Last Sunday, two huge job ads dominated the classifieds—one for James Hardie, the other for Wal Mart. Both were advertising manufacturing/distribution jobs at their facilities in the nascent Reno-Tahoe Industrial Park. Wages ranged from $12.55 to $18.85 per hour with full benefits. Wal Mart alone plans to hire 700 people for this one facility. And that’s just the beginning.
Then there’s the newly opened Sierra Summit, Reno’s version of Bay Street Emeryville, with an estimated 800 new retail jobs. Now I’m not sure exactly what the going rate for retail help is these days, but I’m guessing $7-8 per hour for sales people and maybe $40K+ for a bona-fide retail store manager.
On top of that, if the Grand Sierra Resort actually happens, think about the implications… tons of construction jobs for several years, more service jobs, some management positions and lots and lots of investor money coming to town. (Translation: a plethora of $7 per hour paychecks, a few $40K-$80K+ salaries, and a handful of big spenders visiting on a quarterly basis.)
Nevadaworks estimates that approximately 10,000 new jobs will be created in Northern Nevada in the next 18 months. (Yeah, that’s a lot.)
So, how many of these workers can actually afford our median home price of approximately $365K? Looking at one of these $15.00 per hour distribution jobs, that’s about $31,200 per year assuming 40 hours per week. And going with the old school rule of thumb that says a person can typically afford 4x their annual salary in fixed-rate loan, that’s a teensy little mortgage of $124,800. Which means, that worker would need to come up with a down payment of $240,200.
Now, unless these people are selling out of California, how many buyers do you think come to town with that kind of down payment? (Hint: not many)
Now if you add a spouse with a job that pays just as much, double the loan and lower the down payment accordingly. So with a mortgage of $249,600, a couple only has to come up with $115,400 down to get into the median-priced home. This, of course, assumes they have good credit and roughly 30% down. Realistically, many people have neither, so they get into all kinds of interesting low-down, no-down loan products, which is okay as long as they don’t lose their jobs or suffer some other major financial set-back.
Meanwhile, we have at least two large apartment complexes in town going condo (maybe more), taking quite a bit of rental inventory off the market, which seems to finally be down to a healthy 4-5%.
As the condo craze cools in Vegas and Miami, it seems to be just heating up here in The Biggest Little City. Our paper is loaded with builder ads for homes that are often well over $500,000.
What’s a $7 per hour service worker to do? Live with mom and dad? Rent with ten friends? Sleep in their cars?
The South Meadows area is filled with $400K-$500K homes that just aren’t selling. Perhaps would-be homebuyers should think about teaming up to buy together as frequently happens in overpriced California. Sellers with lots of equity and no offers might even consider equity sharing with a solid buyer group looking break into the housing market together. They could agree to own for a set period, perhaps 2-3 years, then sell and move on when the market improves. Each could take their accumulated equity and be well on their way up the proverbial property ladder. It’s unconventional, but it can be done.
I don’t have many answers today. Only questions.
One comment
I am just an Ignoramus, but I say kudos to you for saying what many realtors in Reno will not say. That Reno has a major affordability problem. When the median price of a house is $365,000 and the median household income is such that by NO traditional lending standards can people at the median income buy a house at the median price, what happens?
What has happened up to now is that traditional lending standards have been thrown out. The mortgage industry gives monopoly money to people who then take that monopoly money and go out and bid up prices of houses. Monopoly money comes in several forms now. Nothing down, finance 105%, no documentation, interest only, stated income, option ARMS where you don’t even have to pay all the current interest. And now, as predictable as ever, we see 40 and even 50 year amortizations coming.
All this monoploy money is why the prices of houses are where they are.And the realtor industry, hand in hand with the lending industry, has been more than willing to see it happen. All those wonderful bidding wars between people with their stated income interest only loans ready to pay more and more and more. And all those great commissions.
Monopoly money keeps flowing, prices keep going up, more monopoly money, more higher prices. What a great feedback loop.
You ask where will all the new $8 an hour workers live? They will live where they live now. In rentals. They are already priced out. 5000 new $8 an hour workers moving to Reno is not going to do much to the price of homes in Arrowcreek. And as you correctly point out, its basically impossible for $15 an hour workers to afford a median priced house. 5000 new $15 an hour workers moving to Reno isn’t going to do much to the prices in Arrowcreek either.
So here is my Ignoramus question: If, as the realtor industry says, prices will continue to rise (Dickson Realty says up to 9% in 2006), is there a point, somewhere, when there just won’t be enough buyers to pay these prices? If the median rises to $400,000 a year from now,and then to $440,000 in 2008, and then to $490,000 in 2009 what difference does it make how many $8 an hour or $15 a hour workers are coming to Reno?
But lets wait and see what the monopoly money lenders come up with to keep the feedback loop going. They are low on options at this point, pretty much having exhausted most ways of making loans to people who cannot afford them. Perhaps this: a mortgage loan that requires no payment at all. Maybe we can start selling houses the way Mor Furniture sells beds. You know, nothing down and no payments until 2010. Imagine what THAT would do to move values ever upward! Whole contingents of $15 an hour Wal Mart workers can go to cocktail parties and drink the kool aid and talk about how the house across the street just sold for $40,000 more than they paid.
And so, now we have rising interest rates, federal regulators looking very closely at the monopoly money industry (although they still have kiosks in local shopping malls), bigger and bigger inventories, and a re-set time bomb ticking away. And the flippers have left the building. Whatever portion of the buying population they constituted in the past years is now gone. They are now sellers.
I do, however, feel sorry for the honest buyers who went into the market with a “make it” loan who got outbid by a flipper with a “state it” loan. They never realized what they were up against.
I agree with you that it is a good time to be a buyer. But I sense that a lot of buyers think it will be an even better time six months from now, or even a year from now. All those $400K-$500K houses sitting out there in South Meadows. Go up to Sierra Canyon in Somersett and see all the flippers competing with each other, and with the developer, to snag buyers. Prices are going to go up 9%??? Prices are even going to stagnate??
Or are there going to be so many Bay Area cashed out equity drenched multi-millionaires escaping to Reno who will judge our prices to be so dirt cheap that all will be well?