Jason Hidalgo, of the Reno Gazette-Journal, wrote a lengthy article in this weekend’s paper outlining the current state of the local housing market. See: Area housing: ‘It’s still a bleak market’
In the article Hidalgo touches on a variety of issues impacting the Reno-Sparks housing market: inventory, distressed properties, new construction starts, shadow inventory, strategic foreclosures (“walk-offs”), and unemployment.
One statement I found interesting was: "Assuming that the market did not have a bubble and simply appreciated at the historic rate of about 1 percent per quarter since 1990, today’s median price for existing homes would actually be 18.1 percent undervalued."
WorriedGuy
“Assuming the market did not have a bubble…”…
Can we assume that there is no ice in the North Pole also now?
Raymond
The comment that “homes in Reno” are undervalued by 18% is an absurd generalization. The accurate statement would be that SOME houses in Reno, by historical standards, may be undervalued by 18%. As in, the large number of properties at the absolute bottom end of the market that have been selling at trustees sales in the low $100s, or Smithridge condos now selling for $40,000.
But are “golf course grandeur” and “saddlehorn’s best”, in the slideshow to the right, which have been there month after month after boring month 18% undervalued?
If all those MLS listings over $500K are 18% undervalued, why then is that market segment dead as a doornail, Guy?
billddrummer
I’ve learned not to trust statistics from the RGJ.
reno newbie
guess controversy sells papers. irresponsible for individuals who are looking to buy
John Newell
We have seen this exact position advocated by some posters here on the RRB in the past. The writer is not claiming there was not a bubble with the phrase “Assuming that the market did not have a bubble….” Rather, he is using “assuming” to indicate a hypothetical situation in which the market had grown at a steady rate since 1990 (1% per quarter). Now, I am by no means an expert in macroeconomics, but my understanding is that these types of hypothetical models are usually considered to be of little to no value as they are not predictive (in the scientific sense).
CommercialLender
In answer to the oft-asked question here on RRB, “where are all the foreclosures the banks are holding”, see this:
The link:
http://www.calculatedriskblog.com/
The article (excerpt from CNBC interview with BofA):
Monday, August 31, 2009
CNBC: What Banks are doing with Foreclosures
by CalculatedRisk on 8/31/2009 05:01:00 PM
Diana Olick at CNBC has some BofA info: What Banks Are Really Doing With Foreclosures
Bank of America:
“Foreclosure sales have been abnormally low since we learned of the pending implementation of the administration’s Making Home Affordable program. From that point, we delayed the initiation of foreclosure proceedings and sales for customers that may eligible for a loan modification under MHA. As a result of this policy, our foreclosure sales in recent months have been as little as half the normal pace we experienced before.
…
Now that Making Home Affordable programs are operational, we do project an increase in foreclosures as we exhaust every available option to qualify customers for modifications and other solutions.
…
We do not hold foreclosed properties off the market.”
According to BofA, they are not sitting on REOs (Real Estate Owned) for longer than normal, but they are holding off foreclosing – pending modification attempts. That is basically what the data says too.
The Q2 FDIC Quarterly Banking Profile showed the banks held $11.5 billion in 1-4 family residential REO at the end of Q2. That is the same level as the last several quarters.
But what has really changed is the surge in delinquencies – combined with the banks holding off foreclosing. As BofA notes, this will lead to a wave of foreclosures later this year and into 2010, however the size of the wave depends on the success of the modification programs (not looking great so far).
Anonymous Coward
Where the heck does the “historic rate” of 4% a year come from? Robert Schiller’s data for the last 100 years suggests that housing roughly keeps pace with inflation (see, for example, http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html).
The CPI would argue that inflation since 1990 has run around 65% (compared to the 110% you would get from assuming 4% a year). If you use that assumption, the Reno housing median is still too high.
I’d never claim my above model is perfectly accurate (deviations from historical norms are always large and location-specific) but I’d wager it’s a bit closer to the truth than the expectation of 4% annual appreciation.
bob c
real estate should be valued by 3 components:
1. income and future prospects of regional income
(the internet and state laws may hurt reno’s
future prospects of income–less gaming)
2. replacement cost of home (commodity value)
3. scarcity/desirablility of land (location–of
which most of reno has little land value)
that article indirectly addressed the commodity
value of a home (inflation of commodities), but
is just a rule of thumb that real estate should
trace the inflation rate to some extent (is 1%
per quarter a viable number? reported inflation
rates have moderated in recent years)
the bigger picture for reno’s real estate values
is the prospects for the city and region’s incomes–thats the big unknown
i agree with the consensus here , that the high
end is still in trouble and the real appreciation
is a decade away even for the low end
reno should be an inexpensive place to live
dumdee
The 18.1 percent undervalued number is from the Center for Regional Studies at UNR. It’s based off a chart they update monthly to show the discrepancy between a regular market and the boom and bust that the area has just seen.
Ether
I agree with Raymond, except that I would say that it is the market segment over $400K, or even as low as $350K that is dead as a doornail. The suggestion that the average house listed on the MLS is 18% undervalued is nonsense.
Martin
What was the median price of a house in Reno in 1990? Does anybody know?
bondstevenbond
It has probably been said on this blog a hundred times, and probably a dozen times by BanteringBear (whatever happened to our dear friend BB?). But, it tribute to BB, let’s get one thing clear, ok???. A Price is not a price until an offer is met with a bid!! Price discovery occurs when transactions occur. Hello, McFly, Hello!!!??? Only fools, like the NAR who refuse to stop insulting our collective intelligence, would call these high-end prices, prices. They are merely offers. They are merely pipedreams. Hey Guy, will you make the following vow? “I will not call an offer a price. I promise i won’t call a price a price until an offer was met with a bid” In other words, when we talk about prices, lets talk about SOLD transactions. Sheesh, the professional real estate industry is so shady!
loans modification
In response to CommercialLender: I would think the number of foreclosures would go down as more homeowners get loan modifications through Making Home Affordable, I dunnoo…
Sully
Martin, according to a list posted by Guy back in March it was 136K in 1998, so in 1990 it would have been somewhere around 125K.
Martin
Thanks Sully. If the median was $136K in 1998, you think it was only $125K 8 years earlier. It rose only $11K in 8 years? That would be far less than the 1% per quarter or the 4% per year that the RGJ article says is the “historic rate” of appreciation. Now I doubt seriously that the “historic rate” was 4% a year. I owned a couple of houses back in the 1990s and I can assure you that they did not appreciate at 4% a year. But an 11K increase over 8 years is only about 1% a year. That seems a bit low.
Sully
Yeah, it could have been less. I’m going by some long time residents guesstimates and figure that 1 – 1.25% was the average increase back then. People tend to forget details, but I remember looking at houses around that time and I seem to remember a range of 125K, but I can’t remember what area I was looking in.
Cooley
Sully’s comment may be a bit low, but not too low. I bought a house in Reno in 1985 and sold it in 1990 for $1000 more than I paid for it. After costs of sale, I lost money. Even after tax-effecting, there is no doubt that I would have been better off renting during that same period. I could have lived in essentially the same house, in the same neighborhood, for the same period of time, and come out ahead by renting. It is just not true that owning always make more financial sense. But hey, I am grateful that I did not buy a house in 2004-05, right?
donna
We bought our home in 1991. Average starter home, Old Sparks, 3/2 or 3/1 some w/1 garage, some without. Equivalent homes in Sparks and Keystone/7th/university area were selling in the $90,000 to $95,000 range. If someone can figure out what percentage median is above these average starter homes now, & add that percent to these numbers, it would give you a reasonable base. Incidentally, our home is now valued at $130,000.