Unemployment and Real Estate Woes Likely to "Stay in Vegas"
In yesterday’s edition, “Booming Vegas or Real Estate Bust?“, Eric Fry offered some thoughts from Las Vegas, the first stop on our Daily Reckoning Coast-to-Coast Correction Tour. As Mr. Fry mentioned, neither of your editors incurred any serious financial or moral losses while in Sin City. At least none worth fessing up to, anyway.
Rather than surrendering their hard earned paper dollars to The Strip’s many one-armed bandits, your editors spent their days in the desert gathering and collating macro-economic data points.
“Although the residential real estate market in Las Vegas has been stabilizing for the last two years,” observed Eric, “home prices remain more than 50% below the peak levels of 2006.”
A conversation we had with a particularly chatty taxi driver seemed to confirm these findings.
“We were lucky,” the friendly fellow informed us. “We got in about 13 years ago. Paid just near one-eighty [thousand dollars] for our place, three bedrooms and a two-car garage. A few years back, folks were buying similar houses in our neighborhood for almost half a million. Can you imagine?”
“Just on the right here, thanks. No, I can’t. That’s amazing.”
“Now they’re back down to two-forty, give or take. Can you imagine, though…half a million for our little place? We shoulda sold then, but you never know, do you?”
The condition of the Las Vegas real estate market is hardly surprising when one considers the state of Nevada’s nation-beating unemployment figures. After all, it’s hard to pay down a mortgage without a reliable source of income.
At 14.2%, Nevada’s unemployment rate comfortably outpaces the national average of just below 10%. That figure (official as of June) easily tops the state’s previous record of 9.9%, set back in the early 1980s. What’s more, many analysts don’t see the situation improving measurably until later in the decade. Needless to say, the subsequent and ongoing flood of jobless claims has created a huge drain on the state’s taxpayer-funded unemployment trust.
Since it went bust late last year, the state has borrowed roughly $450 million to keep the program going. Officials project the sum could reach $1 billion by the end of the year.
Nevada’s unemployment trust currently pays 26 weeks of claimants’ jobless benefits, but does not include the additional 73 weeks of unemployment extensions currently paid by the federal government. The state council is currently discussing ways to wean itself off the Federal government’s teat, though with unemployment not projected to top out until next year, and not forecast to return to single digits until sometime in 2014, such a move looks unlikely at best.
And Nevada is by no means alone. “As of July 27, 35 states and territories have had to borrow from the federal government to pay jobless benefits,” reads a report in the AP. “Some experts have projected the combined debt could reach $70 billion.”
The Coast-to-Coast Correction rolls on, in other words…and so does our little tour.
After their stint on The Strip, your co-editors parted ways. Mr. Fry returned to his natural habitat – the brutally paradisiacal setting of Laguna Beach, California – while yours truly continued south and east, down into cactus country, Arizona. Our first stop was the old gold rush town of Wickenburg, about an hour outside of Phoenix, where we spent the first night.
We rolled in, weary and thirsty, sometime around sunset. The sky turned orange and then dark purple in the rearview mirror as the night stars readied for their evening appearance. If you haven’t yet experienced a desert sunset, there really is nothing quite like it. The receding heat follows the sun over the horizon, past the sleepy mountains and on into tomorrow. Street lamps flicker on and off, unsure of their cue. Motel signs light up, beckoning truckers and travelers alike in for a soft night’s rest.
Named after the German prospector, Henry Wickenburg, who found his fortune there during the 1862 Gold Rush, Wickenburg is today a sleepy little town of around 7,000 souls.
“It can get up to ten or twelve thousand during the high season,” the bartender at Rancho Bar 7 told us half way through our second draft. “But we’ve been hit pretty hard with all this economic downturn stuff.”
“I see,” we nodded. “In what ways?”
“We’re a construction town, you know.”
“Really? What does the town…um, construct?”
“Houses, mostly. It was all real estate a few years back…buying, selling…old, new, renovations…you name it. That’s changing, though. Big businesses are moving out, plus the bypass went through, so not many people stop by these days. We still get a few tourists, mostly for the dude ranches and recovery clinics.”
“The recovery clinics?”
“Yeah…they offer counseling, equine therapy, all kinds of stuff to help with addictions to sex, drugs and rock n roll. Rich people send their kids along when they get into trouble. We’ve got three within an hour or so drive from here. But even they’re not doing so well. Going straight costs money, you know. And those places can be expensive.”