From our friends at Ticor, pre-foreclosure and foreclosure data for Washoe County through September. Download Pre-Foreclosures.pdf, Download Foreclosures.pdf
Meanwhile, First American reminds us that it’s a great time to buy. Download Interest Rates.pdf
As homebuilders in Spanish Springs walk away from numerous land options leaving landowners alone with their undeveloped dirt, others continue to invest in downtown.
Len Ramos at CB Richard Ellis in Reno reports via the Northern Nevada Business Weekly that multifamily vacancy rates pushed above 6 percent for the first time since 2000. According to Ramos, average rental rates dropped across the board by one dollar, the biggest factor being single family homes, condos and town homes meant to be sold but now flowing onto the rental market. That said, a few large investors have been active picking up larger communities in the area.
Fallen Leaf Developer Adapts to Slow Market
Kiley Ranch Communities Shift Focus in Sluggish Market
Burned by Real Estate, Some Just Walk Away
Lawrence Yun, NAR’s Vice President of Research reminds us that the foreclosure problem only affects 1 percent of borrowers out there. He expects 200,000 to hit the national market where 4 million homes are available. A relatively modest increase.
The House of Representatives recently passed the Mortgage Cancellation Tax Relief, HR 3648, which directs the IRS to stop counting as income any mortgage debt forgiven by lenders during a short sale. We’ll see if this one gets all the way through.
File this under hearsay, from a loyal reader: "Horton put their Villa Toscana triplex development at Sharlands and Mae Anne on
indefinite hold last week, a day before they were to pour the slabs for the
models. They are re-evaluating whether or not attached condos are what the
market wants."
And from another reader: "Allegedly the The District at Victorian Square in Sparks has been put on hold
for at least a year."
From an astute observer: "Virginia Lakes Crossing has only closed 9 units! Wonder
why Grant’s Landing is going up in slo-mo? "
Ticor’s trend lines for the past two years. Download Stats 2005_2007.pdf
13 comments
Frankly, I don’t believe a word that Lawrence Yun writes. Yes, all real estate is local but the hottest markets during the bubble are those that are going to feel the most pain. The real estate market in Kansas is doing well (thanks to an infantry division getting a new home at Ft. Riley) but that doesn.t change the fact that Nevada has the highest foreclosure rate per household. The sub-prime ARMS are going to reset big-time in 2008. The Alt-A mortgages he doesn’t even mention. Nor does he mention the growing likelihood of a recession. Yes, there is a lot of job growth in the USA but most of it is in hamburger flippers and other low-paying service jobs. The rust-belt has been hard hit by manufacturing jobs moving off-shore.
The primary problem is that folks in Nevada spend too much of their income on housing and housing prices have to fall so that they can afford it. Yun makes it sound like the mortgage people are eager to make mortgages but he fails to mention that they want high credit scores and 20% down. They are also placing limits on how much they will lend for a SFR.
The current rate of sales in Nevada is probably going to be the rate going forward for quite sometime because the “investors” and unqualified buyers are out of the market now.. Which means that the wannabe sellers either lower their prices to attract buyers or else their property will just sit. Competition for buyers will increase, especially when the REO sellers keep dropping their prices.
The SFR market in places in Reno will slowly slip downward one sale at a time, and when the bottom is finally reached it will stay there until the excess inventory disappears.
I am getting so tired of hearing “it’s a great time to buy”. Bottom line: most Nevadans can’t afford these home prices which is why so many houses are going into foreclosure. I am a stay at home mom and my husband makes $70,000+. Right now a mortgage payment for a house in a descent neighborhood would use up almost half of our monthly income. Why buy now when prices are falling and we can rent a 2200 sq ft. house in one of the best areas of Reno for $1400/month?
Jody queries “why buy now when prices are falling and we can rent a 2200 sq ft. house in one of the best areas of Reno for $1400/month?”
This is the key, IMO, to the Reno residential sales market and it is a subject we’ve discussed on this blog before.
When rents increase or sales prices decrease so the difference between the cost to own versus rent returns to normality by traditional standards, sales volume will increase. Given Reno SFR vacancy rates have now ballooned to in excess of 6% [compare San Jose where the rate is now 2%] and that doesn’t even include the 40% or so of MLS listings that are currently vacant, sales prices must drop dramatically before we see a change.
Jody queries “why buy now when prices are falling and we can rent a 2200 sq ft. house in one of the best areas of Reno for $1400/month?”
This is the key, IMO, to the Reno residential sales market and it is a subject we’ve discussed on this blog before.
When rents increase or sales prices decrease so the difference between the cost to own versus rent returns to normality by traditional standards, sales volume will increase. Given Reno SFR vacancy rates have now ballooned to in excess of 6% [compare San Jose where the rate is now 2%] and that doesn’t even include the 40% or so of MLS listings that are currently vacant, sales prices must drop dramatically before we see a change.
I was pretty sure DR Horton would never build those condos on Sharlands. I went in and spoke with the salesperson and asked about pricing. She said it was competitive etc. but I asked why anyone would pay more for an attached condo amongst all those apartments than they could pay for a detached single family in the same area?
For the prices they are asking I think the only thing they could sell would be houses like Pulte sells at The Vue. Common driveway detached houses. It’s almost as if they had that our development is special so ours will sell mean while the apartment to condo conversion next door is dying on the vine.
I don’t know the margin on building but does Virginia Lake have to cost so much to make a profit or is it just greed? Those townhouses should cost $150k and the detached should be $200 - $250k. Are these numbers impossible?
Pretty soon you have to sell to the locals who by the way have local jobs with local wages. Developers are you still in denial?
Why is it that some Washoe County SFR home developers think their lots which back up to steep berms or slopes, with no views but of the dirt slope just 25 to 35 feet behind the house, are worth a $45k and up lot premium on top of their brochure pricing? Are they pricing their lot premiums by taking curbside snapshots of the lots before the houses are built? Because after the houses are built, there will be NO views, either from front or rear. The lack of logic to the lot pricing in such cases is amazing to me, and when asked, no valid explanation is provided.
Any comments from the real estate experts on this blog as to how developers price these lot premiums? Thank you.
Jody’s post returns us to the MAJOR issue in the Reno-Sparks housing market, which is AFFORDABILITY.
I am amused when the conversation on this blog turns to how many multi-millionaire Californian or Serbian retirees are going to move here and buy up all the $2.5 million dollar houses in Montreux. I am amused by the fixation with this 0.02% of the market as if it had any meaningful significance.
As long as the median price of a house in Reno is 6 times the median household income, this market is going to continue to decline. And decline. Without the nothing down, interest only, teaser rate Voodoo liar loans, how does a buyer with $45,000 in household income afford a $300,000 house?The answer: he can’t.
The problem, which I think most people understand, is that household incomes, especially for salaried people, have essentially stagnated over the past several years while the prices of houses were driven to Voodoo money fueled absurdities. Without the Voodoo money, one of two things has to happen: either household incomes rise substantially, or house prices fall substantially.
Which do you all think is the most likely?
This may be a bit off topic but RI brings up a point that I’ve been discussing with friends and family lately and that is wage stagnation.
My son recently entered the work force and of coarse it’s an entry level job. It got me to thinking back when I was his age and how somethings changed and others haven’t. When I was his age I started working for $8 an hour. 20 years later he’s starting for $8 an hour yet most everything costs 3 to 4 times as much as then.
Some friends of mine work locally in manufacturing which I think is a common place to work in Reno. I remember talking to them more than 15 years ago about their wage and they made $15 an hour. Now they make something like $16.50 in the same position. I’m not an economics major but based on what I know, I think they make less now than they did then when you account for inflation.
Housing issues aside, with the dollar on the slide and wages stalled out I’m a little concerned about what lies ahead.
RI writes:
“…either household incomes rise substantially, or house prices fall substantially.”
Truer words have never been spoken. Historically, home prices in any given area of the US represent local economic conditions, and what local wages can afford. Period.
A great example is Detroit, MI. Due to the much publicized pain in the auto industry, one can buy a house for $4500. Yes, that’s forty five hundred dollars, making the scrap value much higher than the finished product. 80,000 abandoned homes and buildings paint a picture of how horribly depressed a housing market can become.
Unless there is some miraculous hyperinflation in Reno wages (snicker), home prices will continue to drop until they are supported by FUNDAMENTALS. All of this talk about equity locusts, or any group moving to the area to save the day is not only delusional, but hysterical.
Perry’s post is not really so off topic, because it absolutely relates to the issue here. Let’s look at Jody and her husband for a moment. Household income is $70,000 plus. That’s a very respectable income. By traditonal affordability standards, Jody and her husband should be able to qualify for a house in the $210,000 to $245,000 range (3-3.5x income). Prior to the Voodoo money fueled run up in prices, one could have bought a very nice house in that price range. But there was no corresponding Voodoo fueled runup in Jody’s husband’s salary. So now? Just look at the MLS and see what one can buy in that price segment. There is no doubt that for the $1400/month in rent that they pay, Jody and her husband can live in a much nicer house in a much nicer neighborhood as renters. Now unless Jody’s husband’s income about doubles to around $140,000, and they could then responsibly afford to buy the kind of house they are now renting, the only sensible thing for them to do is to continue to rent. And the chances of Jody’s husband’s income doubling are, in all liklihood, very very remote.
It is sensible and responsible people like Jody and her husband who will contribute to the further decline in house prices. Because if sellers want people like Jody and her husband to come down off the fence and buy, (”where are all the buyers? where are all the buyers?”) they are going to have to lower their price.
I agree with RI’s statement that, “if sellers want people like Jody and her husband to come down off the fence and buy, (’where are all the buyers? where are all the buyers?’) they are going to have to lower their price.”
The buyers are ALREADY here [you’ve already seen many of them here on this blog site]; we’re called renters just like Jody and her husband. As long as rents are relatively cheap and we can live comfortably in someone else’s home [and for less money], there’s simply no incentive for us to put on our “buyer” hats. In fact with a 6% vacancy factor, it looks to me like rents are going to actually become a bit cheaper!
Now is this situation going to change in the future? Although I don’t think any of us can predict when, most of us believe the market WILL change. I just hope for Jody, Tom, myself and some of the other “renters” out there, we use this opportunity to become sufficiently knowledgeable with the Reno SFR market to know when to pull the trigger. That’s why I find this blog to be of particular benefit.
“serbian retirees” LOL/snort! Good one.
What lies ahead? A big damper on the home-ownership-at-all-costs craze. A higher percentage of folks remaining renters. You think $70,000 household income in Reno is bad - how do you think Californians, New Yorkers and other more expensive states’ residents feel? I personally do not know any 20 or 30-somethings here in SoCal who own a home. None.
What you do see are young people who don’t have a hope of buying a home, so they have no big incentive to save money, and get into the quick-gratification syndrome of spending all their discretionary income.
There’s no question, statistically, that home ownership changes one’s behavior and promotes saving and investing. So one drawback of a higher-percentage renter situation will be more people not saving enough for retirement. That’s scary.
Gina, you make a very good point. The 20- and 30-somethings who are just renting are better off than the ones who got no-money-down exploding ARMS, but they are still falling behind older people. For the moment, our children’s best hope of owning a house is to inherit ours when we die. And I’m not so sure we won’t have to sell it or get a reverse mortgage before it’s all over.