From Jan 1, 2005 to July 31, 2005, 71 condos sold around downtown, from a low of $72,000 to a high of $500,000 with a median sale price of $255,000 and an average of $263,124. From Jan 1, 2006 to July 31, 2006, 46 condos sold from a low of $132,000 to a high of $720,000. Interestingly enough, the median stayed constant at $255,000, while the average sale was $277,635.
These are resales only and do not include non-MLS Riverwalk closings. While resale closing volume appears to be seriously down, I bet that if you included Riverwalk activity, overall closings would be up. What’s fascinating is that the median stayed totally level… I guess $255K is the magic price point for condos downtown?
Which makes me wonder about the Montage, the Palladio and all the other high end condo projects going in. Construction is expensive. It goes up every day. These developers have to charge a lot to make their projects worthwhile. But can locals really afford to buy? In many cases, no.
So the developers look to out-of-town second home buyers… from LA, the Bay Area, wherever. And while the downtown condo concept in Reno is relatively new, we’re still competing with other metros–San Diego, Chicago, Orlando, Portland, Sacramento, Las Vegas and everywhere else they build high rise condos, which seems to be everywhere these days.
Part of me wants to disregard what’s happening in the other metros because our proximity to Tahoe makes this region so special. Real estate markets are always local. But the other part of me must acknowledge that these major metros suddenly can’t seem to sell through their condo inventory. We in the realtorindustry count on all these soon-to-be-retiring baby boomers to show up to the party to purchase second homes and retirement condos with their big fat inheritances… but I wonder. Are they really coming?
Data from the Northern Nevada MLS. Search included Areas 120 and 160.
Reno Ignoramus
“The No-Money Down Disaster”
“32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000.”
“43% of first time home buyers in 2005 put no money down.”
“15.2% of 2005 buyers owe at least 10% more than their home is worth.”
“10% of all homeowners with mortgages have zero equity in their homes.”
“$2.7 TRILLION dollars in loans will adjust to higher rates in 2006 and 2007.”
Barrons Magazine
August 20, 2006.
But of course none of this will impact Reno. We are special because we are close to Tahoe. And all the boomers in the world want to live here. “All markets are local”. But isn’t it strange that inventories have doubled and tripled ALL OVER the country, and isn’t it strange that sales volume is way way down ALL OVER the country, and isn’t it strange that prices are dropping ALL OVER the country.
Here is the problem with the “all markets are local” spin. The cheap money easy credit voodoo loan industry was ALL OVER the country. ALL OVER the country unqualified people were enabled to buy houses they cannot afford. As long as you continue to think in terms of a housing bubble, the “all markets are local” spin will seem meritorious. But when you understand that what we have had for the past 5 years ALL OVER the country was a credit bubble, that manifested itself as a housing bubble, the “all markets are local” ruse goes away. Voodoo loans were just as available in Atlanta, and Orlando, and Fresno, and Denver, as they were in Reno. This is ALL OVER the country.
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gotlots
For people who feel compelled to buy into the declining market, the Reno Housing Bubble blog has a post about lowballing offers. It suggests making offers 20% below asking.
The flaw in that approach is that the buyer is still marching to the seller’s absurd tune. Is 20% off of absurdity all that great a deal? There are still way way way too many houses on the market overpriced by more than 20%.
I suggest that for a house built in 2000 or earlier, than a buyer determine the FMV in 2000. Then add 6% a year to allow for inflation (probably what inflation has really been). That way, all the absurdity of the credit bubble suicide loan ponzi scheme is removed from the calculation. For houses built after 2000, some approach like that described in the Reno Bubble Blog will be necessary. But instead of using an absurd asking price as the starting point, perhaps look to the most recent comps (I mean recent, not 90 days old) and offer 20% off from there.
Sellers won’t like it. But then, for a lot of them it will be the only offer they have received. Sellers are still in denial. And so too are a lot of realtors. It will be an interesting winter. Why in the world would anybody buy now and lock in declining value?
Reno Ignoramus
Toll Broths, Inc. said its third-quarter profits fell by 19% as the housing market malaise weighed on sales.
“I don’t see a turnaround in any markets. I don’t see any forming a bottom.”
Robert Toll, CEO Toll Brothers Homebuilders
August 22, 2006
Reno Ignoramus
“The U.S. had an unprecedented housing boom for about the last 10 years. It’s over, there’s no question about that.”
Mark Vitner, Senior Economist, Wachovia Corp.
August 22, 2006
Todd Tarson
gotlots, I’ll agree that there are sellers that are out of their minds right now. But the reality is a home is what a buyer and a seller agree to on price. It will always be the case. You simply cannot put a blanket number on a market and say that Reno is X% overpriced.
I have no doubt that buyers have the upper hand at present and because of this they should be pressing sellers on the asking price in negotiations. This is what I am telling my buying clients as well, and it is what I am doing my darndest to convey to sellers that wish to enter the market.
Now sure ain’t a good time to be a speculatin’ in the market. Most speculators that I know are plenty smart enough to be at more than arms length from the current market.
But buying and selling homes is hardly about speculators, even in the best of conditions they make up a very slim percentage of buyers and sellers.
So no matter the condition of the market, value comes down to whatever agreement a buyer and a seller can make.
gotlots
Todd: Until the easy money cheap credit ponzi scheme took over, there were traditional methods of valuation for homes. Perhaps the most common was 150 times rent, or even 200 times rent in those markets that always were on the expensive side.
Go to Craigslist today and check out what houses are renting for in any of the look alike cookie cutter neighborhoods in Spanish Springs or South Meadows or the new northwest, or wherever. You will find house after house after house renting for $1300 a month or $1400 a month. Then go look up what these exact same houses are selling for. 300 or 350 times rent is the norm. Some 400 times rent.
My point is that by all traditional means, many many houses in Reno are INDEED 20% overvalued. Many are more than 20% overvalued.
Sometime about 2002-2003, people stopped buying houses based on fundamentals. They started buying them with no regard to fundamentals, on the belief that it did not matter what they paid, because some greater fool would come along and pay yet more for the house than they did. Every day, as the mainstream media finally get the story, and the backyard barbeque chat turns negative on housing, greater fools are getting harder to come by.
The quote from Barrons posted by RI is right on. There will be a reversion to the mean. There always is. And it will be ugly for a lot of sellers.
I continue to suggest that if one wants to lock in declining value, there has never been a better time to buy in Reno.
Reno Ignoramus
“For years, real estate brokers and home builders promised that the soaring property market would eventually glide to a soft landing. It is not working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago.”
The Wall Street Journal
August 23, 2006
This, of course does not apply to Reno. We are special, because we are close to Lake Tahoe. We are different, because everybody wants to live here. Thousands of rich boomers, inheritance in hand, will come to Reno and effectively suspend the economic forces at work everywhere else in the United States.
Todd Tarson
I have no problems with what you posted, in fact I agree with much of it.
What was the cause of folks throwing out fundamental reasons though?? In my estimation it was due to the creation of an artificial population of buyers (government programs, interest rates, fancy financing, etc.). All of a sudden there were plenty of buyers who normally couldn’t afford homes at yesterday’s prices, and just as suddenly they could afford to enter the market and then some. It was a perfect storm of sorts and it affected most every real estate market.
The result was a run on housing and property, of course speculators piled on because they knew for a short time that they could get in and get out and see very nice returns. In fact I think they helped amplifiy the pricing pressure.
But still, it came down to what the buyer was willing to pay. At the time that buyer was in fierce competition with other buyers for the same item. There was no supply that could meet the demands of the market. To me it had nothing to do with anyone saying that prices could never come down. I never told a client that the home they wanted to live in was a sound investment as a reason to purchase a home. Those clients needed a home to reside in and the choices were few and the prices were rising each passing minute.
Now supply managed to ramp up at, what I’ll agree, inflated prices. But they are inflated due to the affect of competition. Now there is hardly any competition at these prices.
Inflation is on the way and before too long today’s prices will look cheap once again, just as when we look at prices in the 90’s as compared to now look cheap.
My Mom lives in Sparks right now in an old home on York Way. Whatever she could sell it for today will be a lot more than her and my Father bought it for when I was in High School. It’s probably more than I could sell my home for in Arizona where I live and my home is 2.5 years old and in better condition and it’s bigger, nicer, more modern, etc. So yes, to me her home is overpriced and as a buyer, I would not buy it. But some buyer likely will… at whatever price they and my Mom agree to. If she ever decides to sell.
gotlots
Todd: You are right, I don’t think we disagree about too much.
What caused people to throw out fundamental valuation methods? It was not inflation. It was what I call the cheap money easy credit ponzi scheme.
You may have been around long enough to remember when lenders required a down payment. When they required verification of income. When they would not make a loan to anybody if the mortgage payment was more than 28% of monthly income, and if total debt service was more than 39% of income. When interest only loans were basically not available to residential borrowers.
In 2002-2003, lenders essentially just threw out these traditional lending guidelines. Suddenly no down payment was required. Stated income, or liar loans, replaced independent verification of income.
Anybody who could fog up a mirror could get a mortgage that would require them to devote up to 50% of their income (their REAL income, that is) JUST FOR THE PITI PAYMENT. Valet parking runners could get a liar loan for $450,000. Hairdressers making $35,000 a year could get a loan for $400,000. You may think I exaggerate, but believe me, I do not. It happened.
Fueling all this were the historically low interest rates. But instead of taking advantage of these once in a lifetime rates to lock in a very low and affordable fixed rate mortgage on a house within their real financial means, people used these rates to overextend themselves into far more house than they could afford. Valet guy and hairdresser each go out and get a nothing down adjustable rate loan with an initial rate of 2%. And then go out and buy the most expensive house they can with their suicide loan. They are buying something they cannot afford.
So where did valet guy and hairdresser go with their state it loans? They went out to South Meadows and Spanish Springs and the new NW and blah blah blah and drove up the price of houses.
How else could a house on July 1, 2003, be worth $300,000, and the same house be worth $450,000 on December 31, 2005? How does a house go up in value $150,000 in 18 months? Inflation? Did wages in Reno jump 40% in 1 1/2 years?
Todd, what do you think the median price of a house in Reno?Sparks would be today if:
1) Everybody that bought in the last 5 years had been required to put at least 10% down?, and
2) Everybody that bought in the last 5 years had been required to supply independent verification of their income?, and
3) everybody that bought in the past 5 years had to have met the 28%/39% guidelines?
Any truthful answer exposes the ponzi scheme that is starting to come undone here in Reno and all across the country.
Todd Tarson
My comment on inflation was future inflation and nothing to do with any recent inflation. I know that inflation had little to do with the pricing increase. And the loose financial products had much more to do with it.
I see the problem as timing. There wasn’t a glut of homes or even new homes on the market when lenders started the no down loans, nor when the interest rates dropped down to record lows.
It was a normal market. Then the perfect storm hit and there wasn’t enough supply to satisfy all the newly qualified buyers. Sellers had the upper hand, yet it was those buyers competing with the more traditional buyers (and investors and speculators) for homes on the traditional market.
Of course the builders went right to work to provide as many new homes as they could to satisfy the new market. And oh boy did they ever make a profit all along the way. I like profit myself.
I was saying during the runup of pricing that this wasn’t the best thing for the market for one day the supply of buyers will dwindle. Too large of increase in price too fast. I saw it coming, you prolly did too. I am a Realtor but I also buy and sell property for profit as well. I stopped buying in 05.
I’ve not had a client that I worked with to buy a home that used new fangled financing. In fact most of my buying clients were from another state (CA mostly) and paid cash for their new property once they sold their existing property.
I sold one of the last homes in a sub-division for less than $200,000 where you’d find .5 acre lots with an average footprint of 2100 square feet or so. That home WILL sell today for $325,000 but probably could have sold for $400,000 last year.
I believe that the coming inflation will mean that anyone who bought a home in that sub-division for $400,000 will likely sell it for more than that amount in the near future.
Of course I still believe a buyer should have a healthy down payment when purchasing a home. As a Realtor I say that because those deals do not go bad as easily in the escrow period for the buyers, in other words those deals are bankable to me.
But for the hairstylists and the valet parking attendants that were buyers, it was still their decision to purchase at the agreed to price. Sure the lenders provided a higher risk product to them as means to pay for the home, but they HAD to know that going in.
I simply will not impugn the entire body of Realtors and lenders or builders for whatever mess the client got themselves into. I realize there are shady practicioners out there though, but I’m not taking the blame for their actions.
Reno Ignoramus
The chief economist of the Mortgage Bankers Association is worried enough about the credit/housing bubble to get out of it.
“I am going to rent for a while.”
Douglas Duncan, Mortgage Bankers Assoc.
The chief economist for the nation’s mortgage lenders trade association is getting out of the market and renting?
Hmmm.
Reno Ignoramus
“Either homeowners will end up paying more than they can afford (why did they go for no money down in the first place?), for something worth less than they paid for it (that is what happens in a bear market). Or, they will lose their houses. When that happens, the world they thought they understood will give way beneath their feet.”
U.S. News and World Report
August 22, 2006
Reno Ignoramus
“To say that the housing market here is slow right now is a bit like saying Beirut’s streets need some patching. Ever live in a staged home for 5 months? It’s about as pleasant as living in your car.”
“It’s being called a ‘housing lull’ or ‘a return to a balanced market’. There is more unsold inventory on the market right now, here and in many U.S. markets than you will find at Wal-Mart.”
MarketWatch
August 23, 2006
Rkybarl
Lead story on NBC Nightly News tonight was the deterioration of the housing market across the U.S. The mainstream media is finally on to the story.
NBC did not, however, note that it is different in Reno because Reno is special. I guess NBC is still a bit behind the curve in recognizing that Reno is immune to economic forces at work everywhere else.