Below are July’s medians. Lot’s of noteworthy stuff here. The first thing that jumps out is that the median sold price dropped substantially from the previous month’s low. At $247,000, not only does July’s median sold price represent a 3% ONE MONTH decrease, but also a new low median sales price since I’ve been tracking these numbers. We are now 28.4% off of Reno’s peak median price of $345,000, set three years ago in July 2005.
On a positive note, the other number that stands out is the number of houses sold. July saw the 400 unit level surpassed; a feat we haven’t seen since May of last year. Activity has certainly been on an upswing lately…since bottoming out in January with a paltry 191 units sold that month. Each month since January has exceeded the previous month’s total. And not all of this activity can be attributed to seasonality. Observing year-over-year numbers shows that July’s 406 sales surpassed last [2007] July’s 351 sales by more than 15%. Furthermore, historically, July has not been the peak month for units sold. For example, last year’s peak units sold occurred in the month of May; in 2006 the peak was reached in June, and in 2005 the peak occurred again in May. It will be interesting to see if total units sold continue to increase for August.
So where are all these increased sales occurring? Well, obviously at the lower price points. July’s sales break out as follows:
|
% |
price point |
|
27% |
< $200K |
|
42% |
$200K – $299K |
|
18% |
$300K – $399K |
|
6% |
$400K – $499K |
|
8% |
> $500K |
Nearly 70% of the monthly sales are occurring below the $300,000 price point. That is the reason the median sales price continues to fall. And what is driving these prices? As we have pointed out numerous times on this blog, it is the “distressed properties”; i.e. the short sales and foreclosed properties (REOs).
Case in point: Of July’s sales, a full 36% were bank-owned. Another 8% were short sales. Add to that a handful of sales subject to court approval and other special conditions, and July saw 47% of its sales originating from distressed situations.
| Month and Year | # Houses For Sale | Median Asking $ | # Houses Sold | Median Sold $ |
|---|---|---|---|---|
|
July 2008 |
4,782 | $295,000 | 406 | $247,000 |
|
June 2008 |
4,730 | $298,000 | 391 | $254,900 |
| May 2008 | 4,749 | $289,900 | 343 | $255,000 |
| Apr 2008 | 4,523 | $290,000 | 337 | $269,000 |
|
Mar 2008 |
4,203 | $295,000 | 245 | $260,000 |
| Feb 2008 | 4,061 | $298,950 | 221 | $271,632 |
|
Jan 2008 |
4,126 | $300,000 | 191 | $268,000 |
|
Dec 2007 |
4,166 | $309,900 | 249 | $275,000 |
|
Nov 2007 |
4,530 | $314,900 | 231 | $286,000 |
| Oct 2007 | 4,894 | $319,000 | 267 | $287,000 |
| Sept 2007 | 5,035 | $324,000 | 270 | $285,000 |
| Aug 2007 | 5,485 |
$328,000 |
348 | $295,000 |
| July 2007 | 5,430 | $334,500 | 351 | $295,995 |
| June 2007 | 5,386 | $339,000 | 378 | $300,000 |
| May 2007 | 5,192 | $339,900 | 427 | $296,000 |
| April 2007 | 4,944 | $342,000 | 393 | $295,000 |
| Mar 2007 | 4,687 | $341,000 | 391 | $297,000 |
| Feb 2007 | 4,428 | $340,000 | 334 | $285,000 |
| Jan 2007 | 4,709 | $342,875 | 336 | $279,950 |
| Dec 2006 | 4,567 | $345,000 | 347 | $293,995 |
| Nov 2006 | 5,200 | $349,000 | 330 | $300,000 |
| Oct 2006 | 5,654 | $349,900 | 422 | $300,000 |
| Sept 2006 | 5,966 | $352,000 | 396 | $301,000 |
| Aug 2006 | 6,254 | $355,250 | 393 | $310,000 |
| July 2006 | 6,123 | $360,000 | 416 | $324,750 |
| June 2006 | 5,949 | $364,000 | 473 | $329,000 |
| May 2006 | 5,407 | $369,900 | 432 | $318,750 |
| April 2006 | 4,626 | $369,000 | 415 | $317,000 |
| Mar 2006 | 4,295 | $369,900 | 437 | $329,000 |
| Feb 2006 | 3,899 | $374,900 | 326 | $315,250 |
| Jan 2006 | 4,245 | $370,000 | 325 | $325,000 |
| Dec 2005 | 4,040 | $375,000 | 385 | $319,900 |
| Nov 2005 | 4,432 | $376,448 | 443 | $331,000 |
| Oct 2005 | 4,694 | $376,700 | 559 | $335,000 |
| Sept 2005 | 4,567 | $380,000 | 603 | $336,500 |
| Aug 2005 | 4,370 | $385,700 | 695 | $334,950 |
| July 2005 | 3,860 | $387,000 | 677 | $345,000 |
| June 2005 | 3,411 | $384,500 | 607 | $335,000 |
| May 2005 | 3,113 | $375,000 | 717 | $326,000 |
| April 2005 | 2,808 | $365,000 | 650 | $315,000 |
| Mar 2005 | 2,611 | $350,000 | 660 | $309,000 |
| Feb 2005 | 2,198 | $348,250 | 411 | $301,000 |
| Jan 2005 | 2,078 | $349,000 | 381 | $295,000 |
Note: The median table above is updated on a monthly basis. The median home price data reported covers the cities of Reno, NV and Sparks, NV. Residential data includes Site/Stick Built and Condo/Townhouse. Data excludes Manufactured/Modular and Shared Ownership properties. Data courtesy of the Northern Nevada Regional MLS – July 2008.
Future Buyer
This is a little off the subject of mean prices, but I’ve recently shifted my focus from ArrowCreek to Montreux due to the financial difficulties facing the Arrowcreek golf course and decided to see if I thought Montreux was immune to the price decreases affecting the rest of Reno. I found 50 homes listed in Montreux on the mls and then I looked up homes sold on Mitch Argon’s website–that website was a wonderful tip I got from this blog–thanks for that! 6 houses have sold in Montreux over the past 6 months(note this is during the “selling season”) which gives Montreux a 4 year supply–basically the same supply as the rest of Reno. If I just look at the houses priced over 2 million, 2 out of 14 have sold in the last 6 months, which gives them a seven year supply. That number also includes a few houses over 3 million which I have no statistical evidence those homes will ever sell. Montreux only has two homes in foreclosure. I’ve been told that the sellers in Montreux and the high-end market in general, can hang on longer than everyone else, which I completely agree with, however, can the builders hang on for 7 years?! Time will tell…
john
In terms of the builder homes for sale in Montreux there isn’t that much excess inventory and the inventory that exists is spread among different builders. They are actually moving some of their Chalet models built by Lakecrest, which start at 1.5 up to 1.9 and recently sold one of the 1.9 models. A smaller Chalet model is pending sale. The Renaissance models built by Silverstar, which are much lower in quality and have had quality problems, have mostly been sold over the past 3 years at bubble prices, but not many are back on the market. There are two in foreclosure as you note. They just started building their Maison homes which start at 1.6. Not sure if any have sold but don’t think so. They have aggressive bubble era plans for 50 of these, but I think that will be scaled back in a big way. They are nice, but overpriced in my opinion. There are a couple other builder built spec homes already built or in the works, but these seem to be moving after big mark downs. One was recently marked down from 2.45 to 2.1 and subsequently sold. A steal for some people, but for most still a very expensive home. Then there are the resale homes. I would say most of the inventory in Montreux is in this category, and in many cases, you are right, this type of seller can hold out a long time, some for years. Often these are second or third homes, purchased with cash, owned for tax purposes, and the sellers are simply in no hurry to cave to market conditions. Some have already been on the market for two years. If it takes another year or two for prices to rebound then it’s worth the wait for many of these sellers, financially and emotionally. Occasionally there is a desperate sale, but again, these are very few and far between. Will there be more? Maybe, but nothing on the scale of Arrowcreek or Somersett. So all in all I would say that yes, the Montreux market is very different, maybe not quite a hidden gem, but certainly immune to many of the market forces at play in Reno at large. Big money has a way of insulating one from the problems of the masses.
smarten
Disagree with you John.
What you’re seeing play out in Montreux is exactly what was happening in Incline Village [“IV” (and for the same alleged reasons)] the good part of last year until maybe December. Then the bottom dropped. IV listings are now at a 10 year high; unit sales are at a 5 year low; the median sales price has dropped about 15% in just 8 months; half the SFR sales this year have been under $1M [even though this segment of the SFR market represents but 20% of all listings]; everyday there are a good 8-15 price reductions [quite a few in the hundreds of thousands range (and even a couple in the millions)]; and I predict that come September 30, you’re going to see a carnage as this will represent the third straight down year; this season’s market will be finished for all intents and purposes; and the only remaining buyers will be bottom fishers.
We might have to wait another four or so months for these events to play out in Montreux, but I disagree that Montreux is so special and different that it can weather the storm any better than it’s high end neighbor to the south.
john
Smarten – the difference is inventory among other things. There are 323 listings for sale in Incline at 1 mil at up. There are only 50 total listings in Montreux. If you want to live in arguably the nicest neighborhood in Reno with by far the nicest amenities, (sorry, but Galena Estates, St. James and Arrowcreek are not in the same league as Montreux) then you don’t have nearly has many choices as if you want to live in Incline, which is nice mostly everywhere. Less listings equals less competition equals higher prices. Incline may be more prestigious than Montreux but there are some people who cannot live there due to the distance to an airport, work, hospitals etc. Plus if you are only in your house for 6 months out of the year for tax reasons then you need someone to keep an eye on it and maintain it. Many Montreux homes include that service. Montreux is unique, so are its sellers and buyers, and I don’t think the bubble blew as large as it did in Incline due to California money buying second homes for recreation and investment purposes there. Not many people in the bay area, as the bubble grew, were interested in a second home in Reno/Montruex. It just doesn’t have the same ring to it or cachet that Incline has, even though you get far more for your money in terms of house size and quality. The same house in Montreux transplanted to Incline is at least twice the price.
MikeZ
RE: “Montreux is unique, so are its sellers and buyers”
Do you have any direct or indirect connection to Montreux, John?
john
Mike – indirect I guess. I have been trying to buy a nice house for a “bargain” price in Montreux for the past year and 1/2. It has not been easy and I don’t see it getting measurably easier, for the reasons I point out, unlike in Incline and the rest of Reno.
Marla
So 27% of all sales are under $200K, 70% are under $300K, and almost 80% of all sales are under $400K. One half of all sales are “distressed.”
It sure is interesting to hear about the multi-million dollar Montreux inventory, which must comprise about 0.15% of all sales to date. How many angels can dance on the head of a pin you all think?
I saw on TV tonight a commercial by some Chase agents advertising themselves as short sale experts. Didn’t see any ads for Montreux experts, though.
smarten
John –
My point was only that Montreux is not immune from everything around it. The sellers in Montreux are by and large in denial. How long can that remain? We’ve been spoon fed the same Montreux’s special, different and immune from what’s happening around it because its sellers don’t need to sell for some time; the same garbage that has been perpetrated in Incline. Except in Incline, sellers purportedly have more staying power and can afford to wait out the market than Montreux because 75% of properties are purchased for cash with no financing [how then can you explain the foreclosures that are taking place?]. NOT! So all I’m saying is if it can happen in Incline, it can and will happen in Montreux; just be patient. If you disagree [“I don’t see it getting measurably easier”] and your heart is set on Montreux, then what are you waiting for?
smarten
And let’s not forget the stucco oracle’s prediction the median sales price wouldn’t get any lower than $245K; $240K tops! If anyone believes him, then we’re about a month away from hitting market bottom [pricewise].
Future Buyer
I recently googled Montreux real estate and I found a blog from Guy back in January 08 that did state that Montreux was unique after he closed a Montreux listing–congrats Guy. If you go back it talks about how many sales over 2 million were recorded in 07 and 06. After reading that, I realized that Montreux sales really are in a fairly steep decline. Guy, you closed only one of 2 homes in Montreux for over 2 million this year! Back in 06–I’m guessing there were 9 closings over 2 mil. and were 8 closings in 07–based on what you stated? If Montreux doesn’t close another house this year over 2 million–sales in that category will be down roughly 75% from previous 2 years. I’m concluding that maybe financing has been harder to obtain or the millionaires are realizing that at this time housing may not be the best place to invest…
Guy Johnson
If I’ve sold half the over-$2M priced homes in Montreux this year, then perhaps *I’m* the “Montreux expert”. [see Marla’s comment above]
billddrummer
I disagree with the median stabilizing at $245,000. With mortgage money harder to get these days for higher loans, the preponderance of distressed sales closing, bank REOs dominating closed transactions, and the uptick in activity below $250,000, I wouldn’t be surprised to see the median drop below $200,000 before it starts to rise again.
But that will mean that far more people will be able to qualify for home purchases, and that will be a good thing.
Try as I might, I can’t seem to muster up sympathy for sellers in the $500,000+ range. Reality is that these sellers will have to drop their asking prices to sell their homes.
And a further note on the Equation Drive homes. (For review, there were 7 partially finished homes in the development that Nevada State Bank foreclosed on back in January.) Four of them sold to Peter Tomaino for $212,500 each in June. Well, in July, another one at 6647 Equation sold for $165,000, compared to the $221,000 asking price. Now I don’t know what the condition of this house was, nor how much work will be needed to finish it, but it speaks to the drop in median I mentioned earlier: Those homes were supposed to sell for between $315,000-$370,000. And homes in that same neighborhood were going for close to $420,000 back in the day. Now there are 30 foreclosures within a half-mile of this project, a lot of them in DR Horton’s subdivision directly across Hubble Drive.
As far as the over $1 million market, there isn’t one.
BanteringBear
billddrummer posted:
“I wouldn’t be surprised to see the median drop below $200,000 before it starts to rise again.”
Ahh, I was wondering when others would begin sharing my sentiments regarding a sub $200k median. As prices continue to drop, look for this stance to become more and more popular. What sounded absurd to the masses the past few years, doesn’t seem so unrealistic after all. The next few years are going to be brutally painful for those trying to sell homes, especially with fantasy price tags. Many will be reduced to tears, wishing they had priced to sell in the beginning.
When all is said and done, many, many more will have lost money on the real estate boom than had ever profited. With an overcorrection almost certain, the great equity vanishing will boggle even the the most vivid of imaginations. Oh, this does include Montreux, it most certainly does.
billddrummer
To BanteringBear,
The tears are already falling, and they’re falling in Caughlin Ranch.
Let’s face facts: The median household income in this area is between $48,000-$58,000, depending on whose numbers you believe.
At the high end, a 28/36 debt ratio would allow for a $1,353/month house payment, with total debt payments of $1,740/month. The gap is supposed to cover car payments, credit cards, and all other installment debt.
At 7%, $1,353/month will ‘buy’ $167,000 in mortgage money on a conforming loan (which means you still need 20% down to qualify, and no piggyback to make up 15% of the 20). Interestingly enough, that translates into a purchase price of $208,750. (I’m presuming ‘good credit without a rate buydown, 2 months reserves and 20% cash down.)
If you use FHA for financing, you only need 3% down, rate would be lower, but you pay for PMI which makes the total payment essentially the same.
If you look at lower income levels as the median, then the numbers get smaller.
That’s why I think the median sale price will drop below $200,000. Household incomes in this area can’t support a higher median price. Pure and simple.
The bubble is over. Now, we all have to qualify for mortgages based on what we truly can afford. Lenders are expecting their money back from our incomes, not from flips or refinances. And those of you in the RE business know what I’m talking about.
DonC
Does anyone know what the historical relationship between median income and median home price has been in Reno? I think I’ve read that nationally it’s been about 1:3 and in high cost areas perhaps more like 1:5.
Do these numbers seem right?
billddrummer
To DonC,
You’re spot on. Nationally the statistic was between 3:1 and 3.5:1 for many years, until mid-2004. Then it started to ratchet upward, propelled by the exotic mortgage products that allowed people to buy more expensive homes, and by speculative (in my opinion) demand.
Coastal areas and high income regions (think SF, Silicon Valley, and LA) skewed the national trend upward because those areas had ratios in the 5:1 range even before the bubble began. Prices in those areas rose fastest because of limited supply compared to demand (try to buy a new house in SF–you’ll still pay a premium). But in response, the mortgage industry made up even more exotic products, to allow for purchases that wouldn’t have been possible otherwise. At one point, more than 80% of mortgages written in SF County (the City proper) were interest-only, with more than half of them a type of hybrid ARM. Still, the price/income ratio soared to 9:1 at the end of 2005. Which is when prices peaked there.
So far, markets within SF haven’t seen the sort of erosion that the other hot markets experienced. But I think that’s coming, and when it does, there will be even more homeless people on Market St.
smarten
Just so we’re all on the same page, in today’s lending environment income for purchase money mortgage qualification purposes no longer means income from whatever source [that you can document]. Instead, it means seasoned income as reflected on a borrower’s income tax returns.
So unless 100% of your income is “earned” and it is evidenced by a W-2 or 1099 that corresponds to what you put down on your income tax returns, it’s no longer income. As BB observes, an overcorrection indeed!
billddrummer
To smarten,
Very true, and possibly overkill. But if it keeps foreclosures down in the future, it’s probably not a bad thing.
And back to my post about the home price/income ratio. If you use $208,750 as a median, then the income corresponding to that at a 3:1 ratio is $69,583–just a bit higher than the median for Reno/Sparks.
Deleveraging the American balance sheet is painful. Especially for the high end discretionary purchases ($50,000 trucks, boats, RVs, vacation homes financed with HECLs, and the like).
But there will be bargains galore!
Anyone seen the TV ads for 40% discounts on Jeeps? Look for more like that as the year progresses. Just be prepared to pay cash.
cash buyer
could this be correct? http://reno.craigslist.org/reo/805684933.html
Grand Wazoo
The craiglist post has already been removed – what was it exactly?
GratefulD_420
BB, Smarten & BillD,
So I’ve been waiting this thing out for 2 1/2 yrs. My wife is ready to kill me if I don’t get a home for us and the baby. We are shopping up to ~ $425k (with 20% down, great credit, income $100+). I’ve made a few plays over the last 7 months for some “good” buys but others were over anxious.
I’m thinking that by October this year we should have serious downward price pressures and many capitulations by the sellers as the writing will be on the wall, with no spin factor from the RAR corner. So at that point we should be ~ 5 to 9% of from the true bottom, which could take years more, depending on how things play out.
What do you think about buying this October?
tallguy
I might disagree with smarten a bit about seasoned income. I would bet the degree of “seasoning” your income needs depends on the size of your down payment and your credit score. Get a FHa loan with 3% down or anything else 10% or less and I bet that income needs to be as seasoned as it comes. 20% down and maybe a little seasoning is needed, maybe not. 30%+ down and a decent credit score, and not a bit of seasoning or even income documentation is probably needed, even now. I was asked for no income documentation at all from WF as of late April this year. It might have tightened up a bit since then, but probably not drastically. The writing has been on the wall for some time now.
BanteringBear
Hi Grateful,
In my opinion, the best deals won’t be had for a few years out at least. I certainly wouldn’t suggest a time to buy to anyone, but I have a hard time understanding why someone would want to enter into an agreement to purchase a rapidly depreciating asset when simply waiting is actually paying the rent.
Over the course of the past year, a 600k home in many counties in CA lost an average of $575 per day. Yes, that’s per day. If somebody walked up to you and said they would give you several hundred dollars per day to not buy, would you take them up on it? It’s a no brainer in my mind.
What’s the hurry? A home for the baby? What, are you kidding me? I mean no disrespect, but seriously, put the money saved in his/her college fund. The baby doesn’t know if he/she is in a cut rate motel, or on the coast of France for crying out loud.
tallguy
Just because it has been a little quiet lately, I’ll bait the bear with some banter…
First, I mostly agree with BB, the best deals are probably a couple years off. And patience is a huge virtue in todays market, you cannot go wrong with patience. When you jump depends on what you value I think. If your goal in life is to amass a huge pile of money in your bank account, and that’s what makes you happiest, by all means, rent for 2-3 years and jump then. You’d be stupid not to, its the smart financial decision.
But you can also look at money as just a tool, instead of a goal. Its only a tool to attain a certain quality of life for yourself and your family. At moderate to high incomes, relative income increases don’t seem to be much correlated to happiness, and probably not much to quality of life either. In this case, the true question to ask yourself is whether the relative difference in income you pay for housing actually impacts your quality of life. If you jump now you might pay 2000 a month for housing. If you wait two years, maybe you’ll only pay 1500-1600 a month for housing. So, ask yourself if that 400-500 a month makes a difference to your quality of life now, or even in 20 years if you save it and compound it all into some big chunk of change..
See if you like the answer, and see if you can live with the outcome. Heck, there some out there who wish they could get their wife off their back as cheaply as 400-500 a month.. That’s short money if you can parley it into a happy wife and a big chunk of social capital for her to spend on your every need.
GratefulD_420
Thanks BB for the comments, always helpful.
I definately agree that best deals will be in 1 to 2 yrs, when the entire bubble has played out. Something like a slow moving dot com bubble where there is an actual undervaluation at some point. Of course the the dot com was a few hundred million of exxtra cash, whereas this is a major devaluation of a multi-trillion dollar asset that is key to our monetary system (most of the money on the U.S. books sit here!).
If you ever told me.. “It is a great time to buy”…. I’de have to look at you twice. So definately no expectations there.
Question was…. with so much pressure on pricing coming this fall…low season, high inventory, record level distressed sales, bad national economy, bad local economy…. how far off do you think this Oct to Winter will be from the bottom in this local market? 5 to 7%? 10 to 15%, 30%?
–Cause your exactly right. I don’t want to loose $575 day. I’m pretty certain unless economy completely collapses that we will decrease another 7 to 10% this winter.,.. with 20% somewhere over the next few years.
To get the wife off my back… and forget about the RE market I can pay 5 to 7% since I plan to stay as a home for 10+yrs. I just don’t want to be missing on 10%, 15%, 20+%….
GratefulD_420
Tall Guy –
Word. Wife off my back for $350/month sounds great!
Reno Ignoramus
It’s been a while since I have posted anything because, really, nothing that is new has been discussed here in quite a while. Almost every topic that has been discussed in the past several weeks was discussed a year ago, or more. And in much greater detail actually. But I do have to say to Bantering Bear that it looks like we have become mainstream here. BB, I remember two years ago when you and I and Lindie were talking about the bubble, and others, now long gone, denied there was such a thing. I remember when you and I and Lindie were talking about the inevitable return of prices to historical valuations and we were called doom and gloomers and hostile pessimists. I remember when you and I and Lindie were talking about income:debt ratios and own v. rent calculations and the inevitable return to traditonal measures of affordability and how we were branded as bitter renters. Which was totally absurd as in fact we were all owners. Now, everybody agrees with us. I don’t know what ever happened to Lindie, but the blog has been diminished by the lack of her insights. I’m glad you are still here, even though the blog is now taken up with discussions we had two years ago.
tallguy
GD,
I think your numbers might be pretty accurate, they are about the same as my guesses. I think 10% or so in the next 6 months is about right, with 15-20% more to go over the longer term. 30% more feels a bit too high to me (in our median terms which people argue about all the time, that is taking our 250K median to 175K. Barring major economic upheaval, that is ALOT. Getting near 200K might happen though.)
I bought recently, surprising myself, but also going into it knowing that it was not the optimal financial decision. My girl and I were going to wait another year or two too till we bought, we have been waiting and watching and saving since early 2006. But a place came up that we both loved and could afford, and we decided the relative difference in quality of life was insignificant, so we jumped.
I’d do it again too if I had the decision back. That said, its all about the place you get: 95% of houses out there are nothing special and not worth the jump. The other 5% though, are worth the extra money if you can land in one.
tallguy
Me oh my.. even got RI out of the bushes..
He is right, this blog is a bit tired these days, all of these discussions have been had a long time ago. And I probably have to say a bit of thanks to RI, BB, and Lindie. I’ve lurked here for over 2 years myself, and kept my money in my pocket till recently. Having people like them to support my intrinsic pessimistic leanings (I like data such as income to price ratios) was certainly a factor, I crunch numbers too and the numbers generally said/say wait.
Diane Cohn
Grateful, I agree with BB and tallguy. (And yes, BB, RI & Lindie were right all along… so glad they shared their insights here with all of us.)
My astute real estate agent, Guy Johnson, recently pointed out to me that in the last 30 days, according to Zillow, my home that I’m trying to sell for $690K lost $30,000 in value.
Yeah, that’s $1000 loss per day. Pretty sobering.
And guess what? Alt-A defaults haven’t seriously hit the fan yet. What did Subprime take? A couple of years to shake out? Well get ready for at least another two as the Alt-A’s take center stage.
My suspicion is that you’ll get more for your money in your price range if you have the chops to wait it out for at least another year.
Maybe the answer is to find a nicer rental to keep the family happy, unless you desperately need the tax break or have an itch to remodel. Some landlords do let you paint… maybe that’s enough?
Sully
Alt-A and Option ARMS will be a double whammy, add the failure of a MAJOR bank, bokerage or insurance company, throw in the help of Congress – and what do you have left?
BanteringBear
There is one most important factor for all prospective home buyers to consider, and it’s their job security. In the face of possibly the worst recession since the Great Depression, or worse, people need to be very honest with themselves as to their own abilities, as well as their employers, to continue to maintain their current rate of cash flow. I think it’s something that most are overlooking.
There are very few recession proof industries, and the ax could fall, so the unemployment line is not out of the question for most. A job loss can easily lead to the loss of a home, especially one which quickly burned up the entire down payment as it was purchased in a declining market environment. The end result is the destruction of one’s credit, making another home purchase extremely difficult, and almost impossible without a 35% or greater down payment.
I do admire positive, optimistic people, but too many people have their heads in the clouds these days. I’ve lost a lot of faith in my fellow man over the course of the past several years. The preponderance of greed, and lack of common sense is astounding to say the least. There seems to be a complete lack of critical thought, akin to severing a limb and loudly proclaiming two seconds later “See, I didn’t bleed to death!” Talk to me in two hours.
As Diane and many others have pointed out, the waterfall of foreclosures due to Alt-A and Prime resets has yet to flow. These will lead to more precipitous price declines, and hammer the banks into oblivion. It’s quite frightening, really. There seems to be a mentality in this country, that “It can’t happen here”. Unfortunately, it’s already happening. What’s “it”? Bad things…really, really bad things.
CommercialLender
Let’s see, a pregnant wife who has natural (and elevated) nesting urges who has a need for perceived certainty – certainly understandable.
I sold my home in Dec 2005 and rented Jan 06 for the bubble reasons we mostly all saw. At the time, I had a 2 yr old, a 1 yr old and we had a 3rd last year, so having been there, comfort your wife but otherwise relax for a year or 2. We look back and think we made a great decision for family reasons (and housing price reasons).
Yes, housing will still drop, but you might also find that your housing needs after the baby are different that what you ‘need’ now. There may be features you didn’t think you needed before (crib areas, open family room with view from the kitchen, bedroom count); there may be features you now can’t/won’t have (pool, open lofts, busy street, no fence, crime in the area, poor schools). For instance, we potty trained 2 kids so far in this same rental that happens to have wood floors. We thought carpeting would be best at first for cushioning their falls and noise levels, but now realize there’s no substitute for wood floors when potty training and now no substitute for the muddy little shoe prints constantly coming in/out from the yard.
One idea would be to estimate what you are ‘saving’, split the difference, then find a better rental in a better area with the extra money. You’ve bought time, bought experience (above ‘needs’ comments), saved money, and most of all bought future flexibility in case of a job or career change in these troubled times. Also, as we did, we rented in the school district we thought was best, so we’d get to know those streets, know friends with kids in those schools, etc. This is huge.
Finally, do watch for landlords not paying their bills to the lender. You absolutely want to not take on an eviction risk with a small baby. Does anyone have suggestions for him or other renters in these crazy days to ensure they won’t have a foreclosed landlord? Can you ask to pay the lender directly with whatever is left over going to the landlord? Has anyone heard of asking landlords for their credit report, their payment history from their lender, or askign their lender to provide a duplicate NOD to the renter?
Oh, and congrats on the baby!
James
Reno realty blog has DIED!
This blog is in need of a serious injection of Life! I’m not sure who mentioned we would see a median price of 175k, But I think that is a bit Extreme! Possibly in the low 200’s.. anything below that is HIGHLY unlikely.
smarten
You know, the best time to buy real estate is when everyone thinks it’s doom and gloom for years to come – essentially all of you! I’ve commented before that you can’t just look at median sales prices and unit sales and make generalizations about the market as a whole. In the Reno/Sparks SFR market we’ve witnessed a big difference between what’s going on in the under $225K segment compared to the over $1M segment. So if I were a first time home buyer and was looking to spend under $250K, I’d be looking to buy after September 15.
If I were holding out for a Montreux bargain, I’d keep holding. It just depends.
I personally believe this fall is going to be a great time to be a buyer if you can assume a seller’s financing or qualify for a conventional mortgage. If you’re sitting on the sidelines, I suggest you compile a list of the properties you’re interested in; get your financing in order; and then start making offers which are hundreds of thousands under listing price. We’re going to soon be in an environment where there are essentially no buyers out there and some sellers just aren’t going to have the luxury of holding out any longer. If you happen to come across one or two of these before they go into foreclosure, you’ll be the winner.
Of course if you can’t find anything you want that’s a great bargain, do the stupid thing [according to Derrick (who BTW has been conspicuously silent)] and keep renting!
BanteringBear
Smarten posted:
“…you can’t just look at median sales prices and unit sales and make generalizations about the market as a whole.”
Exactly. That’s why we have other things to look at, like the mortgage reset chart for one. There is absolutely NOTHING that suggests any sort of improvement in the foreclosure rate. Furthermore, the collapsing economy promises to increase the inventory of for sale homes. I see absolutely no reason to purchase, unless money is no object.
“[according to Derrick (who BTW has been conspicuously silent)]!”
I think if you look a little harder, you’ll see that he has just posted under another of his “not so secret” identities. His posts are a dead giveaway.
MKchick
GD, the simplest thing to do in your situation is to drop your “up to” price at least another 20% (or whatever price would make you feel comfortable to support your family on half your income) and say that is now your limit for the house purchase. Buy the most you can get in the price range that has the most action — which is below $300k.
That is what we did — same boat as you, except I am like your wife. After renting for 15 years, I didn’t want to rent anymore once the prices started dropping. I had enough.
And wait until at least October anyway, because these interest rates are ridiculous and should come down after the election.
As for renters, MEET YOUR LANDLORD IN PERSON BEFORE SIGNING A LEASE IF NOT RENTING FROM A “CORPORATE” LANDLORD. See where they live, how much they paid for the property and if your rental payment will cover at least their P&I, what their jobs are, talk to prior tenants… do your research on them. Landlords right now — accidental or on purpose — are in a world of hurt. They may be in such dire straights that they will lower the rent just to get you in there, but then later on, can’t afford the loss every month, and then you’ll be out on the street. So be careful regarding “rental bargains.”
It will save a huge headache in the long run.
Kevin Kearney
Guy,
Do you have any market data that excludes the distressed properties? Since the forclosures are really a different quality of housing stock I wonder how much prices have changed on non-distressed sales. With 36% being bank owned and likely needing new landscaping, appliances, cabinets, countertops, deferred maintenance ect…we’re not comparing apples to apples. Often these houses need $20-50k or more worth of improvments and landscaping. These sales represent a significant amount of volume and these factors affect the market data significantly. Perhaps another posting?
BanteringBear
“With 36% being bank owned and likely needing new landscaping, appliances, cabinets, countertops, deferred maintenance ect…we’re not comparing apples to apples.”
This is a very inaccurate statement. Just because a house is an REO, does not mean it needs all of these improvements. Furthermore, not all resale homes are in tip top shape. Like it or not, foreclosure sales in every neighborhood are setting the new prices.
Sully
I agree with BB. I have been looking for over a year in southwest; old so. sub.; hidden valley. Every house needed something, some needed almost 100K in order to get them up to date.
Kevin Kearney
BB…I didn’t mean to imply that all of those properties need all of those things all of the time. They need some of those some of the time, but are generally in inferior condtion to other non-distressed properties. I’m also not trying to imply that regular resales are perfect.
I’m just trying to isolate a potential variable in the data. SOMETIMES when a homeowner or tenant gets kicked out as a result of a foreclosure they take it out on the house. I’ve seen it a lot. Furthermore the bank often shuts off the water letting the landscaping die and leave the house filthy. Foreclosures can often be identified from the street.
I’m curious to see what the data looks like, maybe there’s no difference. I suspect that there is some difference.
CommercialLender
BB, Kevin, Sully,
I’m more curious to know who the buyers are. Of the sales, roughly 50% are foreclosures/distressed, so who are these 50%: investors, first time buyers, move-ups?
One reason these distressed sales are comparable and are causing prices everywhere to fall is that many buyers willing to buy in this market are seeking to be compensated for the risk, namely in lower prices paid for homes. Add to it that half of all sales (hundreds of homes per month) are ‘distresssed’, well, that is a large enough sampling of sales, both absolute and in percentage terms, to show empirical evidence of the fall in housing prices. Self fulfilling prophecy.
Further, a non-distressed seller who won’t get what he feels he ‘should’ because local distressed sales/comps are hurting him, now has no incentive to fix up his place (new countertops, new landscaping, etc.) and eventually one could argue his house will end up looking like the distressed house, both in relatively poorer condition, both worth less.
A step further, too many distressed homes mixed with too many non-distressed for-sale homes mixed with a high degree of renters in the neighborhood mixed with current owners with no incentive to fix or maintain their places, yields a declining neighborhood, possibly crime, and certainly falling prices.
So, unfortunately, I don’t think one can strip out foreclosures en masse.
Kevin Kearney
CLender,
You do raise an interesting question of who’s buying what. While we may not be able to know everything about that buyer there is data showing if it’s owner occupied and how it was purchased (cash, conventional, FHA, ect). Just as buyers are seeking discount for thier risk banks are seeking a premium. Investor loans, as you probably know, have a high premium on the terms and difficult qualificaiton standards so I doubt we’re seeing many of those purhased with financing.
Certainly the distressed homes are putting downward pressure on the non-distressed homes but what we’re really experiencing is a “new player” in the market…the bank. While we probably can’t strip out the impact of these sales we can identify (with some degree of accuracy) the sales occuring as “bank owned” and compare them to the regular resales to see what the difference is. Frankly I wish the banks would do this because my guess is that if they took a litte bit better care of their property they would sell their REOs more quickly and at better prices.
Guy Johnson
Kevin,
I don’t have the data you’ve asked for readily available. It is possible to pull the data and then separate via distressed and non-distressed; unfortunately I would probably have to do this on a month-by-month basis, which could get a little tedious depending on how far back I go. If time permits, I may attempt this exercise.