Have we hit bottom? I still grapple with this question. The sun-will-come-out-tomorrow happy Realtor side of me wants to say yes. Median prices in Reno-Sparks fell 15.94% in 2006 according to broker metrics, sellers have softened considerably after nine months of bad news, and buyer activity is up.
But the inventory remains. It ticked upward slightly in January and probably will every month in spring as it historcially does. And the increase in short sales and foreclosures in nice neighborhoods like Somersett and Double Diamond can’t be ignored. How many more will there be?
This from the Northern Nevada Business Weekly: "Toll Brothers, the luxury homebuilder, says the Reno market is among those that
haven’t yet appeared to stabilize, and the company is studying whether it should
mark down the value of its holdings in northern Nevada."
This from the Realtor Grapevine: "Last week [Reliable Source] said D.R. Horton had increased the prices on each model by $10,000
to $12,000. [Reliable Source] also indicated that Reynen & Bardis sold 70 homes in
January."
And this from our friend, Reno Ignoramus:
Renters Victims of Alleged Scam
Subprime Mortgage Bomb Risk Surge
Refinancing ARMs Now More Difficult
Trouble Seen in Piggyback Mortgages
Foreclosures Rise in Sacramento
Okay, so maybe we’re not quite there yet.
4 comments
Diane,
You have to be one of the few realtors in Reno willing to put up on her website/blog the fact that the median price in Reno dropped 16% last year. Again kudos to you for your integrity.
History is against the decline being over so soon. Almost every market decline in the past has taken at least 28 months, and as long as 52 months. I posted the research on this a couple months ago. And this decline is totally new territory from anything before. In the past, all market declines followed a national, or regional, recession. This market decline has occured in the midst of strong employment and a healthy economy. Now, it is debateable whether this time the market decline will lead to a recession, in effect reversing historical experience. We shall just have to wait and see.
This decline follows the biggest episode in housing appreciation in history between 2001-2005. Anybody paying attention now realizes we are about 18 months removed from the biggest speculative cheap money easy credit frenzy in real estate market history. At least we don’t hear much anymore about how it was rich Bay Area people running up our prices. Anybody who could fog up a mirror could borrow hundreds of thousands of dollars. Do you really think that a bubble that took 5 years to inflate is totally deflated after only 18 months?
Beacuse of a false demand created by speculators and hairdressers with $500,000 loans, prices here got so out of whack that even after a 16% drop in the median price, houses are still not affordable for people. Even today, 18 months after the onset of the decline, most folks still have to resort to voodoo financing to buy. According to your most recent numbers, the median in Reno is now down to $281,000. That number is somewhat below what the RGJ says it is. But even at $281,000, the fact is that the median income buyer cannot afford $281,000 without resorting to suicide financing.
I know I sound like a broken record, but keep watching the pendings:listings ratio. It is the only truly reliable leading indicator of where the market is going. And that ratio continues to be dismal. And, remember, the pendings:listings ratio only captures houses listed on the MLS. It does not include all the new houses for sale by the developers. Add in the new construction, and the ratio is worse than dismal.
I don’t believe we are anywhere near the bottom of this market. Why? Because we have not even begun to feel the full effects of the lenders tightening their purse strings. They are just getting started. Qualifying to purchase a house is becoming more and more difficult each and every day, further diminishing the pool of buyers. While a requirement of 20% down may be ancient history, the days of 103% financing are going away. The lenders are getting hammered with buybacks right now. This is causing them to rethink their lending practices. And let’s be honest, without the loose lending, there is no way that prices would have reached the levels they did. This enabled anyone and everyone to not only buy, but overbuy. In reality, there are very few people who can afford a $300k house. When you look at listings in the area, the prices are still way too high, plain and simple. Sellers are going to start realizing this as they compete for fewer and fewer buyers. The only way to garner an offer will be through significant price reductions. Those who bought within the last three years with little to nothing down will not be able to sell without bringing cash to the table. Short sales and foreclosures will likely become more common. I still get a good chuckle when I see a crappy stucco home wearing a $750k price tag in Reno. I mean, a few years ago, that would buy a nice home in Marin County! Nobody knows where the bottom is, but I have a hunch that it is not coming soon. We may see some increased activity this spring and summer, but I think that prices are going to drop more this year. I wouldn’t be surprised to see another 30% after all is said and done. But it will be gradual. Houses sold all the way up to the peak, and they’ll sell all the way down to the bottom. As a seller, if you have not had an offer within 2-3 months of listing, your house is overpriced, plain and simple.
In just the last four days, I have heard two sellers complaining about the slow market and how they cannot sell their house. While my first inclination is always to respond with “it’s the price stupid”, I take the high road, and listen quietly as they blame it on things out of their control. But the fact remains, they ARE in control, and it is actually quite easy to sell their house in todays market. Just be the best house at your price. It’s that simple. In an mls absolutely loaded with overpriced garbage, it is quite easy to set yourself apart. Greed, and a short memory are preventing people from doing so. Holding out for top dollar is never a good strategy in a down market, no matter what you are selling. When I sold my house in Washington state in early summer last year, I practiced what I preach. I looked at all of the listings in the area, and undercut them all, listing it $20,000 below what my realtor suggested. Her strategy was to come in high, hopeful someone would pay top dollar, and then adjust down if that did not happen. I said “nope, I want this house sold tomorrow”. And I wasn’t kidding. It sold in less than a week for $1k more than asking. I have never had the patience to sit around and wait for anything. I know, not very virtuous, but c’est la vie. It has always worked for me. When I sell my used vehicles, I use the same approach. I look at every comparable vehicle, and list mine for at least $1k less. They sell immediately. I figure you have to leave something on the table for the next guy. People want to feel like they are getting a bargain. And in such an unstable market, it is even more the case. As prices are falling, buyers are more apathetic. Why pay top dollar for something that could quite feasibly be worth much less in just a few short months? Sellers, and their listing agents, need to realize this, and price properties accordingly. Otherwise, they will ride their homes all the way to the bottom.
Bantering Bear, I agree with you. I put my S. Cal home on the market in August. My realtor (also a friend) suggested a price I thought was high, so we priced it between what I thought it would sell for (low figure) and what she thought (higher figure). Well, it sat on the market with few showings for a month. After the first month, we started using different tactics (paying closing costs, increasing commissions, etc..). That didnt seem to make much of a difference either. It wasnt until I suggested pricing it below all the other comps that we got action. Within 2 weeks of our price adjustment, we got 2 offers at once. It took 2 months from listing to accepting an offer. 99% of the showings took place only after I lowered the price.
I just happen to look on the local S. CA MLS yesterday and I see that a lot of the homes I was competing with 4 months ago, are still on the market. Whats funny is that they lowered their price to what I sold my home for. If they would have done that 4 months ago, they would have saved a lot of time, stress and money.