What's ahead?

Everybody in the country will be watching the housing market closely in the next year, but residents of northern Nevada have more reason than most to watch residential activity.

Much of the region's remarkable job growth in the past couple of years has been a direct result of construction activity.Without the construction boom, in fact, the region's job growth has been only so-so.

Consider: Between November 2004 and November 2005, state figures show the region that includes Washoe and Storey counties added 2,400 jobs including 2,700 positions in construction.

That means that the construction business more than soaked up all the jobs lost in the casino and tourism industry.

What fuels residential construction? One measure that builders track closely is job creation, figuring that new jobs mean people are in the market to buy a home.

An economist at the University of California, Los Angeles, however, gets uneasy when he looks at the construction and jobs numbers for the region.

Northern Nevada is building more homes than its job-creation numbers would warrant, says Christopher Thornberg, a senior economist at UCLA who came to town for an event sponsored by Colliers International last month.

Over the past 20 years, Thornberg says, home construction and job creation have worked in lockstep one new job, one new house.

But in Reno this year, he says, 1.6 homes have been built for each new job.

In 2004, the ratio was 2.8 homes per new job.

Thornberg's warning is stark: "It's clearly an unsustainable pace of building."

On the other hand, the pace that the economist considers to be unsustainable is one that the Reno market has managed to sustain since 2002, when residential starts outnumbered new jobs by more than three to one.

Retirees and other emigres moving from California take up some of the slack.

So do investors who, according to the analysis company LoanPerformance, account for about 17 percent of the residential sales in Reno one of the highest percentages of any market in the country.

And even in his gloom, Thornberg doesn't foresee a collapsing bubble in the Reno market.

That problem, he says, usually is reserved for places such as Southern California in the early 1990s where jobs begin to disappear from the economy.

Instead, economists who've taken a look at the northern Nevada economy project that housing prices will go sideways, perhaps for a long stretch of years.

And that might be good news for the rest of the economy.

As housing prices climbed in Reno, the effort to diversify the economy has encountered sticker shock among relocating executives.

Home prices in Washoe County in the year ended Sept.

30 were up 22 percent, a rate of appreciation that ranked 29th in the nation, according to the Federal Office of Housing Enterprise Oversight.

Even that was a cooling from previous quarters in which Reno ranked among the hottest markets in the nation.

Chuck Alvey, president of the Economic Development Authority ofWestern Nevada, has said high housing prices have proven daunting to companies moving here from anywhere but California.

Tim Ruffin, who brokers office space for Colliers International, says it bluntly: "The inexpensive homes that helped bring Microsoft to Reno are a thing of the past." As a result, Ruffin says, the number of companies moving offices to Reno is down dramatically.

And a sizable amount of the newly constructed office space in the area, particularly in South Meadows, has been leased by homebuilders or companies such as engineers that serve the home construction industry.

The number of companies scouting the region both in the Reno area and in the outlying areas that increasingly are home to big industrial users appears strong as 2006 dawns.

"We're very busy," says Ken Pierson, director of business development with EDAWN.

He says EDAWN today is working with more companies than it was 12 months ago.

As a result of the continued growth of the economy, the state government projects that job growth will run about 5 percent next year down a bit from this year's 6 percent pace.

"We expect to see more of the same throughout the state," says Joe Reel, an economist with the Department of Employment, Training and Rehabilitation.

He notes, however, that while the number of jobs has grown at a 6 percent clip in recent years, the number of workers statewide has grown by only by 3 percent a factor that has led to the labor shortages that trouble many industries today.

Another state agency, however, expects that a strong flow of newcomers to the region will help fill those new jobs.

State Demographer Jeff Hardcastle projects that population will increase by 1.6 percent this year in Washoe County, 0.9 percent in Carson City, 1.3 percent in Douglas County, and 4.1 percent in Lyon County.

Sierra Pacific Power, meanwhile, expects that its new electric hookups another way of tracking population growth in the region will stay close to the record-setting pace of 2004 and 2005.

And Hardcastle notes, whenever he's missed in his projections in prior years, it's because he's been too conservative and underestimated the number of people moving to the region.

"I anticipate that there is probably at least one more year left to this level of growth,"he says.