Thank you to our friends at First Centennial Title for providing March’s Market Condition Report below. Click on the report below to enlarge.
From March’s report:
- OVERVIEW: Closings increased significantly in March causing all performance measures to move but not significantly. Current Market Speed, which measures conversion of listings to closings, moved up 2 points but was depressed due to a 500 unit increase in supply (new listings). Prices have firmed for SFR and are beginning to rise while Condo prices remain weak with a continuing negative propensity.
- SUPPLY (ON MARKET): Meaningful and significant gain over last month.
- DEMAND (SOLD PER MONTH): Demand decreased slightly for SFR. Condo up slightly.
- FAILURES (EXPIRE-WITHDRAW): SFR and Condo steady with a positive propensity in the short run.
- IN ESCROW (FUTURE CLOSINGS): SFR and Condo inventory in escrow maintaining current levels. This suggests that the recent surge of closings is being replaced by new escrow entry.
- PERCENT SELLING: SFR jumped to 64% from 58%; Condo rather steady.
- MONTHS SUPPLY: This key measure is tightening by about a month for SFR, while Condo is unchanged.
- MARKET SPEED: The pace of the Reno market is beginning to rise ever so slightly. The best performing Reno sub-market remains the perennial favorite, Fernley SFR, returning a Market Speed of 41 (up 6 points from last month). The slowest is Yerington SFR at 14.
- PRICES: SFR prices moving up and showing some vigor, while Condo continues to exhibit weakness.
Past MCR reports:
skeptical
Mike stated in an earlier thread on March foreclosure activity, “NOSs when berserk, totaling 794, up from 406 in February and setting a new monthly record. TDs increased significantly to 284, from February’s 180.”
So, 794 homes were repossessed by the bank, and only 273 sold in March.
Reno may be a great place to live, as per the Men’s Journal article, but it may not be a great place to buy a home right now — unless the laws of supply/demand are irrelevant to you. FWIW…
MikeZ
Hmm, another source, another month of stability.
Those of you who are convinced this stability is just an illusion and will soon reverse, how about offering a time line?
skeptical
MikeZ, et al,
What data would make you second guess the market, and become a bit more circumspect. What data would give you apprehension that perhaps there is still more downside in prices ahead of us before buying real estate will be safer?
Joe
Timeline? We have. After the last of the tax credit closings (June-ish), and with the inevitable rise in interest rates (starting to occur very slowly now).
longerwalk
Does anyone think that there ISN’T a significant shadow inventory out there that don’t yet have NOSs or that the banks haven’t yet released to sell? Just because what data we DO have indicates a firming of the market doesn’t mean the data we DON’T have wouldn’t tell a different (and more accurate) story. I submit we don’t have all the data–and it might not be available. Guy? Mike?
longerwalk
Ack. “NODs” not “NOS” . . . too early. Not enough caffeine.
MikeZ
There’s definitely a ton of shadow housing inventory out there.
But there’s also a ton of new auto inventory out there (visit any area auto lot), does that mean new car prices are going to plummet?
When will I be able to buy a new Lexus for $10,000? Answer: never.
To skeptical: supply and demand are strong market forces, but they’re not the only market forces at work here.
“What would give me apprehension?” Believe me, I already have apprehension. There are still some troubling indicators of future turbulence, but there are many more that point to the Reno/Sparks SFH market having stabilized.
E.Edward
There’s definitely a lot of shadow inventory out there?………And this is why I can’t buy a Lexus for 10k?…..WHAT? REALLY??
Finally!…The housing stabilization case has just been CRACKED!……I’ll start shopping first thing in the morning for my new Home!
Awesome funny stuff!
SkrapGuy
So far this month, 413 NOSs recorded. Last month Mike said NOSs “went bezerk” at 794. If the pace continues, this month will surpass last month even though it is a shorter month.
So far this month, 165 TDs. There were only 180 for the entire month of February.
Something is happening here.
longerwalk
MikeZ: The Lexus analogy only works with a more predictable supply and demand picture–which I submit is still not the case with real estate. My comment stands on not knowing the full extent of the data. (It shows when we cannot predict foreclosure data–NOS, NOD, TDs with any accuracy at all. You go talk with the stable car dealerships, and they CAN tell you their market details.)
MikeZ
longerwalk, a similar price floor exists under housing.
You won’t get that new Lexus for $10K because long before the price drops that far, someone else will buy it.
At this point, with credit fluid and available, and improving every month, unless we have some major national or local economic calamity, the worst appears to be over for Reno/Sparks.
Of course, all of this is IMO, your mileage may vary.
Martin
MikeZ, just a clarification?
Are you saying the median price has essentially bottomed?
Or are you saying prices all over all market segments have bottomed?
Are you saying the “worst appears to be over” for houses listed above, say, $350K?
Thanks.
bob_c
you wont get the lexus for 10K because they would
cease production
apples and oranges
smarten
bob_c –
You might not get a new Lexus for $10K, but you might get an REO for $10K.
And once all the REOs were absorbed by the marketplace and the manufacturer started making new cars again, the price would be considerably more than $10K…That is, unless the price of everything devalues because the average Reno/Sparks household’s income can’t support the purchase of a Lexus that costs more than $10K.
skeptical
It is intellectually lazy to look at the relatively flat median over the last several months and conclude that housing has stabilized, the bottom has been hit, and everything’s now gonna be all right forever.
It is intellectually lazy to ignore the laws of supply and demand. These laws dictate that a mountain of supply will slake demand and prevent any price appreciation at best, and perhaps catalyze further declines in prices going forward. Especially with the lack of move-up buyers, demand will be dwarfed by supply, if it isn’t already.
Read BofA’s release regarding its intentions to clear its foreclosure inventory this year. It is happening real time. Right now. This is a material change in the market, which puts us in a new situation. You won’t be hearing stories about home squatters by the end of this year.
Anyone who is not very apprehensive about buying into this market, and who has not considered the possibility of losing 10%, 20%, or more on what they pay for a property today is just being lazy.
The fact that home sales haven’t accelerated significantly going into the 30 Apr deadline for the tax credit is a definite warning signal that should not be ignored.
Raymond
I agree with you Skeptical. I could understand how one might reach the conclusion that prices, at least measured by the median, may have bottomed looking at the median over the last several months. And in normal times that would be a sensible conclusion.
But these are anything but normal times. As many have pointed out, most notably RI, there are thousands and thousands of foreclosures in Reno/Sparks that are simply unaccounted for. If I recall correctly, last Fall there were about 6,000 NODs that were unaccounted for by way of cancellatiion or TD.
NODs continue unabated. And it does appear that there is movement now in a substantially increasing number of NOSs and TDs.
How can anybody just ignore these unabated and unrelenting foreclosure numbers?
If only one half of all the unaccounted for NODs work their way on to the market, that alone is perhaps 3000-4000 houses.
inclinejj
Yawn..this could have been contained and dealt with in 2-3 years max. had the government just told the servicers and banks foreclose and blow the property out the back door. Sure prices would suffer but they would recover much faster.
Someone get back to me in 2013-2014 when the market starts to recover.
In the mean time I am going fishing….
SkrapGuy
Any forward looking analysis of the Reno market that does not account for the foreclosure dynamic is myopic. It strains credulity to suggest that thousands and thousands of potential REO properties coming on the market in the next many months and years will have no impact.
The precise impact in any particular time frame is speculative. But to say that these unabated foreclosures can just be ignored, pretend they don’t exist, is not credible.
This was the greatest bubble in history. Reno had one of the largest bubbles in the country. Reno does not get the national press and attention because it is a relatively small market compared to LV, and most in the national media think Reno and LV are the same place anyway. There is no map to chart the recovery from this bubble. We have never been here before. Since 1/1/08 there have been 20,000 NODs recorded in Washoe County. NEVER in Reno’s history has anything even remotely like that occured.
60% of all Reno housholders with a mortgage have no equity, and in fact owe more than their house is worth. Many of them owe tens, even hundreds of thousands of dollars more. They are not going to feed the alligator forever. Like Diane Cohn, they will make the only financially sensible decision.
None of the prior models work anymore.
NormanR
2013-2014 eh, inclinejj?
I like optimists, inclinejj.
geopower
Wow jj, you just picked a hard boat to row. While I, as a first time buyer in this market, would probably benefit economically from your modest proposal, it wouldn’t work very well in a democracy (or any society with a strong concern for the wellfare of its members.) For me it would be great if all the underwater properties turned over at once, nuked the prices, let me buy low and start banking value increases quickly. For all the people who previously bought houses, it’d be pretty catastrophic. Do you remember the news articles about the tent camps and displaced families from the first wave of massive foreclosures? You may not see them in Incline, but here in Reno, we have to deal with the poor and homeless every day as we attempt to rebuild our downtown community. What would the standing be of any politician who was seen to be worsening that situation, even if it shortened the time before recovery started? How good would the fishing be if there were homeless families camped out on the beaches and rivers? I’m skeptical of the ability of the government programs to actually keep people in homes they could never afford to start with. But by lengthening the time period of the market correction, they bought time for the society to handle a smaller, slower influx of the newly needy.
MikeZ
[skeptical] It is intellectually lazy to look at the relatively flat median over the last several months and conclude that housing has stabilized, the bottom has been hit, and everything’s now gonna be all right forever.
?? Are you responding to me? I don’t recall saying everything’s gonna be all right forever.
[skeptical] It is intellectually lazy to ignore the laws of supply and demand.
No one’s ignoring the laws of supply and demand!
It’s intellectually dishonest to make up arguments (see “Strawman argument” in any debating text) and ascribe them to your opponent.
Knock it off.
billddrummer
To geopower,
It would have been nice if the government had stayed out of the residential real estate market and let the market correct itself.
Unfortunately, the mantra “Let’s keep people in their homes, no matter the cost” (I added the last phrase) superseded the idea that markets work best when left to themselves.
Many people would argue that the financial crisis itself was brought on by blind faith in markets functioning as they should–to provide the greatest economic benefit to the greatest number.
Instead, a small number of people were able to obtain outsized gains for themselves and their companies–and for those companies unfortunate enough to bet the wrong side, the government provided cover through bailout funds offered in the guise of ‘saving the financial system as we know it.’
Suppose, just suppose, the financial system as we know it needs to change? Suppose the current system won’t do anything but what it already has done–reward the few at the expense of the rest?
Now before you all think that I’m a Birkenstock wearing, tree-hugging, anti-capitalist, let me be clear: The capitalist system, with all its faults and unequal reward outcomes, is still the best system for fostering innovation and productivity. It’s one of the few economic systems left that rewards creative achievement. Which continues to draw resources for investment with the hope for a higher future return. I count myself as a promoter of capitalism in its freest, most unrestricted form.
But back to my original question. Let’s take the position that the financial system needs to change.
How would that take place? What constituencies would need to be empowered? Is the financial reform bill now plodding through Congress the ‘answer,’ or will it merely provide another employment opportunity for a legion of obstructionist bureaucrats? Does it make any difference in the long run?
As has been written many times, in the long run we’re all dead.
I expect the answer to come from forums like this one, and people like us.
It’s time to retake the hill.
skeptical
BillD,
Two answers for you:
1) Term limits
2) Campaign finance/lobbyist reform
They are the beginnings to the only way out of this mess.
GrandWazoo
My occasional hero speaks:
http://online.wsj.com/video/lewis-black-i-dont-understand-the-tea-partiers/54F8F013-D077-4910-B5E3-99CCB8D47065.html?mod=WSJ_hpp_videocarousel_2
DownButNotOut
Add to Skeptical’s answer to BDD – tort reform and limits of unions use of their voting/ lobbying power.
And to clarify; term limits are already in place. Vote the bastards out!
Or expect the same.
DonC
inclinejj — You’ve got two diametrically opposed viewpoints in your head. One is that the government programs have been a bust. The other is that these programs have significantly delayed foreclosures. You need to pick one or the other. It really can’t be both.
I’d definitely go with the first. Seems like the banks just haven’t been able to ramp up very quickly to dispose of the inventory. If you doubt this, just ask someone who has tried to be on either end of a short sale — no government involvement at all yet the banks have just been incapable of playing any constructive role whatsoever. Anecdotally it seems like the lenders have finally gotten their acts together and have put some reasonable processes in place, so things will move along at a much faster pace.
Your time frame may be right. Housing is a long cycle asset. Some movement up almost has to occur in the short term, but a widespread and robust recovery could be several years away. It depends on how fast the economy and employment recover. Flipping is definitely going to be dicey for a while.
DonC
skeptical — I think you’re overly constraining yourself when looking at supply and demand. Supply for housing includes both sales and rentals. You’re focusing on ownership and neglecting the rental market.
For example, you keep focusing on foreclosures, but a foreclosed house neither increases nor decreases the supply of housing. At most it just moves the unit from one category to another. It also may not affect demand. Real estate investors know this, which is why they want to buy — they know that people who have lost homes still need a place to live so they’re thinking is that foreclosure changes neither aggregate supply nor aggregate demand.
While cars are probably a very bad analogy, ultimately the demand for rental housing does put a floor under home prices.
OT: CA has pretty well proven term limits are a very bad idea. Everyone is a short timer more interested in posturing than accomplishing. Not recommended.
geopower
billdd,
I don’t think the cause of the crisis was the nature of the system, but a failure to make the rules encourage fair play.
I’d say the cause of the housing and financial crisis was due to a big loophole in the way the risk-reward balance of mortgage writing was allowed to function. The banks were allowed to create a lot of risk through questionable mortgages, without having to face the potential consequences by repackaging them into CDOs. This encouraged questionable actions by mortgage writers, bond raters and homebuyers. We’re all paying the price and looking at what will happen next.
Will the people responsible be held accountable? I doubt it, we seem to have mostly missed our window of constructive outrage.
Will the legislation in congress now fix these problems? Maybe somewhat, I’m not qualified to say.
Will this all happen again? Probably not soon. The banks may not improve their lending standards, and homebuyers may still want too much house, the rating agencies may not improve their practices, but I bet the investors in the MBSs and CDOs will be taking a much harder look at the quality of debt they are buying after the bath they took
Pat
The housing bottom, price stability, and market is controlled by the banks. All of the supply/demand arguements and shadow inventory overhang are moot; the pace that the banks decide to place their properties on the market for sale will define the market. This will also be influenced by interest rates and loan availability banks offer to potential buyers.
Historically 1/3 to 1/2 of all real estate transactions were investor purchases and investors are not incentivised to buy in this market and in fact are punished with unreasonably high interest rates if they want to get a loan. Some of these are speculators, but most historically have been people seeking stable cash flow from rental income. That is a large market segment that is not appeciated that could assist in buying up more inventory.
Beyond the bank controlled aspects of the market, the really disturbing aspect is the seemingly self perpetuating spiral of divergence that has been set in motion:
1) People and businesses in record numbers are not paying housing costs (leading to REOs of commercial and residential properties);
2) Except for companies that completely dissolve, this group is now all spending more money elsewhere (as the savings rate has once again turned into a deficit);
3) The amount has been estimated as high as $8B/yr. Even if this is only a small fraction of this amount that is the spiral.
The economy is showing strength due to spending, but the housing market continues to erode. The increase uptick in economic spending increases interest rates, eventually adds jobs and further increases spending. In the medium turn, except for the increase in jobs, all other factors in the equation induce slower real estate sales in a time when invetories are growing. Job and wage increases seem like the only factor to break this spiral and most optimistic estimates are many years in the future for this to occur.
Thoughts?
skeptical
Pat,
What is your source for the stat that 1/3 to 1/2 of all transactions were investor purchases?
Just curious.
MikeZ
RE: “Historically 1/3 to 1/2 of all real estate transactions were investor purchases”
Impossible!
DownButNot Out
I read this morning that attached to the Health Care Reform Bill there will soon be a 3.8% tax on real estate transactions, paid by the seller. I found this unbelievable if true. Guy/Mike – do you know anything more about this?
The more I read about Health Care, the worse my health gets.
Tom
Down, they are injuring my health just rying to sort through everything! Health Care Reform included a surtax on the gain on sale, of that percentage, applicable to certain taxpayers, based on their AGI. I haven’t yet determined whether the AGI measure to be used will include the gain on that sale, though, for purposes of the test for applicability of the surtax. If it does, almost any sale would likely push most of us into the bracket category where the surtax would apply.
That plus the increased gain rates effective Jan. 1st (when the Reagan Tax Cuts expire) will make basis adjustments all the more important. We still have adjusted basis plus $500k for married taxpayers, before the gain on sale is taxed, for qualifying primary residences which meet the holding period rules. But after that, capital gains will be taxed significantly higher than presently.
Sully
Tom, Reagan tax cuts or Bush tax cuts?
Guy Johnson
Down, I have not heard anything about the 3.8% RE tax you mention.
Tom
Concept inspired first by Reagan but enacted and referred to as Bush Tax Cuts, true.
geopower
http://samguillen.com/health-care-reform-facts/
these folks seem to have it explained pretty clearly
Tom
The higher cap gain rates by sunset of the Bush Tax Cuts take effect Jan 1st. So taxes will go up on a sale. The surcharge tax contained in health care reform is deferred, but by whatever name they choose to call it, nonetheless it amounts to a surcharge on disposition of the capital asset. It essentially remains a tax on the sale, whether it is denominated a high earner special purpose medicare tax or something else.
IMO, once such tax increases are started along the way, we can expect them to grow in the future.
DonC
Tom, I’m wiping the tears from my eyes. All you’re talking about is applying the Medicare tax to investment income. So what’s wrong with that? Why should a trust fund baby sitting on their butt clipping coupons get more favorable tax treatment than some poor slob who works for their money?
This is hardly a “surcharge on the disposition of a capital asset”. If you doubt that, sell a home you bought in 2004 and see how much of a “surcharge” you have to pay. Basically it’s just treating earned and unearned income the same.
Moreover, everyone needs to stop drinking the Kool Aid, go back to basic math, and figure out that taxes need to go up. Recurring government spending (not one time expenditures like the stimulus) is 26% of GDP. Taxes are 17% of GDP. That’s a gap which amounts to 9% of GDP. Now, given the constituent parts of the federal budget, the only way you can balance the budget without raising taxes is to cut spending for Social Security, Medicare, and Defense by 30% to 40%. Ya think that’s gonna happen anytime soon?
The problem is that everyone LOVES government benefits but everyone HATES paying taxes. So over the last 30 years, politicians have figured out that the best way to get elected is to pretend that taxpayers can get more and more benefits while paying fewer and fewer taxes. Voters have co-operated by gladly accepting ever increasing benefits under Social Security, Medicare, and Medicaid, and by supporting large outlays on on Defense, while at the same time gladly supporting cutting income taxes to levels such that as a percentage of GDP they are lower than at any time since 1942.
I can think of three alternatives. We can do a combination of cuts and tax increases, which won’t make anyone happy but will close the deficit (the Clinton/Bush I approach). We can just pretend that deficits don’t matter and just keep on spending and borrowing (the Reagan/Bush II approach). Or we can just just try and inflate our way out of the problem (the Weimar approach). You may have some other choices but those are the ones I can think of off the top of my head.
Tom
No, Don, you have left one out of your list. Your “top of the head” choices are not the end of that list–you left one out. We can cut very dramatically, and NOT have the tax increases along with it you refer to. Stop spending on all social programs. Cut all agencies by 20%, and let those superbly-qualified individuals find jobs elsewhere. Oh, they cannot, and we should continue the featherbedding for that reason? It is not government’s proper role to guaranty everyone a job. Those ex-agency employees could compete on the street for jobs like everyone else. It is not accurate as you say that “everyone LOVES government benefits.” I for one would prefer to cut them way back. I have been making a payroll for decades, and am old enough to have drawn SS but have not. Never have been unemployed or drawn any public benefits. Too many people have become reliant upon government as the solution to problems, so they assume a level of spending on social programs and growing government must continue, although with some reductions but still with tax increases. Not so, if the spending is truly cut way back. Cut back foreign aid, also. Big government and social programs are the problem, not the solution. Earned income AND investment income are already over-taxed. Investment income is not just passive dividends, as you refer to it, nor does it apply only to your trust baby illustration. It also includes income on the disposition of capital assets. You use emotional language like wiping tears from your eyes, and characterize those who apparently disagree with you as drinking kool-aide. Cute but not logically persuasive. What is wrong with just drastically cutting wealth redistribution schemes, excuse me, social programs and public benefit programs? You said that “We can do a combination of cuts and tax increases, which won’t make anyone happy but will close the deficit (the Clinton/Bush I approach).” Well, I say we can do much better: Very Severe cuts, and no tax increases. That will work towards closing the deficit more effectively. And you know what? Those who are the producers, who are working and creating jobs, inventing product and making things happen–they would be happy with that approach, and they might even hire a few more employees.
DownButNotOut
Tom – in the four years I’ve been following this blog that was the most succinct and eloquent response I’ve been lucky enough to read. Thank you.
Sully
Tom, I would have said basically the same thing. One exception would be SS benefits. I don’t consider it a tax, but a paid for retirement fund. I,too, paid both ends of the tax (for the greater part of working years). I do fully intend to try and live long enough to get my paid in funds back, rather than some jackass in Congress spending it for me. 🙂
Fatcat
Tom,
Run for office.
OBTW, defense needs to be cut in half.
It’ll never happen because no politician wants to appear weak. But I have dealt with DOD and it’s various agencies. There are literally tens of thousands of middle aged bureaucrats out there doing basically nothing, and getting paid higher than their corporate counterparts, with never a fear for their job security. We’d all be better off if we got them off their welfare jobs that are draped in the flag. Active duty military forces are, of course, exempt from that statement. FWIW.
lurker
Tom, as Down put it, one of the best posts in a long time! As a lifelong Nevadan, I would welcome a Californian like you here with open arms………
billddrummer
Tom,
Thank you for a fabulous post!
MikeZ
[Tom] “I have been making a payroll for decades, and am old enough to have drawn SS but have not. Never have been unemployed or drawn any public benefits.”
Don’t kid yourself, Tom, financially, there’s no real difference between accepting a welfare check and accepting a tax cut.
Stewart
“never drawn any public benefits”.
Really?
Never flown on an airplane in safe skies because of federally maintained air traffic control?
Never driven on an interstate highway?
Never taken a medicine that was safe because of rigorous federal inspection and testing?
Never enjoyed an abundant water supply there in Southern California because the Hoover Dam project, a federally constructed and maintained project?
Never eaten food free of contaminants because of federal inspection?
Never received a letter in the mail?
Never gone to federal court, in a building built by, maintained, and staffed by the federal government?
Never drawn any public benefits. Benefits only come in the form of a check? Yea, Tom, the government has never done a damn thing for you.
Candace
Maybe Tom ought to go to the Halloween costume store and get his very own Revolutionary War costume and go out with all these other over the hill unhappy with life middle aged white guys and make a fool out of himself at a tea party.
Fun to see all these guys howling at the moon. And having fantasies of making it with Sarah Palin. Viagra needed, of course.
Another Lurker
Thank you MikeZ, Stewart and Candace. Fortunately, not all middle aged white people are like him. He just represents the self absorbed, narcissistic segment.
Gary
Grow up you bunch of crybaby wimps