Many comments have been posted in the thread following the Market Condition Report – February 2010 concerning how the Reno Sparks housing market actually consists of two markets, or strata. The general consensus among the commenters seems to be that Reno-Sparks is comprised of a under-$200,000 market and a mid-to-upper market that has been defined many ways, but for the purpose of this post, let’s say greater than $300,000.
Concerning the over-$300,000 strata, debates have ensued on: whether this market has bottomed; is it dead?; are prices rising?; is value within increasing?; etc. In an effort to shed a little more light on this subject I have pulled the following sales data from the last twelve months for sales over $300,000.
Would love to hear your analysis of these numbers.
| month year | # of sales | median sold $/sq.ft. | median square footage | median sold price | average DOM |
|---|---|---|---|---|---|
| Feb 2009 | 52 | $149.04 | 2,987 | $380,500 | 179 |
| Mar 2009 | 69 | $144.92 | 3,028 | $375,000 | 148 |
| Apr 2009 | 79 | $144.37 | 3,020 | $395,950 | 180 |
| May 2009 | 72 | $147.89 | 3,160 | $409,500 | 185 |
| Jun 2009 | 95 | $141.59 | 2,895 | $401,807 | 166 |
| Jul 2009 | 89 | $136.32 | 2,861 | $375,000 | 177 |
| Aug 2009 | 88 | $136.35 | 3,023 | $402,000 | 184 |
| Sep 2009 | 87 | $144.14 | 3,060 | $425,000 | 183 |
| Oct 2009 | 85 | $140.70 | 3,128 | $400,000 | 171 |
| Nov 2009 | 59 | $136.73 | 3,168 | $405,000 | 178 |
| Dec 2009 | 70 | $130.49 | 3,111 | $382,500 | 164 |
| Jan 2010 | 57 | $135.62 | 3,153 | $390,000 | 171 |
| Feb 2010 | 62 | $134.37 | 3,138 | $400,000 | 247 |
Note: The medians table above is updated on a monthly basis. The median home price data reported covers the cities of Reno, Nevada and Sparks, Nevada [NNRMLS Area #100]. Residential data includes Site/Stick Built properties only. Data excludes Condo/Townhouse, Manufactured/Modular and Shared Ownership properties. Data courtesy of the Northern Nevada Regional MLS – March 2010. Note: This information is deemed reliable, but not guaranteed.
Reno Ignoramus
The most interesting thing about this thread, and that Guy feels compelled to put it up at all, is that now everybody seems to agree that $300K is the line of demarcation between the lower and upper strata of the market.
Let’s put this into perspective. In the summer of 2005, a $300K house was regarded as a “fixer house” in Reno. That summer, I had a very prominent realtor, the owner of a very well known realty company in Reno, tell me that $300K houses were “gone forever” in Reno, unless one was willing to buy a house with cracked windows and with the cabinets hanging off the brackets. This realtor told me that “if all somebody has to spend is $300K, they are going to have to go to Fernley”.
Now, $300K marks the beginning of the high end of the market. Less than 1 house out of 5 that sells today sells for more than $300K.
5 years ago $300K was entry level housing. Now, it is beyond the reach of about 85% of all buyers.
Free Falling
RI has very eloquently stated the extent of the market correction we’ve experienced.
As for the data, it doesn’t really demonstrate the high end capitulation the bears on this blog are so eagerly awaiting.
Within this thinner data set, we seem to have experienced a relatively stable market since June ’09 with psf bouncing around in a relatively narrow range between $130 and $144/sf. As would be expected, the median is bouncing in a wider range between $375 k and $425 k.
The drop in volume on the other hand either indicates market priced inventory drying up (less foreclosures or stubborn sellers), or more likely simply properties dropping below the $300 k line.
The problem with the price strata approach to market segmentation is that properties can move between strata.
Since this data is not showing any striking news (other than how far the might have fallen as pointed out by RI), I would be curious at an alternate approach to market segmentation. If you review consolidated data from the top 20% of MLS sub-areas are we seeing similar price stability or are we seeing ongoing psf erosion (which would be projected based on the prevalent thesis on this blog that the high end is gradually folding their cards and thus contribution to a rising median)
smarten
I have to commend Guy. Where else have we read on a residential real estate site that there really isn’t a single market but rather, there are markets within markets? And here Guy has backed up his observations with hard data. Actually I would have expected increased sales/median sales price but rather, as FF points out, this segment of the market appears to be nearly as stable as the market as a whole. Thanks Guy.
Sully
I think the 300K skews the data. Using 350K as cut off the Feb median would be 500K sq ft would be 160 and median size house would be 3118.
These numbers are much more in line with what I see on the ground in areas that are listing in this range.
Also, the 500K median would be 3X higher then the 165K median for under 350K market, which is where 78 – 80% of residents are in the comfort zone.
And don’t nit pick 300 at 85%, as that is included in my numbers.
So the gap between the two markets is much wider than shown above and also why the higher end market isn’t moving very fast.
Sully
As an adder to above, 16 houses were above 300K – 8 of which were at 320 or 310 and that’s not all that far from 300K.
billddrummer
To Guy,
Excellent data mining, I commend you for this exercise.
To RI,
Your points are well-taken. My house was appraised at nearly $300,000 in 2006, and I thought it was ridiculously overvalued. It didn’t break $300k because it did need some work.
Crazy.
Rationality appears to be returning.
To Sully,
It’s enlightening what can happen by further narrowing of the price bands. I’m of the opinion that income continues to drive prices. And at $350k, you’re looking at a household income of $130,000–$140,000. Which begs the question: What percentage of households have incomes higher than $130,000 AND are in the market for a house?
I think if you looked at DOM for $350k and up there would be a material jump upward in time on market.
In any event, a great achievement. Thanks.
Sully
billd, your point is well taken. My point was that 300K doesn’t reflect the market as closely. To wit, there are buyers that always buy outside of their comfort zone. In the current environment there are those that are buying well within their zone and for far less than they can afford.
So this last group would easily be in the 300 – 350K range, income has less restrictions on cash buyers. So take those Calif retirees with 600K in cash from last sale and put them in a 300 – 350K house, leaving them with 250 – 300 in the bank. That leaves a bit of a cushion for some future shock.
Also, there still buyers that look more at value then zip codes. I, for one, combine the two – so whereas I might like Arrowcreek (it is a nice area) I’m not inclined to pay 280/mo HOA and higher prop tax than for a similar house in other parts of Truckee Meadows, just for the zip code privilege. I have no need to impress anyone and I think there are others out there with the same mindset.
Tom
“So take those Calif retirees with 600K in cash from last sale and put them in a 300 – 350K house, leaving them with 250 – 300 in the bank. That leaves a bit of a cushion for some future shock.”
But Sully, what if those California retirees cannot abide the notion of living in what may currently be seen in Reno for that price range you refer to…even up in the $500k price range? The answer is they won’t move up.
IMO, your Reno-Tahoe area mid-level, or what I call mid-level, of $500k to $900k, is still way overpriced. Until it comes down, hopeful buyers we know of will just `stand pat’ down here in Smogsville, and plan to visit Lake Tahoe more in the summer than previously 🙂
We love the 89511 area from US 395 up the Mount Rose Road, but the whole Mount Rose Corridor area is still way overpriced.
Sully
Tom, thats a good point and probably true. But, then there are those still in smogsville that will settle for clean air and aren’t so picky.
I my own case, there are now 2 houses in Arrowcreek that are well within my comfort zone (even with HOA), but my wife (who is one of those types you refer to) doesn’t want to move because she is quite happy where we’re at. Too bad these houses didn’t come up a year ago, when I had a better shot at convincing her! 🙂
billddrummer
To Tom,
I don’t know where you live, but from here 500k-900k is well beyond ‘mid-level.’
I agree with you that it’s overpriced, but mid-level here (I presume you’re speaking quality) is 300k-350k.
And the median here for all sales (stick-built) is $171,500, which suggests that mid-level is well below $300k.
At least that’s the way it looks to me.
billddrummer
And while we’re on the subject–
I just got some statistics from http://www.factfinder.census.gov that showed the income distribution in the Reno/Sparks MSA. According to those statistics, 18.1% of households have incomes of $100k or greater. Only 6% had incomes over $150k. Which might explain why so few sales above $400k take place.
Now, if you use the 2.7X metric to determine housing prices (2.7x household income), then 18% of households could afford a $270,000 house.
Which in part explains why the median is so much lower than the magic $300k number. And why it seems that you can buy more house now with the same money than you could last year.
Interestingly enough, the median income for the region is just about $63,000 (HUD).
billddrummer
Sorry.
And $63,000 in household income will buy a $170,100 house.
Tom
BillD, I admit it, my definition of mid-range is distorted by decades of living in westside Los Angeles.
However, the houses I have seen in the MLS in the Reno mid-range pricing as you explain those parameters, would definitely require a big adjustment in expectations.
I guess we will wait and watch for a while.
Raymond
Whooaa Tom…..
$500K to 900K may be mid-range in the toney neighborhoods of L.A. that you hail from. But $500K is waaay out of range now for most Reno buyers (only 5% of all sales are above $500K). And $900K is an insignificant fragment (less than 1%) of the Reno market. And will be forever.
DownButNotOut
BDD – Your example leaves out the fact that most people that make over $150K/year have some saved up wealth, in fact if they’re older – and we can assume most are to be making that amount yearly – they may even have bought/sold/bought/sold over a few of last cycles and can afford a much more expensive house due to available down payment.
What I haven’t seen touched on in the blog is the demographics the country is entering into. This isn’t a prediction, but with baby boomers entering retirement age, and all that the Reno/ Tahoe area has to offer, ten years from now this could begin to be a happening place. Maybe.
Retirees have to be somewhere, so do they stay in their $600K house that’s paid off or move to a place like Reno and live in the same house for $300K.When my time comes I’ll opt for Reno.
Raymond
Clearly if the traditional standard of 2.7 to 3 times household income determines how much that household can pay for a house, the the median price in relation to the median income in Reno has settled in right about where it should be.
Yes, we all know it’s different in Palo Alto and San Francisco and Newport Beach. Reno, however, is none of those places. Reno’s demographics are far more akin to the demographics of Merced or Stockton or Fresno.
MikeZ
[bill] “Now, if you use the 2.7X metric to determine housing prices (2.7x household income), then 18% of households could afford a $270,000 house.”
I’ve never heard of or used that guideline. The ones I’ve seen and used (for conforming mortgages) are: 1) PITI no more than 33% gross monthly income and 2) mortgage (not purchase price) no more than 3X gross annual income.
[bill] “And $63,000 in household income will buy a $170,100 house.”
$63K would be adequate for a $235K home, with $47K down and a $188K mortgage.
skeptical
DBNO,
When you brought up demographics, I thought you might be on to something. After all, all those underwater baby boomers who tapped out their houses like an ATM throughout the bubble are completely shackled now. In fact, many are facing a horribly uncertain financial future and are underwater as they face their golden years.
But you didn’t go there. You seem to think that California will come riding to Nevada’s rescue in the next 10 years.
That’s a good one! The only state that’s worse off than NV is CA.
Better load up on Reno real estate now, though, before all those nutty Californians buy it up…………NOT!
DownButNot Out
Skeptical – not sure if you’re a baby boomer but most I know are in the tail end of their mortgages, didn’t tap out credit like it would just be replaced, and are now because of the downturn seriously putting their retirement eggs into a realistic basket.
That means for some using the equity in their house to downsize now that the kids are gone and buying in a more reasonable place.Coupled with the fact this is by far the largest demographic we’re going to see a lot of house exchanging going on in the future.
IMO the ones you are talking about are not baby boomers, but a generation that found quick money in their houses and will be paying for it for a long time. I didn’t see my age friends with jacked up 4 wheel drives towing Ski Natiques.
I guess you believe in ten years retirees will just stay put in their larger than needed house they raised their kids in in the neighborhood that is getting younger and younger. Good for you.
I like Reno and it’s always been one of the City’s on my short list to retire to. But I’m not claiming that’s going to save it by any means. I said it might become a happening place. Maybe.
smarten
Don’t mean to hijack this thread, but to the extent we’re talking about the over/under $300K/$350K market assuming 20% down…
Mortgage interest rates have creeped DOWN! I’m now actively exploring the market [I’d be doing several refis CL and paying down my personal residence mortgage] and have found 30 year fixed rate conforming loan amount [$417K] mortgages at 5.125%, no points and in one case [Fremont Bank] no closing costs whatsoever; 4.875%, one point and no closing costs; and for 15 year fixed rate mortgages, 4.375%, no points and no closing costs whatsoever!
IMO, even if we haven’t hit the “bottom” of the Reno/Sparks SFR market, if I were in the market; I could find a home I wanted that exhibited the kind of value I’ve previously spoken about; and, could score a 4.375% no closing cost 15 year fixed rate mortgage; I’d be moving in a New York minute [remember, over the term of a mortgage you’ll end up paying more than twice the cost of a purchase when you add the costs of that mortgage]. We now have a 3/4% spread between 30/15 year fixed rate mortgages – something I haven’t seen in a good amount of years. FWIW.
billddrummer
Thanks for pointing out the flaws in my computations.
And I thought I was good at math…
Oh well.
longerwalk
Someone asked for some documentation on population reduction in this area. This might be good enough:
http://online.wsj.com/article/SB10001424052748704211704575140132450524648.html?mod=WSJ_hp_editorsPicks#project%3DCENSUSCHANGE_1003%26articleTabs%3Dinteractive
DonC
longerwalk — I asked for it. This actually shows that it’s highly likely Reno is GAINING population. The chart shows that 1,786 more people moved out of Reno for other places in the US than moved into it from other places in the US. IOW you’ve given the figures for net internal US migration.
To get to net population growth you have to also consider births, deaths, and international migration. Using your cite I found the figures for this. The 1,762 people leaving Washoe County for other places in the United States was just about cancelled out by the net 1,588 people moving to Reno from other countries. Additionally, there were 2,751 more births than deaths.
Add them all up and Reno is growing not contracting. Not growing at a very fast rate but still growing.
longerwalk
Don C. I find that very hard to believe in a common-sense looking around mode, though. Guess we’ll see when the real census is completed. Did everyone send their forms in??? 😉
billddrummer
To DonC,
I guess none of us are good at math…
Or demographics…
DonC
longerwalk — My guess is that you have adult children moving in with parents or relatives, or that kind of thing, so the number of occupied units might be going down even though the population isn’t.
I was just curious if Reno was really losing population. Generally speaking, across the nation most people are just staying put. Your cite was great, just what I was looking for.
LikeBigBottoms
It must be the bottom:
“The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 308 thousand. This is a new record low and a decrease from the revised rate of 315 thousand in January (revised from 309 thousand).”
http://www.calculatedriskblog.com/2010/03/new-home-sales-at-record-low-in.html
Irv
Statistical comparisons of inbound and outbound migration, as impacted by births and deaths, are interesting and of some usefulness, but aren’t necessarily accurate, nor do they reflect what you may observe when looking around in a community.
This is because of several factors:
New-borns are counted as part of a population change assessment, but you don’t notice them as much as you would other people;
There are adult sons and daughters moving in with older parents, ask me, I have one of those, yet those people don’t necessarily create new housing demand;
Persons present unlawfully, and others continuously entering a state without lawful status in doing so, are typically under-estimated in such studies, yet they will create lower-end housing needs, and they tend to skew economic averages downwards.
Free Falling
No surprise to me that people are staying put coast to coast. Negative equity is a huge deterrent against moving. However, relocation to another city for a new job is a “hardship” which assists in approval of a short sale. For some, the best answer is to sell short or walk. Moving to a new city and leaving the debt behind is just the ticket. (And yes, with 13% unemployment in Reno, we will be net losers on that equation.)
I think when the census data is finally compiled and disseminated (2012?) we will see the first increase in household size in decades. This is a temporary aberration driven by unemployment and financial losses during the bust. The long term trend is still towards smaller households. There is a large number of potential buyers waiting to re-enter the market when (not if) all those folks living with friends and family eventually find new jobs. (No, I’m not expecting any material gains in Reno employment in 2010).
Just to stir up the “Bottom Calling” or continued free fall debate, here are the Q4 stats on long term trends across 300 markets. These were once put out by National Mortgage who correctly called Reno as way overpriced at the time back in 2005. Now they are calculating Reno as 30% UNDERVALUED. Of 300 markets analyzed, only 10 are more undervalued than Reno.
http://www.ihsglobalinsight.com/gcpath/ValuationReport4Q10.pdf
The Californian planning to retire in five years could do a lot worse than to buy a property in Reno today and rent it out for the next five years before moving here for tax relief and a mortgage free retirement. (No, I don’t earn a living selling real estate in Reno.)
Sully
Free, its 30% undervalued at the 165K median. Doesn’t mean the high end is undervalued. A $1 million+ (here) might be undervalued in LA or SJ but doesn’t even belong here. The house still cost what it cost to build (regardless) but the market can’t handle the load. Like opening a Mercedes dealership in low income areas.
DonC
LikeBitBottoms says “It must be the bottom …. This is a new record low and a decrease from the revised rate of 315 thousand in January (revised from 309 thousand).”
It’s just part of a recovery. You’re not going to eliminate the excess inventory if new home builders are pumping out new homes. Not sure it predicts a bottom though. In fact it may just reflect the bad weather in the NE last month.
Free Falling
I didn’t think there were any $1 M homes left in Reno! (Okay, just a few.) As another poster previously pointed out, some of the former $1 M homes are going into escrow within 24 hours of listing (albeit at prices below $500 k).
As for employment, that magic elixir we all agree is needed for real price appreciation, here are some stats on the demographic effect. Nationwide, demographics experts expect a 5 M shortage of employees in 2018 due to the first of the boomers starting to retire. Right now they are delaying their retirement, but with stock market recovery and age, they will retire. This demographic effect will open up job opportunities for the Gen X and Gen Y folks who moved back home with their parents when the Great Recession hit.
For Reno, we get the demographic push on employment, plus the migration effect of Californians retiring to Nevada for lower home prices and lower taxes. If you can hold out until 2018, it sounds like good news to me.
http://blogs.wsj.com/economics/2010/03/22/will-retiring-boomers-lead-to-too-many-open-jobs-by-2018/
LikeBigBottoms
This must be the bottom:
Reno had 60% of all homeowners underwater as of Dec 2009:
http://relistr.com/real-estate/the-most-underwater-housing-markets.html
billddrummer
To LBB,
So where are all the move-up buyers going to come from?
Perry
I don’t believe that there are two markets in Reno. I believe there is just one, the real one. I look through the MLS and continue to believe there is a severe shortage of inventory. I don’t think the new home builders are all that nuts. I know you must think I am nuts by now but I’ll explain my thoughts. I’d like to preface them by saying I am not an optimist but a self described pessimist. I don’t think everything is fine and I’m afraid of where our country is going.
When I look at the MLS the first thing I notice is there is a severe shortage of homes for sale. So many people say the market is flooded. I agree, flooded with listings that are not really listings. Homes that are overpriced or homes that are short sales. Neither is really a listing. For me a listing is something I can make an offer on today and close on within 30 days. Look at the actual number of available homes that are clean listings. They are few. It seems like if you price your home near $120 per square foot give or take a little and can close you’re sold. According to Guy’s data 62 homes closed in Feb over $300k. This looks like enough demand for Ryder’s new development as well as the new ones that Lennar is springing up. I counted 33 listings over $300k that show a status of active pending loan. This means someone is buying in the over $300k segment. There must be a few more I don’t see that are active pending no show which only the realtors see. My interpretation is these are good offers since the pendings that stink are the active/pending/shortsale otherwise known as active/pending/seldomclose.
Just over a month ago a house listed not far from me. It was $369k for 3200 square feet. It was a clean listing and got an offer in a week. For whatever reason that offer fell through and it had another offer in two days and closed one month later for the $369k. I don’t think the over $300k market is really driven by the tax credit either. Over $300k is not the first time buyer market.
With regard to the economy and it’s affect on housing, I think we may be a bit myopic. The media is currently on the doom and gloom bandwagon. I read Patrick.net and get a little doom and gloom myself. The media is not cutting edge. They were praising housing when it had already bust and now that it came to pass they’re proclaiming the bust. We all exist in our demographic and are able to see things from that point of view. If I’m broke and poor then more than likely I have broke and poor friends. We sit around and commiserate together and as far as we’re considered the entire world is in our situation because “our” entire world is. People with money are around people with money. Currently their world is one of economic opportunity. Personally I live somewhere in between these two worlds perhaps a little closer to the bottom than the top. My world consists of those doing fine and those who may have scaled back a little. Again, we all see things from where we’re from (so maybe I have it all wrong).
When I go out to eat on any given Saturday, I wait. Costco is packed. My neighbor just bought a new Buick SUV. My coworker bought a new truck six months ago. Both of these people were cash buyers. I went to look for the next Mustang GT with the new 5.0. I can pay a deposit and wait and then pay sticker plus (I’ll wait because I’m too cheap). Cruise ships still sail full. The airports when I travel are still packed and annoying. I know there are people in our country suffering from these economic times but there are still plenty who are not.
LikeBigBottoms
The California housing market is double dipping right NOW:
http://mhanson.com/blog
This absolutely must be the bottom.
smarten
To LBB, Perry and I’m sure many others reading this blog –
Your conscious mind knows many things about many subjects!
But your sub-conscious mind just knows.
Have a great rest of the weekend.
Jessy
Perry, what is on the mls isn’t exactly representative of the housing market. The bank is holding onto the homes they repossess but they aren’t necessarily hurrying to get them back out on the market. There is at least a couple of years of inventory (the much talked about “shadow inventory”) out there in limbo. The economy is still so fragile, artificially improving, and contrived.
inclinejj
There are three types of housing markets: abysmal, bottomed-out and booming.
The most important things in a real estate market are jobs, qualified borrowers and a willing and able to close buyer.
I think I heard the sub-markets explained as Macro Markets?
inclinejj
If anyone remembers..This is what happens when you try to corner a market:
The Hunt Brothers and the Silver Bubble
Brian Trumbore
President/Editor, StocksandNews.com
In 1973, the Hunt family of Texas, possibly the richest family in America at the time, decided to buy precious metals as a hedge against inflation. Gold could not be held by private citizens at that time, so the Hunts began to buy silver in enormous quantity.
In 1979 the sons of patriarch H.L. Hunt, Nelson Bunker and William Herbert, together with some wealthy Arabs, formed a silver pool. In a short period of time they had amassed more than 200 million ounces of silver, equivalent to half the world’s deliverable supply.
When the Hunt’s had begun accumulating silver back in 1973 the price was in the $1.95 / ounce range. Early in ’79, the price was about $5. Late ’79 / early ’80 the price was in the $50’s, peaking at $54.
Once the silver market was cornered, outsiders joined the chase but a combination of changed trading rules on the New York Metals Market (COMEX) and the intervention of the Federal Reserve put an end to the game. The price began to slide, culminating in a 50% one-day decline on March 27, 1980 as the price plummeted from $21.62 to $10.80.
The collapse of the silver market meant countless losses for speculators. The Hunt brothers declared bankruptcy. By 1987 their liabilities had grown to nearly $2.5 billion against assets of $1.5 billion. In August of 1988 the Hunts were convicted of conspiring to manipulate the market.
One other experience in the silver bubble worth noting, according to author Edward Chancellor (“Devil Take the Hindmost”), is the experience of an official at the Peruvian Ministry of Commerce, employed to hedge his country’s silver production, who lost $80 million by illicitly selling silver short. Said Chancellor, “Although a relatively small sum for a sovereign nation, it was an omen: the ‘rogue trader’ had appeared on the modern financial scene.”
The stock market had its own troubles during the rise and fall of silver. The Dow Jones peaked on February 13, 1980 at 903.84. The day of the collapse, March 27th, the Dow closed at 759.98, a decline of 16% in just 6 weeks. [However, intraday, the loss between the 2/13 high of 918.17 and the 3/27 intraday low of 729.95 was actually 20%.]
For many traders the collapse in silver was the final straw for a stock market already under siege from worries as diverse as the Iranian hostage crisis, the Russian invasion of Afghanistan and soaring interest rates. [The consumer price index climbed at a 13% rate for 1979. The prime lending rate hit 22% in early 1980]. But by the year’s end, the whole decline was almost forgotten. The Dow ended the year at 963.99, thanks in large part to the euphoria over the election of Ronald Reagan.
Sources:
“Devil Take the Hindmost,” by Edward Chancellor;
“Profile of Power,” by Richard Reeves;
“The American Century,” by Harold Evans; Wall Street Journal article by Suzanne McGee;
“The Great Wave,” by David Hackett Fischer
Reno Ignoramus
MLS # 100004239 4755 Scenic Hill Ln. in NW Reno.
Purchased for $178K in July of 2002.
Listed today for $174,900.
Purchased new in October of 1989 for $113K.
If this house sells for around $170K, it will have appreciated nothing in the last 8 years, and it will have appreciated about 50% in the last 21 years.
What was the real rate of inflation since 1989? Did this house keep pace?
DonC
Inclinejj says “The Dow Jones peaked on February 13, 1980 at 903.84.”
This in a nutshell says it all. Now it’s a disappointment if the DOW falls short of 11,000. Markets are going to have peaks and valleys.
RI says “What was the real rate of inflation since 1989? Did this house keep pace?”
You could have said the same thing about stocks or REITs last year at this time. Now not so much. If you pick any market when it’s down it won’t show much appreciation. The fact is that you don’t get as many good buying opportunities as you do selling opportunities.
Norton
In the short run that’s true DonC. But the fact that after 21 YEARS this house has not kept pace with inflation belies the nonsense that houses always pace inflation, and in fact do a little bit better.
Carleton
The statement that the value of houses keeps pace with inflation is based upon Schillers longitudinal study tracking national values over several decades. It is true for the national macro market that over several decades the value of houses will essentially keep pace with inflation, but not do much better. This in no way means that such will be true for any one particular house. Some houses, in some neighborhoods, in some cities, will pace inflation, and even do better. Other houses, in other neighborhoods, in other cities, will never come close to staying even with inflation.
The NAR always talks up the former, and completely disregards the latter.
Studies like this are best suited for very stable housing markets, not markets subject to big booms (bubbles) and then equally big busts. Much more applicable to markets in Linclon, Nebraska and Sioux City, Iowa and Fargo, North Dakota than markets in Fort Lauderdale, Fla. and Sacramento, Ca. and LV and Reno.
DownButNot Out
Common sense dictates that would be because the cost to build a house keeps up with inflation on a direct basis.This also means that if you are buying below replacement cost in a market that will come back, it should be a sound investment.
Unless the area doesn’t ever come back like all that area in Detroit that is slated to be demoed and reverted back to farmland. So either wages raise to the level of replacement housing or houses don’t keep up.
Which one is Reno?
billddrummer
To DBNO,
I submit that Reno exhibits the hallmarks of the former; i.e., an area where wages will eventually rise to support the replacement cost of housing. Apart from the construction industry itself, wages in Reno haven’t decreased over the past 10 years. On the other hand, their growth has been tepid at best, and have lagged other areas in the west, such as Silicon Valley, the SF Bay Area, the Puget Sound region and LA.
Detroit, on the other hand, has seen its wage base steadily erode for fully a generation. And there’s no compelling reason to expect the trend to reverse, despite the well-meaning but ultimately doomed-to-fail initiatives by government.
I would much rather take the risk of living here with a stagnant wage base than look to an area like Detroit, the industrial regions of Ohio, central Illinois northern Indiana and the factory towns of the Southeast, in Georgia and the Carolinas.
Forward progress will come from cities like ours, not cities like Akron.
billddrummer
And fully off-topic:
For those of you who are interested, I finished my manuscript March 23, 21 days after I started. The first draft is 56,725 words.
The hard part comes next. Editing.
I based only one character on the members of this blog. The next book will be more local real estate related, and other players will probably surface.
I will send excerpts to Guy for his review, and he will get to choose whether to post them here or not.
I was frankly surprised that I completed the manuscript so quickly. I guess I had something to say after all.
SmartMoney
Over the past 100 years real-estate on average has kept pace with inflation, no better. The stock market, on the other hand, has done much much better. But that is expected, because the more volatility, the greater your returns. Large stocks average about 10% including dividends, while small stocks (more volatility) average about 12% compounded returns over the past 100 years. Of course, any given period will be much less or greater.
MikeZ
[Samrt Money]: “The stock market, on the other hand, has done much much better. But that is expected, because the more volatility, the greater your returns.”
?? How are you connecting increased volatility to increased returns?
DonC
Norton — As SmartMoney had noted, you have to be careful of timing. In a few years the same house might have outpaced inflation, as it would have big time had you checked in 2005 or 2006.
SmartMoney & Norton — The usual number is housing outpaces inflation by 2%. The Case-Shiller index suggests .05%. But that’s a long term number. If you pick any two years it might be higher or lower.
The difference may be the distinction between “net” and “net-net”, the latter of which includes taxes and commissions.
SmartMoney — Stocks probably return 3% “net-net”. The 12% figure is a bit high and it doesn’t include inflation, taxes, or commissions.