So the buzz around the water cooler this morning was the lead article in this morning’s RGJ. Apparently, in a new report issued by Global Insight/National City, Reno-area home values have now declined to point where they are now just below what the report considers absolute fair value.
The report determines “fair value” based on typical house prices, interest rates, household incomes, population densities and historical prices over the last 25 years. The RGJ article also contained a chart showing how Reno’s downward median sales price curve has now met the “Statistical normal value” curve for homes in the area.
According to the report, the value of Reno-Sparks area homes for the first quarter of the past four years has been…(see table below)
| Q1 of… | Home values: |
| 2005 | 29.4% Overvalued |
| 2006 | 40.6% Overvalued |
| 2007 | 25.3% Overvalued |
| 2008 | 0.2% Undervalued |
GreenNV
Here’s a link to the Global Investors / National City source material: https://www.nationalcity.com/main/micro-site/economics/commentary-analysis/pages/housing-valuation-analysis.asp?WT.redirect=%2Fcorporate%2Feconomicinsight%2Fhousingvaluation%2F
I’ve following their data for a while, and it is pretty interesting. Besides they have one of coolest interactive maps! Make sure you read the full report, methodology, and data. Some interesting tidbits:
– Reno’s max over-valuation was 41.9% in Q4 2005.
– Home prices correct to 50% of the over-valuation (we should drop 21% from the high).
– The correction typically occurs over a span of 18 quarters, so we are only half way there.
BanteringBear
When median incomes DO NOT afford median home prices, the housing market is not “fairly valued”. I didn’t research Global Investors, but I’d be willing to bet their credibility is about as solid as Moody’s. Furthermore, the RGJ is so heavily reliant upon ad revenue from real estate, that they are dying for this thing to turn around. It’s just not happening anytime soon. What’s their next puff piece, “Stupendously Fairly Valued”?
GreenNV
We are pretty much at the point when you CAN afford the median home on the median household income. The latest income study I know of is from October 2006 from the Center for Regional Studies. Washoe County median household income was $63,764 (median family income was $74,447). Even rent vs. own is looking good at the median.
And don’t cry for the RGJ, BB. They are doing just fine publishing all those Notices of Sale!
BanteringBear
I call BS on those income stats, Green. Please post a link as I am unable to confirm them through the CRS website.
The best data I can find was from 2003 which shows median household income of $45,140. In a period where, for the first time in our countries history, we had enormous economic expansion, with flat to negative wage growth (adjusted for inflation), I find it impossible to believe that Washoe County bucked the trend with median incomes rocketing up over the past few years. Let’s be realistic here, San Francisco had a median household income of $57,833 in 2005.
I reitterate, median incomes DO NOT support median home prices. Furthermore, historical home prices are less than 3.5X median income. That would put median home prices, according to my numbers, at ~$165k. I’ll stick to my numbers.
GreenNV
Actually, there are updated December 2007 estimates out – $64,055 median household income, $74,719 median household income. http://www.nsbdc.org/what/data_statistics/gis/data_downloads/docs/Cities__County.xls
If that download won’t work, go to http://www.nsbdc.org/what/data_statistics/gis/data_downloads/ and download “2007 Demographic Estimates – City of Reno, City of Sparks, Unincorporated and Washoe County”.
That puts median home price at 4x median income. Works for me.
John Newell
From the numbers I use regularly (including a great deal of work with income based HUD funded and/or regulated housing), Mike’s numbers seem plausible.
I don’t have the median income data specifically for Washoe County, but I have the 2006 Nevada median income data for the U.S. Census Bureau ( http://www.census.gov/hhes/www/income/medincsizeandstate.html ). These are the data used for the chapter 7 bankruptcy means test.
Nevada Estimate (Margin of Error)
Total: 61,466 (+/-837)
2-person families 56,258 (+/-1,864)
3-person families 63,231 (+/-2,682)
4-person families 66,095 (+/-2,255)
5-person families 66,200 (+/-2,757)
6-person families 68,101 (+/-8,670)
7-or-more-person families 71,448 (+/-13,697)
In the past, both Clark and Washoe counties have had higher median incomes than the state as a whole.
Furthermore, HUD calculates Reno/Sparks 2008 median family income as $69,496.21 ( http://www.huduser.org/datasets/il/FY2008index_mfi.html ). This calculation is based on 2000 census date (MFI $54,326) and the 2006 American Community Survey (ACS) data (MFI $66,308) for the Reno/Sparks area. Admittedly, these numbers are for the Reno/Sparks metropolitan area, not all of Washoe County, but they put us in the ballpark for the county.
Guy Johnson
Here’s a link to the Center for Regional Studies’ 2007 Median Household Income map for Greater Reno-Sparks: http://www.nsbdc.org/what/data_statistics/gis/data_downloads/docs/2007_median_household_income.pdf
GreenNV
Cool map, Guy! My house splits a Section, and the median income in my back yard is $12,000 less than the median in my front yard. So on bad days, I work on the subsistence garden out back. On good days, I polish the Audi tt in the driveway!
BanteringBear
The US census bureau reports in 2003 that median household income for Washoe County is $45,140. Now, it is reported by the Washoe County CRS that for 2007, median household income reached $63,764, a more than 40% increase in less than 5 years time. In a period of unprecedented wage stagnation nationwide, something smells extremely funny. Perhaps mass house flippings have skewed the median higher?
I can no longer believe these statistics. I know nobody whose salary has increased at that rate since 2003. I’m calling BS on the data. Thanks GreenNV, Guy, and John for the links.
doofus
OK, June 5, 2008, write it down – the date BanteringBear achieved the street cred’ of a 4th Street hooker and responded that he “can no longer believe these statistics” when presented with the data from the most reputable, unbiased source of regional economic data.
The dude has been pretty right-on in his predictions and pontifications historically. I’m looking forward him refuting all the median income data from the cited sources, or revising his forecasts based on the current data.
Sully
All this data is “making” the market turn around?
And this comes before 2500 NOD’s have had a chance to move through the pipeline!
Any data coming from any government source has to be considered suspect, as they reserve the right to change it next month (and they usually do).
I’ll go along with BB.
BanteringBear
doofus:
I’m still shaking my head at those stats. Something is clearly wrong. I haven’t figured it out yet, but I will. It’s just a little too fishy for my skeptical mind to wrap around.
bondstevenbond
If 50% overvalued two years ago, then why not 25% undervalued by two years from today? Dec 09 seems like a reasonable bottom date to me. That date is 16 months after the arm reset wave ends and about the time that foreclosures will finally calm down. Human psychology is a two way street. Just my two cents.
DonC
The Center for Regional Stuties map was terrific. Very nice presentation. Thanks Guy.
The problem of course is that the notion of Fair Value being calculated here is derived soley by looking at the demand side. It tells you what the median buyer could buy.
But on the supply side you have 350+ foreclosed properties a month. At some point the market price is set by both supply and demand. Another way to put this is that you can accept the Fair Price advanced here over the long run but that doesn’t mean it will be the price in the short run (until the extra supply is absorbed).
I’d also wonder how much expectations play a role. People were were willing to pay a premium to buy rather than rent when they expected houses to appreciate strongly. Now they may be willing to pay less if they expect depreciation.
RobF
I’ve been watching for my opportunity to buy for several years. I’m looking for house with some personality, not a cookie cutter, with an acre or more of land.
What I have seen for the past several years are sky-high prices. What I see now are sky-high prices. I have seen little to no change. I see the same $700-800k properties in the mls that ought to be $500-600k.
Maybe my expectations are too high. Even though I really want to live in northern Nevada, I’m not going to pay California coastal prices for Reno.
Still seems to me that my buying opportunity is far away.
Future Buyer
You are not alone RobF we are in the same category with you–I think we should organize a buyers strike–actually we don’t need to, it’s already happening! Bantering Bear–you are awesome! Let us know when we’ve hit bottom, because you are right– it is a long way off!
John Newell
Regarding the data I cited, these are data used by federal and state agencies to determine eligibility for federal poverty programs (the HUD MFI estimate), and by the U.S. Bankruptcy Court to determine whether a Chapter 7 bankruptcy petitioner exceeds the median area income (the U.S. Census Bureau state median income data). They are not subject to revision until the next calendar year. This does not, of course, ensure accuracy, but the data are accepted as fact in administrative and court proceedings.
While I am confident that the median income data presented is not wildly inaccurate, I am inclined to believe that the market will return to the “undervalued” status it had from the early 90s through 2003 (according to the National City historical data), perhaps as much as 25% “undervalued” (as bondstevenbond suggests). My suspicion is that the National City Fair Value metric is not commensurate with “affordability,” and I agree with BB that the market will not rebound until selling prices are affordable for middle income borrowers using traditional financing
Phil
What do you think will happen when inflation will cause the feds to raise interest rate back to 1970’s levels of lets be conservative at 8%?
I always considered this boom to be fueled by low martgage rates and easy money. The easy money has tightened already!
The ride down still has a long ways to go….
And yes I sold and bought a home during this time. And I still have no regrets as I enjoy living in my own home even though I lost a couple hundred thousand dollars! Ouch, I didn’t think it would be this bad, and I just hate moving.
Phil
Argg I am losing money all over the place!
Glad I didn’t short oil! Record price increase today and we are at almost 140.
MikeZ
Glad I didn’t short oil! Record price increase today and we are at almost 140.
LOL.
BanteringBear
Thanks for the info, John. While I am astonished, I cannot argue with those numbers until I can find something comprehensive which disputes them. As with all government statistics, I find them highly suspect (can anyone say inflation and unemployment figures?).
Nevertheless, I am still convinced the median will drop below $200k. I expect unemployment to continue to climb, and wages to stagnate or decline, making it more difficult for people to buy homes. Supply is absolutely crushing demand.
On another note, where’s the Stucco Oracle? He just got absolutely fleeced by Wall St.
SmartMoney
Yeah, saw oil makes its largest one day move in history today. That poor guy.
smarten
“Where’s the Stucco Oracle? He just got absolutely fleeced by Wall St.”
Not likely [according to him]. We’re going to hear one of three stories. Either he bailed several days ago when the price of oil dipped slightly and he made a nice profit for a week’s investment. Or, haven’t any of us heard of stop orders? Being the savvy “player” he is, the learned one from the northeast bailed out of his “take it to the bank” investment advice before he got creamed. Or what I think will be more likely, we won’t hear ANYTHING!
Too bad Derrick didn’t warn those others frequenting this site who sought out his wisdom so they wouldn’t get killed. So let this be a lesson to any of you out there that would ever take investment advice from anyone like him! Or as the learned one likes to say, hahaha, LOL and look who’s looking at my bank account now?
DERRICK
DO’NT YOUSE PEEPEL FORRGET THT I YAMM A SILICONE VALLEYE MEEELYUNEAR ALL YEW LOZERS. SOWS I LOSED SUMM MONNEY TOODAY, THT’ATS OKEY BECUAZE I YAM RICCHLY SOS I CANN AFORD TOO.
smarten
Just goes to show us all that one doesn’t need to have a high school diploma [in remedial English no less (do I hear No Child Left Behind?)] to be a millionaire! What a country!
And just for the record. Our friend from Spanish Springs has admitted on several previous occasions he’s NOT rich [even by his definition of the term]. Apparently that has changed.
Faust
I think it’s retarded that 90% of the discussions on this blog start about real estate and end it by Smarten and Derrick flinging fecal at each other like a pair of monkeys in a zoo.
Marla
Absolutely right Faust. It seems that every thread has to degenerate into a pissing contest between Smarten and Derrick. What they each can’t stand about the other is that they are exactly like each other. Each is a self-proclaimed All Knowing All Omniscient Master of the Universe. Neither one of them can stand to be challenged in their Omniscience. All it does it result in the posts of each of them losing credibility.
Grand Wazoo
OK, let me get this thread at least back on a real estate track.
Question for the experts: are all homes offered for sale automagically posted on the MLS? More than once I’ve driven by a home on a certain street with a big FOR SALE sign out front showing a listing with a realtor, and yet no amount of searching on the MLS can find the property.
Comments?
Sully
An exclusive listing may not make the MLS, until it sits for a while and the seller wants more exposure.
Sounds like someone is still in dreamland if they have a house for sale and not on MLS. The sellers needs all the help they can get in this market.
Marla
That’s an interesting question Wazoo. It’s hard to understand what the point would be of agreeing to pay a realtor’s commission but not have the house exposed to the MLS. I am aware of a couple of listings where the opposite happened. That is, the house was listed on the MLS but no for sale sign was put on the property. I was told the purpose was to not create the impression that too many houses were for sale in the neighborhood.
NAS
I’m not sure where to interject this, but foreclosure.com is off the page with NOD’s on properties held by The Ledges, LLC in Somersett. If I remember correctly, they bought out MDG.
Anybody?
GreenNV
The Ledges are all NODs for nonpayment of HOA dues. They are also about $60,000 delinquent on property taxes of 22 parcels.
If you believe property tax delinquencies are a harbinger of things to come, tale a look at the Belvedere. They are behind on about a hundred parcels.
SkrapGuy
Speaking of the Belvedere, I recall that several months ago a poster (DataGuy I think?) put up a list of all the purchasers at the Belvedere, of which about 99% were from out of town. I thought he said that those sales were closed deals. Am I correct about that? The reason I ask that is if you drive by the Belvedere at night, the place is dark. Since everybody who bought there is from out of town, that might explain it. Anybody know if those are in fact closed deals?
Thanks.
downtownjunkie
Marla,
The seller could potentially save 20-30% on commissions if the agent finds an unrepresented buyer. I would strongly disagree with that tactic in these market conditions.
Tom
Marla, we are on the Los Angeles MLS with an agent, but without the sign. But it isn’t because we don’t want too many homes for sale to be visible, which isn’t the case in our neighborhood. What happened was that we found that the yard sign was attracting visits by the cruising homeboys from East L.A. and south central L.A., stealing mail, rattling our doors, probably thinking we were absentees. So we had our Realtor pull the sign. These little urchins must assume a house with a “For Sale” sign is vacant, which many are in other parts of Los Angeles, so that makes it a good, safe prospect for stealing mail, breaking in to grab saleable property, or whatever else is on their activities list. We would prefer that they prospect for loot in their own neighborhoods, but they probably prefer to drive to the west side for better opportunities.
Our particular community sector of the L.A.P.D., and which covers a large territory, now has only four patrol cars per shift, as the majority of police resources are deployed to the troubled areas of the City. So we pay the lion’s share of the property taxes, based on our home values, but get short-changed on the most important of services. This is the same with our public schools. These youth gangs, local news constantly filled with weekend shootings, the taggers, and the proliferation of foreign-language store fronts is changing the face of this city dramatically.
Anyone beginning to see why other retirement-age boomers like us think Reno looks pretty good compared to staying in Los Angeles another 20 years? Sorry for the rant and going off-topic, guys, but just thinking about the thing with the sign sets me off.
Sully
All that and then the infamous traffic to put up with. I’m surprised you haven’t moved already. 🙂
Marla
Thanks, Tom, for the update on life in the big city.
Downtownjunkie, how could the seller’s savings possibly be 20-30%? I understand that if the buyer is unrepresented, (or if the seller’s agent ends up representing the buyer also)the agent does not have to split the commission with another agent. So the seller’s agent can put another 2.5-3% of the sales price in his pocket. But how does the seller save anything, let alone 20-30%??
downtownjunkie
Marla,
Some residential agents, often at the request of the seller, charge a lesser commission if the buyer is unrepresented. For example, if Joe Broker sells your home to a buyer who is represented by another agent, they typically split anywhere from a 5-6% fee. But if Joe Broker finds an unrepresented buyer you could potentially pay a lesser total commission (2.5-3%).
When agents place a listing on the MLS, they are offering to split their listing fee to other agents who bring a buyer. There is a small chance an unrepresented buyer could access the MLS and find a property on their own. But I have not experienced this.
Anyways, in a listing agreement, I always specify that if the buyer is unrepresented then the total commission owed would change from 6% to 4% or 3%. In most cases a 30% reduction in total commission is fair as the agent now has to handle both sides of the transaction. I also allow an agent to represent both sides as I have a lot of experience in RE transactions. I would not recommend dual agency for newbies or even individuals who have a couple transactions under their belt.
So back to your original post and Wazoo’s question: Agent listings do not have to be uploaded on the Multiple Listing Service-although it exponentially increases exposure. If sellers think they can save some money they may just stick a sign and try an attract a unrepresented buyer. IMHO this is not an smart decision right now. It ranks about as high as a FSBO as far as effectiveness.
Hope that made sense.
playtonium
Hi Skrap Guy the Belvedere is not officially ready for occupancy yet from what I understand. So NO ONE is living there yet.
homepop
Has anyone had any experience with Kyle Krch, a local realtor? Any opinions about his business model (low flat fee to sell your house)?
Thanks!
GreenNV
homepop, I listed a property with Krch yesterday! It is a lot, not a house, so all I really need is the for sale sign and MLS exposure (I’m not being disloyal – Diane suggested this approach). I’ll do a full blog post once the process is further along, but here are my experiences so far:
– There was a little pressure to move up to a more comprehensive listing package.
– No substitutions. I didn’t need the supplied lock box, and instead wanted a second sign. No deal – it cost me another $25. I expect I will be charged for absolutely anything I ask them about.
– The listing package said they would set the sign, but they wouldn’t do it since it a lot, not a house.
– Everyone has been very nice, and have performed well.
It is an interesting business plan, and fits my needs perfectly. It may not be for everyone.
SkrapGuy
Play, does that mean nobody has actually closed a sale at the Belvedere? Was that list that Dataguy put up months ago just a list of people who had put down a deposit? Something is a bit curious here. Tax delinquencies mounting. Mechanics liens claims mounting. Nobody in occupancy. Hmmmmm.
downtownjunkie
I know kyle and he has sold a property of mine. In 05′ I would of said use him. But that was when I could sell a mobile home in Saddlehorn (being facetious). Not to toot Guy and Dianes horn… eh what the heck. Nothing is selling right now but if I had to sell I would want the most visability. Can you say number one real estate blog in Reno!
Congrats Diane/Guy.
BanteringBear
Tell us about the parcel, GreenNV. What is the size? Where is it located? When did you buy it? How much are you asking? How much did you pay? Why are you selling into a weak market? Are you pricing it ala your friend Allen Murray, or are you staying away from the dreamy prices unlike “Mountain Vistas” and “Sunny Forest” (gag). Inquiring minds want to know.
GreenNV
The lot is 4305 Canyon Drive at Mayberry, right across the street from the alpacas. It is a very strange shaped .83 acre “L” shaped parcel with Last Chance Ditch running across the upper portion of the property, but it is way more buildable than it looks at first glance. The big benefits are the schools, no HOA or CCR’s, and the power Juniper Hills address (I hope). For what it’s worth, it is listed at $274,000, 12% less than any other lot in the 89519 zip code, and a third of the asking of the adjacent, clearly superior, lot.
I’m selling now because though it is a horrible time to sell, it is a great time to build. I need to cash-up to build on a property this fall further down Mayberry, across from Dorostkar Park.
For what it’s worth, I paid $234,000 2 years ago after a 14 month escrow, so it is a 2005 comp. I’ve spent 2 years subdividing it into 3 parcels, buying water rights, installing a sewer extension, fire hydrant, driveways, water and gas lines, moving overhead utilities, and paying the absolutely endless City and County fees. Am I in the trees with the asking price? Time will tell – there really aren’t any sales comps. At least I can deliver the property barn-free!
Allen Murray
Hi Green, I am familiar with your lots. Since you have subdivided them, are you asking $274k for all 3 or just one of the lots? I have a client looking for a building site. It does look like a tough site to build on, what are the city’s minimum setback to the ditch? Thanks, Allen
GreenNV
Allen – $274 is for the one lot, sorry! The easy lot to build on in next door at 5020 Mayberry. Then there is 5070 Mayberry, the tough lot, which through the magic of Washoe County is zoned for a duplex.
County has no ditch setback requirements. However, the ditch has a 20′ access easement on the north side. Just means you can’t build a structure on it, but could use it as yard space. My plan was to use the first floor for the garage and maybe some bedrooms, put the main living area on the second floor, and back fill on the south side to get some nice, usable outdoor space. I’ll email you the plot plans so you can get an idea about my “placeholder” building locations. Think freestanding 8 on Center. The new parcels are showing up on both the City and County mapservers for an over all view.
If anyone else out there is interested in this sort of stuff, let me know!
BanteringBear
Thanks for the info, GreenNV. Based upon the information provided, I thought you were taking a loss based on the improvements – that is until you clarified that $274k is for one lot. WOW! Good luck to you. If there’s anything tougher to sell than a house right now, it’s land.
Allen Murray
Yes, BB, I finally agree with you, I thought the asking price was for all three. To justify a $274K land price, one needs to put a $500K home on it, and the site/location is very unique. I too wish Mike luck.
GreenNV
Thanks for the good wishes, Allen and BB. I had 2 appraisers refuse to work with me establishing FMV because there were not comps around. If there were comps, I wouldn’t need an appraisal, bozos! So I set the price below anything around it, but still “hopeful”. You have to open the discussion somewhere. I have no idea how the market will value the location, schools, lack of HOA restrictions, Washoe vs. Reno property tax rates, and the site limitations (“design opportunities”). In Washoe, you have to prepay all the water rights and connection fees, as well as the sewer fees to do a lot split (about $50,000 per lot). Not true in Reno proper. So apples to apples is even more difficult to value and explain to potential buyers.
An aside, after spending the day in the Krch vault of required sales forms, I can’t believe how little is needed to transact a sale when you exclude all the Realtor CYA disclosures and hold-harmless paperwork.
Wish me luck. The phone is already ringing.