This morning’s Reno Gazette featured an excellent column by a colleague of mine, Broker Ken Wiseman. Ken specializes in ranch property and has been in this market for many years. He also recently opened his own brokerage. read it

Ken started with the basic issue: too many homes on the market that the average local family can no longer afford to buy. Since the cash-rich, money-is-no-object California spigot morphed into a drip, all we have left are regular buyers who live and work here. As Ken points out, these folks earned an average $55K/year in 2000 and $63K/year in 2005. But during that same period, median home prices jumped from $150K to $327K. In this scenario, 2.7% average wage increases just don’t hold up. Now a family needs to make $95K/year to afford a nice, $365K home using traditional (read: safe) lending practices.

So, either salaries need to spike dramatically (not likely) or sellers need to take their homes off the market and wait, or drop prices until they sell (more likely, because some are probably in over their heads). If you’re a seller, you want to be ahead of this trend, not behind it.

I often compare what I see happening in this to market to what I observed in Silicon Valley during the late eighties through the nineties. And though I see similar patterns developing, I have to be careful about drawing conclusions. Reno is not San Jose.

High paying, high tech booms are essentially what drove the market there. Some new technology would come into play, create a ton of pricey engineering jobs, people would flock to the region, prices would go up. The boom would subside, some people would leave but most stayed, prices would soften a bit (but never that much), then a new innovation would start the whole crazy thing over again.

The only way I see to sustain our current pricing would be a huge sudden influx of a lot of high paying professional jobs. Or, the huge sudden influx of a lot of Californians, probably baby boomers, looking for second/retirement homes. But since their market is essentially in the toilet too, I don’t see that happening for a while. And though EDAWN and others are doing a wonderful job recruiting companies to Northern Nevada, unless a few of our little known tech or biotech startups suddenly take off, I don’t see a huge influx of high-paying jobs.

I agree with Ken. Prices must come down to meet the level of demand. Simple economics.