“For those readers who prefer the median sold price for houses and condos combined, May’s combined median sold price was $165,500.”

Oh, the pain! This market is taking an absolute throttling, and it doesn’t look like prices will be increasing anytime soon. I remember, last year, suggesting a median of $135k and getting laughed at. People couldn’t comprehend such a thing. Why? Because they were fixated on where prices went, instead of where they came from. Reno never was a high dollar area. Like Reno Ignoramus says, there are only so many cardiologists. Reno is not a million dollar market.

With record foreclosures in the pipeline, the price trend is down. This isn’t good news for those waiting for a “turnaround”. Even worse, interest rates are inching up, and that just means even lower prices as it directly affects affordability. The fed is out of ammo when it comes to providing cheap $ through reckless rate cuts. With a weak job market, higher fuel prices, and an uneasy populace, the near term future for Reno real estate remains dire.

You’re right, RI, Reno is not even a $500k market. Sure, a few people can afford that here and there, but they are statistical outliers. Pre-bubble, as I have mentioned a handful of times before, one could buy one of the nicest homes in town for half a million dollars. What’s changed since then in terms of the local’s financial fortunes? Nothing! So, we are going right back to the days of old, where homes like 3 Newlands Circle, complete with guest house, sell in the half million dollar range.

I know Congress is hell bent against that, and is now looking to increase the tax credit for homebuyers from $8k to $15k, while gutting the requirements to qualify, but that will only, if anything, serve to slow down what’s coming- which is affordability based on local wages. It’s about incomes!!

So in theory, how much home could one afford if he had an after tax income of 40k, with 150k for a down payment?

anyone?

To SmartMoney,

To me, fair value is whatever someone wants to pay for a property.

And it looks like the median will overcorrect to the downside (that’s happened in every other bubble I’m aware of) before it begins to reverse.

Reversion to the mean is a mean business.

And to BB,

That’s the same thing I’ve been saying for more than a year (although not on this blog):

http://seekingalpha.com/user/156354/comment/133008

The fundamentals have now become paramount. The exotic mortgage products succeeded in unlinking income from home prices, and as a consequence, the fallout has been tremendous. Now, incomes, credit and reserves are driving loan availabilty.

Just the way it should have been all along.

thank you billdrummer. I am prepared to wait another 6 months or so.

In the meantime mortgage rates continue to climb!?!?

antoine, I agree that the mortgage rates will continue to climb. I’m thinking similar to the mid 70’s and 80’s. As its been said before, the FED has run out of bullets; the deficit is to high. Another balloon (bubble) in the works for debt.

So what to do? If you need a house that badly soon, try to find one in the 200K range. You probably won’t need to use all your down payment money, which can be used for emergency, if necessary.

I would not, under any circumstance, buy into a house that I could barely afford to live in, as it will become more unaffordable later! It’s very important to maintain some sort of financial independence right now, as this recession/depression could and will go on longer than you expect it to.

As a codicil,

Sully, you’re absolutely right about houses becoming more unaffordable in the years to come. Just look at the tax grab the Legislature sneaked in this year, virtually guaranteeing that all property owners will have higher tax bills to contend with in the future–whether their property has appreciated or not.

Add to that utilities, maintenance, and upkeep, and you can see that home ownership can easily become a burden that many people couldn’t afford, and many people still can’t.

I’m one of the ones that can’t, and won’t. As I’ve said before, I like being able to call the super when something breaks. I don’t have to go to Home Depot–I let them do it.

Smarten posted:

“Unit sales have been increasing for several months now while the median sales price has been dropping. This tells me we’re getting close to a bottom [at least median sales pricewise]”

HAHAHAHA! You keep calling bottom as prices keep falling, and falling, and falling. C’mon, buddy, give it up! Seriously, Smarten, I’m not being mean, but you’re losing credibility. The median price has dropped nearly $50k since you started this bottom calling business. You’re way premature.

Do you just ignore inventories? I don’t. I don’t care what the national numbers say, there are record foreclosures in the pipeline for Washoe County. This means lower and lower prices. In the world I live in, people need stable, gainful employment to buy houses. That’s not looking so hot right now. Weak demand and again, we have lower prices. I just don’t buy into those green shoots you’re smoking.

Further:

“Some think this increase was only because originators are being overwhelmed with new applications and the rate increase is intended to stem the tide. But I and some others I know think it’s really the first salvo in what will become inflation driven price increases.”

BZZZZZT, WRONG! Unless there is massive wage inflation, which is virtually impossible given the labor market, house prices CANNOT increase as they are driven by INCOMES. Price inflation is due to too many dollars chasing too few goods. Where is this money, huh? Lay OFF those green shoots!

Here’s the link regarding the bill to boost the tax credit:

http://www.inman.com/news/2009/06/11/bill-would-boost-tax-credit-15000

Antoine,

Don’t forget to add HOA dues, property taxes, insurance and some regularly recurring ‘upkeep’ to your affordability calculation. Far too many home buyers in the past cycle did not, they only focused on how much “payment” they could afford, and now look where they ended up.

Also, I encourage you and anyone NOT to include bonuses and heavy commissions into your safe income number. For that matter, many relied on 2 incomes and did not have enough cash in the bank to weather a storm if one or both of the jobs were lost.

I echo others, too: watch out that your ‘after tax’ calculation is both correct and that you’ve built in a reasonable increase to your taxes be they sales, income or property.

BillD and I will diverage a bit here. If you have his theorical $65K gross income, then consider using a reasonable level of housing price being ~3.5 x gross demonstrable income, that = $228K. Here’s a suggestion: limit yourself to a $228K home and instead of adding your downpayment on top of that, instead put 20% down ($46K) on that level. Now you have a payment of $1,093/mo P&I based on an 80% loan of $182,000 and BDD’s 6% at 30 year fixed rate. Add around 1.2% tax or $228/mo, say around $60/mo insurance, maybe HOA. All-in, you do the math, but $16,572 per annum if no HOA. That’s 25.5% of gross, leaving you decent room for any upkeep, unexpected expenses, increase in taxes, etc.

You are also left with $100K in the bank which gives you opportunistic investment capital, fall-back money, rehab cash, etc. Just don’t blow the cash! But also don’t feel you must buy “the most house you can” which is another major mistake many before you made. Keep in mind that if values have dropped, say 45% from the peak, your $228K home was ‘valued’ at $415K at the peak. That bought you plenty then and now. So, you get big bang for your buck today even still at conservative levels of debt.

With this $228K home, you face far less risk than BDD’s suggested $369K home, which is 5.7x gross annual income, far and away higher than historical levels. (Not picking on BDD, but offering a different solution.)

You should consult with your tax person, too, to get a feel for the tax benefits of deductible interest and property tax.

I went overboard here beyond the scope of your question, but hopefully you find this of some help. Best of luck and let us all know how it turns out!

Talking about median prices at this stage of the game is meaningless, as the market has become heavily stratified. This is typical during periods of transition.
Eg. houses that once sold for 600K, and are now selling for 250K are pretty much at the bottom.
However, houses in Arrowcreek and Montreaux which are not selling distort the median. When they do start to sell(at 30-50 cents on the dollar)it will lead to an ironic increase in median prices.

To CL,

You’re right. I used the $369K number as the maximum house antoine could purchase, not the ‘optimum’ house he should purchase. Clearly, the willingness of buyers and lenders to ’stretch the envelope’ to get into the dream home turned into a nightmare for many.

Much better, as you say, to live well within your means, and have a cash cushion in case life happens. Which it does to all of us.

If I were in his situation ($150K in reserves and $65K in income), I’d look for a $175,000 house, put 20% down, and bank the rest. That would mean a $140,000 mortgage, with a payment of $840 before taxes and insurance.

That would leave a reasonable cushion both for regular expenses (a 17% front end ratio) and $115k cash for exceptional expenses(water heater goes out, roof needs fixing, special assessments by the greedy HOA).

Well put, CL. I value your contributions greatly.

Totally new thread, but have at it, anyone:

I bought a single family rental home in NW Reno for $245K in 2004, at $155 psf. I have a $192K mortgage on it that just reset at 3.38% for another year. I have a $25K HELOC that has $0 balance but would be priced if it had a balance at 3.75% (prime - 0.25). Never refi’d, so the debt is original purchase money, owner occupied loan (now rented, but originaly owner occ). Its rented, and net of all expenses including allowance for repairs, I’m $70/mo upside down. But after adding back principal payment, I am $340/mo positive. Given market conditions, I will offer my tenants a $100 break for the next year in rent to keep the unit full, I’d be $160/mo upside down, or $250/mo positive after principal.

I guess the value today is around $102 psf, $82K upside down, despite marginally cash flowing / breaking even. It might be 10 years to sell and get any cash out.

Who would say to walk away? Who would say lever the HELOC and invest that $25K elsewhere? Would anyone say to stick it out another 10 years to eventually get out?

I’ll be neutral; just wanted to see what you local experts would suggest (there are a bazillion others like me).

To CL,

I’d say lever the HELOC, give the tenants a break for a year, and see what the market looks like when their lease is up. If they’re good tenants, you might be able to raise the rent back to the original amount, meanwhile keeping the place occupied for the time being and having the cash to invest elsewhere.

Just my take. But understand, this is a person with a net worth of , and a crappy credit score.

Ok, a few observations as me rather than the dude on the blog.

NOD filings are WAY up over the last few months (TICOR may be restating their filings based on new and inconsistent data). I can tell you imperially that these filings are proportionately skewed to the lower end. The mid to upper end isn’t flinching or capitulating except in cases of dire straights.

I think loan issues have given way to employment issues in driving the lower end even lower. I don’t see any backstop to that phenomenon right now. When you break back from the Q1 2003 medians that are typical these days, mid 1998 medians are just next door. Look at the recently listed long time owners listing right now that are competing with the foreclosures. Granny got the picture, in a lot of cases. Limbo down.

From my seat,I see a couple of groups buying foreclosures successfully, and may flip them at a profit. I see more that may break even, and some that will eat sand. A lot will probably eat sand.

I wish I was a bitter renter.

You’re welcome, Smarten. I do wonder, how is your loan in Sun Valley performing? Remember when I was talking about houses in that area selling for well below $100k, and that I thought the valuation you were using was crazy? Check out prices in that area now. Ugly.

The 150k down payment I referred to was only a starting point. Also in respect to the other comments I am NOT trying to buy the most house possible, while leaving myself vulnerable to all the costs that come with owning a house. I’m not trying to buy a house I can’t afford!

150k is NOT all the liquid assets I have.

All the comments/suggestion are welcomed!

Guy, of the 416 houses that sold last month, I am wondering if you might tell us what the distribution was among price bands. We know that 208 sold below $175K, and 208 above $175K. But I am wondering how many sold
below $100K?
between $100K and $200K?
between $200K and $300K?
over $300K?
over $400K?
over $500K?
This info is helpful and gives a little insight beyond only knowing what the median is.
Clearly we now have a tale of two markets within the overall market. One where all the foreclosures and sales are, and one where there are few foreclosures and essentially no sales.
Thanks.

As for GreenNVs post/Mike that tons of NODs continue and are largely skewed in the lower end strata… One of 2 things will happen in the short to near term before a stabilization of the housing market can happen: 1) you’ll have a permanently steeper delta between lower end and higher end home values/prices until stabilization, or 2) the continued pain in the low end will serve to pull the higher end downward in value until the whole market stabilizes and eventually goes upward.

I think heretofore we’ve seen #1 in action, namely the low end of the market is the strata unable to withstand the stress of the economy and therefore falls in value while the high end can withstand temporarily. No new ground here. Many posters here think #2 is now happening demonstrably, which ties in to Alt-A, OptionARMs and Prime defaults.

Again, no new ground here, but more anecdotal support for a continued crash in housing values in the coming months/years.

So, investors, you’d better cash flow and cash flow well, because future inflation in housing values just ain’t happenin’ anytime soon.

My crystal ball says in the next year there’s exactly zero chance values will increase, OK chance values will stay flat from here, and a great chance values will continue to fall. If you are renting now or otherwise looking to buy, there’s simply no rush, IMO.

CL said: “Who would say to walk away? Who would say lever the HELOC and invest that $25K elsewhere? Would anyone say to stick it out another 10 years to eventually get out?”

I would say “stick it out”.

I would never “walk away” in a situation like this, because it is dishonest. You made the purchase, borrowed the money to do so, and agreed to repay the money that you borrowed.

I simply think it would be a mistake to lever the HELOC.

To elaborate on the first point, I have always thought that character is underweighted in FICO scores. This is a classic situation where character counts. You can make the payments, but it is not a good deal for you financially. The only thing that keeps you from dumping your losses on the lender is character.

To dpman,

Lay off Diane, please. She did what was the proper thing for her situation. Not to say that you aren’t allowed to disagree with her, but step off the attacks on her character, even if thinly veiled.

Through the 12th day of this month there have been 151 trustee’s deeds recorded. All of last month, there were 210.
If this pace holds, we may well see more trustees’s deeds recorded in June than REOs and short sales that close escrow.

Hey Billdrummer, why exactly are we supposed to lay off Dianne?
“She did the proper thing for her situation”. What absolute BS. She reneged on a contract, that now I the taxpayer have to foot.
It’s irrelevant who she is. What she’s doing is reprehensible and inexcusable. If that’s an attack on her character so be it.

Hey, Otto. Do you go to a party and insult the host? My suggestion to you is to get the hell off this blog if you can’t respect it’s creator.

It’s unfortunate we have to digress off the topic of the thread to deal with another misrepresentation of Diane’s actions.

Diane is not “walking away”. She is attemtping to conclude a short sale with the consent of her lender. Diane has not reneged on anything. She is attemtping to negotiate, in effect, an accord and satisfaction with her lender. Maybe her lender will accept her proposal, maybe not. If not, then what Diane might do in such case is no more than baseless speculation at this point.

I don’t know if Otto is derrick in guise, or just someone who bears an uncanny resemblance. But the tenor and tone of the comments are all too familiar. As someone said on this blog quite a while ago, if you don’t give the monkey any attention, he will go away. But if you throw the monkey a morsel, he will unleash all his tricks.

RI,,
I am not anyone in disguise. I am someone who is “underwater” on my mortgage but intend to honor the contract I signed.
This will be my last comment, but let me just say this.
I lived in Zimbabwe during the 90’s. During that time very little opposition was voiced against President Mugabe. Anyone who did got the standard response of “if you don’t like it here, piss off”. Much like BB’s comment above.
I have watched that beautiful country sink into the basket case it is today. It need not have happened. But people were afraid to voice their opposition. I can’t tell you how many times I was told not to offend my “host”. And look at the result.
When I left Zimbabwe, I resolved to speak my mind, no matter what. If that offends people, fine, I’ll be on my way. As my comments have seemed to offend my host, this will be my last posting. I was not aware that Diane, like President Mugabe was above reproach.

So is the implication here that everybody who effects a short sale with their lender is a moral and ethical failure? That anybody, for whatever reason, that does not pay off their mortgage for any reason, is scum? That the only moral and ethical thing to do for Diane is to bring a check for $250K to the closing to pay off the $750K mortgage on her house which she now can sell for only $500K? And if she does not have $250K to bring to the closing? That she should simply not move? Stay in the house for the next untold many years? Be apart from her husband to fufill her moral obligation to Otto?

This standardized ritualistic incantation about how anybody who does not pay off their mortgage is immoral and unethical is nonsense. The lender made the deal: if you don’t pay me back, I take the house. I take that risk.

I suppose that to Otto, the guardian of public morality and ethics, the whole concept of bankruptcy is only for the immoral dirtbags of the world? For how is bankruptcy any different? No fresh starts for anybody in Otto’s world?

Some of the righteous posters on this blog have all the empathy and understanding of a pile of rocks. Spare me the pontification.

To smarten,

This is something that’s been puzzling me as well. The complex I just moved into has a LOT of vacancies, notwithstanding the monthly deals they have for new residents. In my building of 4 units, one’s been vacant for more than 2 months.

I think a 25% vacancy factor for large complexes here is about right. (Vacant places have nothing on the patios/decks, a good indicator.)

Now, combine that with the number of homes that are vacant (whether for sale or rent), and it’s almost as if a neutron bomb exploded, leaving the buildings but evaporating the people.

I don’t know where they went either.

Good to get back to the topic at hand. I suppose it’s possible that all 4,092 trustee’s deeds recorded in the past 18 months were only on empty speculator flips gone bad, but I doubt it.

It is curious how vacancy rates are climbing in the face of all the foreclosures. Here’s another piece of anecdotal evidence for you, BB. I have a business associate who has owned 2 rental houses in Sparks for about 15 years. These are pretty basic late 1980s houses. Nice middle class neighboorhood. For 15 years, he has had no problem at all keeping them rented. Now one has been vacant for the past 3 months, and he cannot find a renter. He has people come look and they all say that there is a boatload of rentals available now and they all want him to discount the rent in an absurd fashion. Then they disappear. He’s starting to turn into a bitter owner.

Forget Rush, Letterman’s got the right idea when it comes to promotion.

Just got the Ticor Title NOD list for the week of June 1-5. Total dollars on the list? $44.8 MILLION!!! In one week!!!!

Makes you wish for the days when lenders were closing $5 million a month and taking home $15,000.

To SouthBay,

There were some anectodal accounts last year that businesses catering to Hispanics were seeing lower sales because of high unemployment.

It seems to be persisting, notwithstanding the numbers about housing starts published today. All the talking heads were foaming at the mouth about how this signals ‘a further indicator of stabilization’ and ‘the best news we’ve heard about housing this year’ and ’should be a boost to builders and retail.’

Hogwash. Housing starts ALWAYS rise in May because the weather gets better. And if you compare starts this year to last year they are down 45.2%:

http://seekingalpha.com/article/143516-housing-starts-soaring-is-overstatement

I’m turning back to the infomercials in the morning. At least there, you know the information is spun. “Traditional News” outlets have been allowed to get away with spin for far too long.