Regular readers are aware that I update a median Solds table each month. In this table I report the median sold price as well as the units sold by month. However, the application I use to generate the numbers only provides me with the previous two years of data. Because I began tracking these numbers in January 2007, my table presently contains data starting in January 2005. Frequently, however, readers have asked that I report data prior to 2005.
Again, due to limitations of the application I’ve been using, this is not possible. A workaround however is to manually pull these numbers from our MLS on a month by month basis and compile the median, units sold, etc for each month. This is a time intensive process and one that I did not necessarily want to perform […I kept hoping that an upgrade for the other software package would allow for a longer historical search to be performed].
Anyway, last week I sat down and manually compiled monthly numbers going back to January 1999. And then today I pulled December’s latest numbers. I now have a table reflecting Solds data for the last nine years. The metrics I compiled include: number of units sold; median sold price; and average days on market (DOM). The criteria I used in my data search are:
- MLS area 100 (Reno, Sparks)
- All Residential property types (condo/townhouse, manufactured/modular, site/stick built)
- Status: Sold
[Note: The criteria above are slightly different from the criteria I normally use for my monthly posts on median prices. Specifically, I normally exclude “manufactured/modular” properties. Because these types of properties are now included, the resulting monthly median Sold prices are a little lower than what I have reported in previous posts. The trends observed, however, are the same. For example, as is shown below the median sold price peaked in July 2005, which is consistent with the results I have found using the other method.]
102 months of data is a lot of data to absorb in a table format, so I have produced graphs of each of the three metrics so that trends can clearly be observed. And I must admit the graphs produced from this data are very enlightening.
The spreadsheet containing the data used for the graphs below can be found here. Let’s look at each of the graphs created from this data. [click on the graphs below to enlarge].
Number of Units Sold (1999 – 2007)
This graph clearly demonstrates the seasonality of sales. The summer months (June through September) consistently have shown the most units sold for any given year (see Table 1)…
Table 1: Months with greatest number of sales
| Year | Month | Units |
|---|---|---|
| 1999 | July | 432 |
| 2000 | June | 528 |
| 2001 | Aug | 520 |
| 2002 | July | 551 |
| 2003 | Sept | 681 |
| 2004 | Sept | 765 |
| 2005 | June | 847 |
| 2006 | June | 523 |
| 2007 | May | 463 |
…except for 2007 where units sold peaked in May at the lowest level since 1999 and then plunged for the remainder of the year.
The month of January leads the list as having the least number of sales for any given year (see Table 2)…
Table 2: Months with least number of sales
| Year | Month | Units |
|---|---|---|
| 1999 | January | 245 |
| 2000 | January | 250 |
| 2001 | January | 311 |
| 2002 | January | 306 |
| 2003 | January | 365 |
| 2004 | January | 432 |
| 2005 | January | 412 |
| 2006 | January | 353 |
| 2007 | December | 225 |
…again, except for 2007 where units sold continued to fall throughout the year to bottom out in December to levels not seen since January 1999.
Monthly units sold for the Reno-Sparks market peaked in June 2005 with 847 residential units sold. Last month (December 2007) less than 27% of that number was sold.
Before I get to the median sold price data, let me touch on the DOM (days on market) data.
Days on Market (1999 – 2007)
I realize that the reported DOM number is a less than accurate count of the total days a property was truly on the market before selling, but if we assume the means of reporting DOM has remained consistent (though inaccurate), then perhaps meaningful trends can be observed.
The first thing I noticed from the graph is that is appears to be somewhat the inverse of the # of Units Sold graph. As DOM dropped lower and lower, units sold continued to increase. Of particular note, though, is that DOM hit its lowest level (55 days) in September 2004. Units sold didn’t peak until June 2005, nine months later, and median sold price peaked one month after that (July 2005). In this way, perhaps DOM can be viewed as a “leading indicator”.
However, if DOM is, in fact, a leading indicator, then I worry about its present trend and the projections it portends. Currently averaging 139 days, DOM has been trending up since 2004 and is now at a record high. Even if DOM was to level off today, does that indicate the Reno Sparks market has another nine or more months of declining sales to look forward to?
And I don’t see the increasing DOM to level any time soon. Because units sold continue to decrease, the inventory of unsold homes continues to rise. This higher inventory will result in a longer time on market, thereby increasing DOM.
Finally, let’s look at the graph of the median sold price.
Median Sold Prices (1999 – 2007)
This graph is the most telling. The longer time horizon really puts into perspective just how drastic the run up in home prices was.
It looks like Q4 2002 was when the market started to take off. In fact, in October 2002 the median sold price jumped nearly 11% from the previous month. Yes, that’s an 11% increase in one month!
Compiling the median price data on an annual basis we get the following:
| Year | Median Sold Price | % ? |
|---|---|---|
| 1998 | $136,000 | – |
| 1999 | $141,500 | 4.0% |
| 2000 | $148,000 | 4.9% |
| 2001 | $155,500 | 5.1% |
| 2002 | $169,000 | 8.7% |
| 2003 | $195,000 | 15.4% |
| 2004 | $258,000 | 32.3% |
| 2005 | $318,000 | 23.3% |
| 2006 | $305,000 | (4.1%) |
| 2007 | $285,000 | (6.6%) |
The third column in the table above shows the % change in median sold price compared to the prior year’s median sold price. Look at the run-up from 2002 to 2005. 32% annual appreciation in one year?! 88% appreciation in three years?! No wonder everyone became a real estate investor.
The air clearly needed to be let out of this overheated market. The median sold price peaked in July 2005 at $339,450. Last month’s (December 2007) median sold price was $285,000. This is off 16% from the peak price. But is it enough?
If we assume the market had been “normal” prior to October 2002 [the month I chose as the start of the run-up], and we look at the average monthly increase in median sold price from January 1999, we get a monthly increase of about 0.381 percent per month, or an annualize increase of about 4.467%.
Applying this rate of growth to 1999’s $141,500 median sold price projects a 2008 median sold price of $209,686 (see Table 3 below). This number is a far cry from last month’s $285,000. In fact, it is 26% less. Am I saying that the median home price needs to drop another 26%? No. I’m simply illustrating where a more realistic rate of growth might have placed the median sold price today.
But what is the “normal” rate of increase in housing prices that the Reno-Sparks housing market can/should reasonably expect? 4%?…5%?… 6%? There are too many factors that play into growth (inflation, population trends, wages, inventory, etc.) to discuss here, so I don’t have an answer to that question. However I did plot a few hypothetical values (growth rates) to see where these rates would have place today’s median sold based off of 1999’s $141,500 median home price (see Table 3 below)
Table 3: Projected 2008 median sold price
(based on hypothetical rates of annual increases)
| Rate | Median |
|---|---|
| 4.47% | $209,686 |
| 5% | $219,513 |
| 6% | $239,062 |
| 7% | $260,142 |
| 8% | $282,859 |
I could go on, but you get the picture. I stopped at 8% because I was curious what was the annual growth rate needed to get us from 1999’s $141,500 median price to last month’s $285,000? The answer is 8.1%. If this rate sounds reasonable to you, then we’re right on target. If 5% is more to your liking, then as you can see from the table above the current median ($285,000) still needs to drop another 23% in order to reach $219,513.
If you’re Moody’s then we’ve got another 11.2% to go before we hit bottom. [Note: we’re presently 16% off our peak median sold price]. Moody’s projection would bring our median sold price to $247,120.
What is the real answer? I don’t know. All signs point to a further decline in the median sold price for Reno-Sparks. How much more? Good question. I welcome your insights.
Data courtesy of the Northern Nevada Regional MLS – January 2008.
California Boomer
Thanks for all the interesting data. I always rely on your blog to keep abreast of the Reno real estate market. Happy New Year to you all. Of course, we Californians are still waiting for that last 11% of steam to be let out of the Reno bubble.
Diane Cohn
Guy, a fabulous analysis… thank you so much for taking the time to pull this together. 2008-2009 are definitely years of reckoning in the Reno-Sparks housing market.
longerwalk
Thank you for this impressive piece of analysis, Guy. It will be interesting to see if the market eases its way down, or crashes. I sincerely hope the former, for a variety of reasons from economic to social.
smarten
As some of us observed last month, the median sales price is pretty much becoming irrelevant because the pool of sales is dwindling to unprecedented depths. In November you reported 229 sales. December sales have dropped further to 225 [and December, unlike November, includes manufactured housing].
But for 2002 [when you state the market bottomed], monthly sales have dropped or remained flat every January, February and March. Thus historically speaking, I expect the number of monthly sales to continue dropping for at least the next three months. At that point there really won’t be much further for sales to drop [because the market will pretty much have come to a halt]. Add your nine months and historically speaking, the bottom [pricewise] may very well be at the end of 2008 [just as some of us have opined].
Just out of curiosity, how many properties were listed for sale in December [remember that in November there were 4,600]? If the number has risen, then the percentage of properties actually selling continues to drop in tandemn with the drop in the number of sales.
SkrapGuy
Great work, Guy.
I suggest that if you were to graph the decline in the application of the traditional standards of creditworthiness starting in 2002 and accelerating through 2005, you would find an absolutely perfect correlation to the increase in median sales price.It is no surprise to anybody paying attention that once the no doc/low doc nothing down, I/O loan liar loan became available to anybody who could fog up a mirror, prices bubbled up to unsustainable levels.
It NEVER was increasing wages (yea right), or the legendary rich Californians that ran prices up. It was the Voodoo loans, as RI likes to say.
Today it seems everybody has a story about a friend or acquaintance or colleague who has a mortgage tens or hundreds of thousands of dollars more than his house is worth. Ten year old children know what the term “short sale” means.
I know a man who works for a developer here in Reno. I will protect his identity, but I will share with you that his company has gone from a staff of 65 to 6, and every one of his company’s projects are in default. Every one. He predicts that if sales continue at present rate, his company will be in BK by June or July, and every projects will be REO.
The bottom in 2008? That’s just laughable.
Watson
I agree it’s difficult to see the bottom in 2008. 2008 will be the year that brings the failure of some local/regional builders. Perhaps even the failure of one of the national builders.
There are 100s of real estate blogs describing the decline of the housing market virtually all over the US.
People’s mentality has changed. Fear has replaced greed. In 2004/05 (look at Guy’s graph)the mentality was buy now or get priced out forever. Today, the mentality is buy today and ride the market down.
Casa de Dolor
Guy, wonderful job. Is it just me or does that Median Sold Price graph looks precisely like a Tsunami wave? Notwithstanding that observation, those are some great stats.
Casa
Ann O.
The lowest number of days on market (which I understand is flawed, but still!) was in Oct. 04. Yet sold prices kept rising until July 05.
Since the days on market were rising, presumably the inventory was rising at the same time. I keep thinking the real estate agents must have been aware the inventory was rising but kept that information from buyers in order to keep the prices high.
I brought this up on another Reno real estate blog, and I believe the author’s response that he truly didn’t notice the rising inventory because he was hoping to make money in the market himself. Did anyone notice it? I know I started noticing it early in 2005 because whenever I went to the MLS search site at the RGJ a larger number of homes came up. I also noticed homes in my neighborhood were taking longer to sell.
Diane Cohn
Ann O, I can understand being an agent in a heated market and not noticing a subtle change like that due to the intense euphoria around you. I doubt it was a conspiracy. Ignorance is the more likely culprit.
I started doing my monthly market reports for Realty Times in June 2005. Why? Because I could sense a change in the market, yet wasn’t able to quantify it. All that spring I had noticed that buyers had more homes to choose from, multiple bids disappeared, and sellers would even take a few thousand less. I figured that if I started watching the market more closely, doing the same detailed report every month, I would be able to see subtle changes and articulate them to clients.
This consistent approach has made all the difference in my understanding and acceptance of market reality.
Ann O.
I admit I can be awfully cynical. That’s why I wanted to hear the realtor’s side. Good for you for paying closer attention to the market and providing this blog. Thanks for the response!
NVMojo
wow, excellent work!!
Too bad the Reno Gazette doesn’t cover this type of info instead of the sugar-coating they whip together for articles like this one:
http://news.rgj.com/apps/pbcs.dll/article?AID=/20080102/NEWS18/80102044&oaso=news.rgj.com/breakingnews
Nevada now leads in growth, foreclosures
RGJ 1/2/2008
Allen Murray
Great work Guy, it is very interesting to see the data all the way back to 1999. Currently, average days on the market is at an all time high while actual solds are at an all time low, at least since ’99. Median sales price is nearly back to 2004. I just looked at a REO today in SW Reno that last sold for $690K currently asking $370K. These 1/2 price deals are starting to become more common. It will take some time before we start to get any up tick, maybe a year or less, but I’m not sure that we have much further to fall. I really appreciate all the work you and Diane put into this blog and wish you both a great 2008!
Reno Wannabee
Great job, Guy! I’m sure it was a lot of work butis much appreciated by all of us who watch the Reno market. I like to have as much information as possible & you’ve done us all a great service by taking the time & making the effort to pull it all together.