleman Communities, Reynen & Bardis, Landmark Homes, and Wade Development are just some of the larger local players. For more information on Reno, contact local market expert Tina Iftiger at Iftiger@sbcglobal.net.