Reports might signal rebound for Las Vegas, Sunbelt

Could the Las Vegas economy sit on the brink of recovery?

A handful of new reports seem to suggest so.

Several top gaming executives said in earnings reports this week that declines in room occupancy stabilized and advance bookings rose in April. Gaming stocks posted double-digit price increases from March to April, their first positive turn since August, a report from research firm Applied Analysis showed. And executives of groups ranging from the Las Vegas Convention and Visitors Authority to the Las Vegas Chamber of Commerce talked of a "pre-boom phase" in Southern Nevada.

Now, research from a national business publication backs up the notion that Las Vegas, as part of the southern United States that makes up the nation's Sunbelt, is poised for revival.

Las Vegas didn't make Forbes.com's new list of Best Cities for Jobs. In fact, it landed in the middle of the pack, a change from its high-flying days as one of the nation's fastest-growing towns.

But the story's author and researcher, California-based Joel Kotkin, said data point to a sustained decline for manufacturing- and industry-reliant economies in the Midwest and the Northeast, and that falloff could accrue to the Sunbelt's long-range advantage.

Sure, parts of the South and Southwest, particularly Nevada, Arizona, Florida and Southern California, suffered big-time when overheated housing values cooled substantially, Kotkin said. Acute economic travails don't affect the temperate climate that drew thousands from the Midwest and the Northeast. Nor will hard times hurt the lower-cost reputations that attracted thousands of businesses to Sunbelt markets before the recession. Factors that drove people to the Sunbelt remain intact, Kotkin said, as the manufacturing-oriented economy back east continues to unravel.

"You have a long-term growth trajectory in almost all these Sunbelt cities," Kotkin said.

So here's how Kotkin and some of the analysts he interviewed see recovery happening: Economic torpor will persist a little longer, but when economies in the Northeast and California stabilize, home prices in those areas will stop falling and perhaps bounce back slightly. Consumers will be able to sell their homes again, and Sunbelt cities can expect a fresh surge of new residents freed from the constraints of dramatically upside-down mortgages.

It could take up to three years for Sunbelt growth to reignite, but you can see the first stages of recovery as housing sales increase in Sunbelt communities, Kotkin said. The Greater Las Vegas Association of Realtors reported Friday that home sales in the Las Vegas Valley jumped nearly 80 percent year-over-year in April. Most of those closings involved foreclosures. Bank-owned inventory pushed down median prices nearly 40 percent.

Even those falling prices help make way for a bright future, Kotkin said.

As local home costs more closely track household incomes, affordability returns to the market. Las Vegas is full of four-bedroom homes with pools, all selling for $250,000 or less, a great bargain for people moving from expensive coastal markets, Kotkin said.

And if federal income taxes and regulations rise, Nevada, Arizona and other lower-cost states could enjoy even more growth, as entrepreneurs and business owners look to reduce expenses where they can.

"Right now, there's not much you can do if the economy is not expanding, but my sense is that when the economy comes back, tax and regulatory pressures will begin to bring people to (the Sunbelt)," Kotkin said. "And frankly, I think it's much healthier if people go to Las Vegas or Phoenix because they can get a good job and buy a nice house, as opposed to going there because they want to speculate on real estate. It's a more reasonable long-term strategy for growth."

A UNLV economist agreed with some elements of Forbes.com's analysis.

Keith Schwer, executive director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said the national economy continues its shift away from manufacturing and toward the service sector, so service-heavy economies in the Sunbelt will expand more than their Midwesterm counterparts. Unless manufacturing economies back east find new ways to compete globally, they'll experience a sustained downward trend that Sunbelt cities should largely evade.

"I do think, when the economy picks back up, that people from the upper Midwest face the prospect of fewer jobs available in that area," Schwer said. "So they may continue to look toward the Southwest, and that would include Las Vegas. That is a parameter working in our favor over the long run."

Schwer said he's less certain the perception of lower taxes would reel in droves of new citizens. Data show a "mixed bag of evidence" on whether consumers move to dodge levies. Most relocators consider a city's entire base of amenities before they move. That means they weigh not just taxes, but also the quality of education and health care, for example. Thousands of seniors moved here for lower housing prices and a lack of income tax, only to find the city's health care community couldn't give them the quality and cost of service they wanted when they fell seriously ill, Schwer noted. Some of them returned to states such as California and Ohio.

"You can't hide your warts. People see through that," Schwer said. "People make these personal decisions based on their own interests. We have a list of strengths, and we have a list of things we're not as strong on."

Still, Schwer believes the valley's population will surpass 3 million, up 50 percent from around 2 million today. It's just going to take longer than the 15 or so years forecasted before the recession.

It's too early to tell if the local economy will soon turn a corner, Schwer said. His center has long projected the beginnings of a turnaround by the end of 2009, though local economic indicators from March don't show "much of a letup," he said. Anecdotally, at least, gaming operators and other businesses report stabilized sales, with an end to the double-digit drops in revenue and traffic they experienced in 2008 and early 2009. But because Las Vegas relies so heavily on construction to drive its economy, the city's comeback will likely lag revival across the nation, Schwer said.

Schwer also wouldn't predict a return to growth patterns of the 1990s and early 2000s, when Nevada added as many as 100,000 residents a year.

"We have a lot of things going for us," he said. "If we continue to remain creative and find new ways of doing things with energy and other sectors like that, that should buoy our economy over the long haul. But our rate of increase will definitely decline."

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