AT $405K it’s still a lot cheaper to rent this house than to buy. Six years ago you could buy a house here in Reno using a 30 year mortgage for the same as it would cost to rent. Based on that, this house is still over-valued by $100K. So this house is not a good buy. But two years from now I am sure it will be till then.

Let’s say one makes an offer for 97% of asking and it is accepted. That means a purchase price of $392, 850.

OPTION # ONE:

One puts 20% down, or $78,570. One finances the $314,280 balance at 6.25% for 30 years. That renders monthly P&I of $1,935. Add in $350 a month for taxes and insurance. The monthly nut is $2,285.00.

OPTION # TWO:

One puts 10% down, or $39,285. One finances the $353,565 balance at 6.25% for 30 years. That renders monthly P&I of $2,177. Add is $350 a month for taxes and insurance. The monthly nut is $2,527.00.

OPTION # THREE:

One gets a nothing down I/O voodoo loan at 6%. That renders monthly interest (no principal) of $1,964.25. Add in taxes and insurance. The monthly nut is $2,314.25.

OPTION # FOUR:

One gets a Super Voodoo nothing down, I/O neg am with a teaser rate starter of 2.5%. For the first year, the monthly interest payment is $818. Add taxes and insurance and the monthly nut is $1,168.00. One makes the minimum payment only. At the end of 18 months, the loan resets. The principal balance is now about $405,000, and interest rate jumps to 7%. Now monthly P&I is $2,700. Add in taxes and insurance and the monthly nut is now $3,050. Or, about 2.5 times the initial teaser payment.

Let’s say because there are about 1000 resale and new homes in South Meadows, that somehow prices manage to decline another 10% over the next 18 months. Now the house is worth $353,565.

Buyer # ONE still has an equity cushion of about $40,000.

Buyer # TWO has no equity.

Buyer # THREE is underwater $40,000.

Buyer # FOUR is underwater $55,000.

This is exactly what has happened in Reno over the past year. Buyers #3 and #4 are toast. Might as well just mail in the keys.
Buyer # 2 has seen his $40K down evaporate, but he is treading water. Buyer # 1 has seen half of his down evaporate, but still is above water.

How many buyers in the last two years put 20% down?

How many buyers put 10% down?

How many buyers went to their friendly voodoo loan witchdoctor the past two years?

The answers to these questions will determine how much carnage is yet to come in the Reno housing market.

Finally, as Insider points out, every one of the above options, except # 4 in the teaser phase, is more expensive than renting this house. More expensive by about $1000 or so a month.