The national average for homes with negative equity is 24 percent. In Reno-Sparks, that average is 56.3 percent. Yes, more than half the homes in Reno-Sparks have negative equity. And this number is expected to increase.
See the RGJ story here: Percentage of underwater homes in Reno-Sparks continues to exceed national average.
billddrummer
In Vegas, over 70% are underwater.
Bob
spin away DonC & Smarten!!
smarten
Okay Bob –
Not an accurate headline [if you read the article]. What the story really meant to say is that over half of the “homes” [SFRs, condos or both?] WITH MORTGAGES are underwater. How many “homes” have no mortgage[s (after all, according to Derrick his home has no mortgage. And none of the recent Montage home sales have mortgages)]? Doesn’t that fact really mean that less than half of all Reno/Sparks homes are underwater?
And besides, we’re looking in the immediate past as opposed to the immediate future. If we’ve hit a bottom [whatever that means] or are scraping along the bottom, how would either fact be reflected in the percentage of Reno/Sparks homes underwater?
There’s no spin here Bob. The numbers are what the numbers are. But how do they translate into tomorrow’s numbers unless you conclude that the percentage of these homes not already in foreclosure will soon be?
I found a particular quote in the story [from Brian Kaiser, a housing and real estate analyst with the Center for Regional Studies at the University of Nevada, Reno] to be most interesting: “the median price of homes in the Reno-Sparks area has not yet bottomed out, but it does seem to be falling at a slower rate than before”]. Yet according to Guy’s figures, the median sales price for homes in Reno-Sparks HAS bottomed out. Now this may only be a temporary condition [although according to Skeptical, he expects it to continue through May and June], but this fact runs contra to Brian Kaiser’s assertions of fact [and I assume conclusions (for whatever they’re worth)].
longerwalk
The wild cards: Shadow inventory & foreclosures of convenience. The more talk about the latter that occurs, the more of them there will be. Whether it will be a trickle or a flood remains to be seen. The longer the job market stays down, the worse for us all.
I’m personally not convinced that ticks up in median prices, etc., mean a whole lot right now. More importantly, the risk involved for people waiting some months to purchase is pretty small.
Guy Johnson
smarten,
You make a good distinction. Yes, that’s properties *with mortgages*. Thanks for pointing it out.
skeptical
First reaction was surprise that the numbers are so low. No kiddin.
Then, I realized that with all the foreclosure sales and short sales that have dominated the market for the last 18+ months, many of the previously underwater homeowners are no longer underwater, they are renters.
So, what the data suggests is that formerly underwater homes going into foreclosure are being replaced immediately by new underwater homeowners. The tide is not receding.
OBTW, include broker fees (6%) and closing costs, and the numbers published actually understate how many homeowners are actually in a negative equity position.
Permabulls, pls do commence now with tirades….
inclinejj
And for the people who say the market is improving and the bottom has passed us and all is rosy in paradise once again I let out a huge..
yawwwn
EdBear
longerwalk, you’ve nailed it. With high unemployment, shadow inventory, and walk-a-ways, might this number turn even uglier?
sleezy
What % of people in the reno/sparks don’t have mortgages?
Agnostic
“Mortgage delinquencies and foreclosures break records as foreclosure crisis fails to abate”
“WASHINGTON (AP) — The number of homeowners who missed at least one mortgage payment surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.”
billddrummer
To sleezy,
Nationwide, the percentage of unencumbered homes is around 30%, with higher percentages in the Midwest, lower ones on the coasts.
I don’t know specifically, but the 30% number feels ‘right’ to me.
Don’t ask me why, though.
geopower
http://data.newyorkfed.org/creditconditionsmap/
A really good webpage set up my the NY Fed to show debt conditions around the nation- you can see credit card, auto, student debt and delinquent mortgages.
Washoe county is showing 9.4% were 90 days delinquent in Q4 2009, up 4.8% YOY. Not new news, but a really great graphic illustration of the geographic extent of the problem.
inclinejj
http://www.calculatedriskblog.com/2010/05/mba-q1-2010-record-1469-of-mortgage.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+
14.69% of mortgages delinquent..
DonC
Since whether a home is “underwater” is primarily useful for predicting whether someone will default, I’m not sure whether it matters what the ratio of “underwater homes” to all homes is. The absolute number is probably more important than the percentage. You’d also want to know how far underwater the borrowers are.
In truth this number isn’t significantly different than it’s been for awhile. Is this surprising? Did we miss a huge upswing in prices over the last couple of months? IOW you’d assume this is old news which is already baked into market prices.
BobC, other than the fact this is old news and there’s nothing to spin, why would anyone bother to spin it? The market is bad. Yup. That’s the point — you’re better off buying when markets are bad than when they’re good. Not sure what you’re suggesting but I’m getting the impression that you think the best course of action is to wait until prices go up 40% and then “jump in”.
KingBud
perhaps I’m misunderstanding the thread, but aren’t the statistics of 24% national rate of negative equity and 56.3% Reno/sparks rate of negative equity both only looking at homes with outstanding mortgages? It’s an apple-to-apple comparison.
I think the take-home message is that Reno/Sparks has a negative equity rate that is more than double the national average.
So Smarten is correct, the aggregate negative equity rates (both national and Reno/Sparks) that includes all homes (those with and without mortgages) are going to be less than 24% and 56%.
But there’s no reason to assume that the percentage of homes owned free-and-clear in Reno/Sparks is more than the national rate. It might be less given that Reno/Sparks grew at a faster than average rate during the bubble.
So if we included all homes in calculating the rate of negative equity, both the national and Reno/Sparks stats would be a lower percentage, but the disparity between Reno/Sparks and the national rate would probably be greater.
I’m not sure I explained myself clearly, I hope this makes sense.
DonC
14.69% of mortgages delinquent..
The fog of forecasting. The raw numbers are 14.01% delinquent this quarter and 15.02% last quarter. The 14.69% delinquency rate is a made up adjusted number, On their face the raw numbers suggest things are getting better. But the question is whether these numbers show an actual improvement or a decline masked by a seasonal improvement. Hard to know.
KingBud — If you’re saying that the Reno area is in a world of hurt — twice the hurt of the national average — that would be a correct conclusion. Las Vegas is even worse, which is why it’s attracting so many investors.
smarten
You’re correct KingBud that the percentage of underwater homes in Reno/Sparks is [more than twice] higher than the national average. I guess if that were the import of Bob’s invitation to “spin away,” there would have been no spinning [because the facts are what the facts are]. But I didn’t interpret Bob’s invitation that way.
Wasn’t Bob suggesting that the Reno/Sparks market was still in the tank, had not stabilized and that based upon Guy’s post, DonC and I should try to “spin” [what I perceived to be his suggestion] away its effect on the market? What exactly can be “spun” by a piece of data such as this but for its impact/effect on the market as a whole?
In fact, what was Guy’s intent in posting this data? Do you think it was merely to share another piece of data? Or did he intend to prompt some discussion insofar as its impact on the market? Rather than questioning the accuracy of the data in Guy’s post, I think all Bob and I were doing was suggesting its impact on the market.
Sleezy
So if the number of people holding no mortgage in reno/sparks is 30%. This number is a bit deceiving….
Many people that have bought the last 5-6 months may have experienced equity loss. However at a much lower rate than the previous 5 years…
billddrummer
To sleezy,
Consider that I have absolutely no empirical basis for my data. I’m purely speculating about the local rate.
Having said that, if a buyer paid cash for a house in the past 5-6 months, there may be some equity loss, but negligible in relation to the amount of money spent–not unlike a financial investment you plan on holding for the long term, but flutuates in value in the short term.
True, you might lose some of your money in the short run. But was the loss equivalent to whatever rent you would have had to pay otherwise, net of the interest income you would have made?
The situation varies with each individual.
inclinejj
I think the only people who think the Reno RE market is getting better is realtors. Wait, didn’t they also say housing will never go down?
KingBud
Well, I guess the way to marry the topics of whether Reno home prices are in recovery and the percentage of homes underwater is to drill down and calculate the degree of the “underwater”-ness, and to also precisely define “recovery”.
Assuming a home is owned free and clear, if it goes down 10%, then the home has to go up 11% for the owner to get back to break-even.
If the home goes down 20% in value, then the home has to go up 25% to get back to break-even.
Lots of homes in Reno/Sparks have gone down around 50% in value, which means they would have to go up 100% for the owner to get back to break-even.
And if there’s a mortgage (i.e. leverage), then the negative returns are even worse.
How long does it take a home to go up 100% ?? If the annualized rate of price appreciation is 3% (inflation in construction costs), it would take about 23 years. And I think 3% is a generous assumption for future price appreciation.
Perhaps some of you are more optimistic, and want to assume an annual price appreciation of 8% in home values in Reno in the future. Then the home would double in value in 9 years.
So my point is that given the degree of home price correction in Reno/Sparks the last few years, we’re probably looking at a time frame of 15-20 years before the bulk of people caught in the housing bust recover the original value of their homes.
Psychologically, when does a homeowner feel like there is a “recovery” in the residential home market? My opinion is that they will feel that way when they have positive equity in their home.
For people who are not walking away from their homes and saw their homes go down 50% in value, that time of recovery will likely be in about 20 years.
skeptical
KingBud,
I’d say you just about nailed it. The bottom is not necessarily behind us, either. A further 10% drop pushes your timelines out correspondingly further.
In fact, things could get even uglier sooner than anyone expected. As reported in The Atlantic:
http://www.theatlantic.com/business/archive/2010/05/home-buyer-credit-expiration-sinks-mortgage-applications-by-27/56962/
“Anyone who thought the housing market might be able to continue its positive trend without the home buyer credit got a swift dose of reality today. The Mortgage Bankers Association reported that mortgage applications for home purchases fell off a cliff, declining by 27% last week to a level not seen since May 1997. Clearly, the housing market is already missing the home buyer credit….”
hmmm….maybe I’ve been a bit too optimistic….
billddrummer
KingBud,
A toast to you! That is brilliant!
GreenNV
At 4% annual appreciation compounded, it will take 18 years for a peak purchase house that has lost 50% of its value to regain its purchase price. Brian Kaiser and I finally actually agreed! Look for us in the RGJ Sunday. For properties like Smithridge that have depreciated closer to 75%, the term “to infinity and beyond” comes to mind. They will never again regain peak pricing in the useful lives of the structures.
I only say this as GreenNV so you won’t confuse me with that Mike guy who still has a little credibility, but I believe CoreLogic’s report that at the median price level, Reno is 25% under priced right now. Not at every price segment mind you, but at the median range. And if you take a detailed look at how actual sales are clustered around the current median, a dramatic increase in our median is certainly not out of the question. The low level of “unclaimed” (pending short, pending loan, etc,) inventory in this segment is driving prices up in this segment.
And then we have a 85% complete $1.1M house hitting the market today that might be worth $700K on a really sunny day. This one won’t effect the median either way!
Sully
skeptical, since we are in a confirmed recovery, the sovereign debt crisis will not affect the U.S. and the unemployment rate will not change for awhile even though we are creating more new jobs every month.
{All the above are recent statements from the FED,Treas Sec or other govt sources)
Just out of curiosity how optimistic will you think you were when the stock market corrects 50%?
SkrapGuy
So in other words, it will take until at least 2028 for Somersett to get back to 2005 price levels.
And that assumes the decline is over there, which it clearly is not. And that also assumes 4% annual appreciation starting today, when there is in reality 0% appreciation.
How about 2035 before Somersett gets back to 2005 prices.
BanteringBear
Mike posted:
“I only say this as GreenNV so you won’t confuse me with that Mike guy who still has a little credibility, but I believe CoreLogic’s report that at the median price level, Reno is 25% under priced right now. Not at every price segment mind you, but at the median range. And if you take a detailed look at how actual sales are clustered around the current median, a dramatic increase in our median is certainly not out of the question.”
Did you arrive at this conclusion because of the bustling economy? Or was it was the dearth of homes listed for sale, and the ever paltry shadow inventory? Or, perhaps you don’t feel enough homes were built over the course of the past 7-10 years? Do share…
skeptical
Comment caught me too, Bear. I have great respect for Mike’s opinions and contributions in data mining to this blog. That said, the call for a dramatic increase in the current median seemed a very strong bullish statement.
68% of any data set in a bell curve is within one standard deviation of the mean. Mike are you implying that the RE data in RE shows greater compression than that? Could you provide those stats? I can tell you the Old Southwest, Somersett, and Galena Forest are not currently close to median in the places I’ve looked at. FWIW….
With the greatest respect, Mike, enquiring minds want to know….
inclinejj
Green normal house appreciation should be right around the inflation rate in a stable market.
But we had 3-5 years of 20%-30% yearly appreciation from 2004-2007.
I can tell you some parts of town down in the Bay Area also went down over 60% from peak pricing. A house on the north end of town went to foreclosure on the courthouse steps this week and the lender cut the opening bid to 320k, no one bid.
I can tell you what I am seeing. Most foreclosure sales are being postponed, a very few cancel, and very few are going to sale.
Now can the average working couple in this market afford a house still? No not really so in my opinion the values are still trending down.
The strange thing is the North end of town has gone down over 60% when the South end has only went down about 25%.
Btw if your wondering this market is 94044
Sully
billd, good guess. I took Core Logics numbers and used some old calculations based on average family size per house to get total number of houses and came up with 29.6% of homes without mortgages.
MikeZ
In relation to market price stability, percentage of mortgages underwater tells us very little.
Would anyone here look at the number of households underwater (more debt than equity) and from that conclude that household income must be falling?
That would be quite silly, wouldn’t it?
Yet some here look at the underwater percentage of mortgages and conclude that market price can’t be stable or won’t remain stable.
This is basic economics. Please, pick up a good first-year text and read it.
Sully
MikeZ; you’re citing basic economics? I think SaneEconomist (where is he?) could tell you that “your basic economics” is based on human behavior, not some math formula.
If I want to use sq ft of lawn per sq ft of house for criteria to purchase, what difference does it make. If others want to use number of houses underwater to make a decision, who is to say they are wrong?
If everyone made the same decision for the same reasons, then a study of human behavior would be a moot point wouldn’t it?
geopower
I realize this discussion is about when the prices of houses will be greater than the mortgages. And general inflation will eventually bring the prices back up, whether it takes 9 years or 23. But that won’t bring back the value that was “created” in the boom and destroyed in the bust. That value was the increase of prices over that of inflation, and I think for most properties in town, we won’t see it again in our lifetimes.
The only reason housing prices should rise faster than inflation is if there is a genuine scarcity relative to demand. You pretty much can’t make more houses in SF, so the more people want to live there, the more prices beat inflation. But the truth of the Reno market is there is very little scarcity. There is a lot of land open to development close enough to the centers of commerce to make commuting easy. For the time being we have enough water, and with better conservation we can stretch it to cover quite a bit more population.
You can make an argument for scarcity in certain sectors- there are only so many river front properties or old bungalows walking distance to downtown or properties with intact irrigation rights. But most of the property in this city is not unique or scarce and could be easily in direct competition with whatever new developments come along once the economy recovers.
So most people who bought or refi’d during the boom will never see their homes worth what they paid in inflation-adjusted dollars. And I think as people realize that, and realize that their heavy mortgage payments are throwing good money after bad there will be more strategic defaults. I know that’s what my neighbors are doing.
smarten
Precisely MikeZ.
And you’re right Sully. Where is Mr. Sane Economist? Or Commercial Lender?
Hope we haven’t turned either off!
billddrummer
To smarten,
I know what you mean. I miss both of them, and looked to them for guidance in the more esoteric realms of economic theory and high level commercial real estate dealings.
As an aside, does anyone know how the Alexander lease-up is proceeding? It looks to me like there are vehicles in the parking lots, but it’s still unclear how many units are actually leased.
smarten
FWIW, about 1-1/2 years ago after our Incline Village [“IV”] friend Don Kanare made statements on his blog to the effect that most IV property owners owned their properties mortgage free, I believe IJJ did a bit of research on this subject with First Centennial Title. As I recall the research extended to all of Washoe County, and my recollection is that the percentage for Reno/Sparks was somewhere in the 33% range [please correct me IJJ if you recall something different]. Actually, I was surprised by how large the percentage actually was.
billddrummer
To smarten,
That ratio is replicated in my workplace. Seven people are homeowners. Of them, two are mortgage free, which works out to 29%.
sleezy
I currently own both of my places mortgage free. The 2nd home market in reno probably isn’t that large though.
lithium
WHERE ARE ALL THE BOTTOM CALLERS??!
The world is well and truly screwed. The Europe experiment is going down the tubes. The market is crashing. Unemployment claims are UP. Delinquencies are UP.
Where’s that swagger? That bravado? I bought me a house last year, and prices are going up from here on, the were saying.
Mortgage applications at 15 yr lows after the tax credit expired.
The world ain’t coming to an end, but the bottom callers need to start eating some crow. They all need to go back, google their own posts, and fess up about how WRONG they were.
I hope no casual lurkers bought any places based upon Smarten, MikeZ’s, or DonC’s advice.
What a bunch of charlatans…..
billddrummer
To sleezy,
Good for you! Unencumbered second homes in Reno are rare.
I would submit that many 2nd homes have already been repossessed, and the most recent list of NODs that I get showed 16% (over 20) of total filings against properties where the property address and owner mailing address are different–the first sign of an investor owned property. (After all, your tenants won’t make your tax payments, will they?)
sleezy
lithium… when a comparable sale even comes CLOSE to what I paid for both of my properties.. I will eat crow..
billdrummer-
I don’t like to call them tenants.. the whole word itself implies seperation… I like to consider them business partners. A good property will always make the tax payments on BOTH properties
billddrummer
To sleezy,
Makes sense.
And to lithium,
What difference does it make?
billddrummer
Back to the semantics that started this thread:
If the 33% number is right as far as unencumbered residences, then there are approximately 37% of the total housing units underwater.
(67%= remaining housing units. 55% of 67% is 37%.)
skeptical
So, 37+% of all Reno households may be tempted to strategically default. They may judge that their moral responsibility to provide for their family supercedes the trouble of handing the keys over to the bank and moving out.
Since the back of the napkin arithmetic above shows that they are looking at 10-20yrs of payments before their houses are back close to purchase price, that is likely a tempting proposition.
sleezy
so… roughly 67% of ALL housing units are NOT underwater when you include unencumbered residences…
sleezy
though… Just because someone pays cash for a house doesn’t mean they got a great deal.
It seems there have been a lot of cash deals for places 150k<
LikeBigBottoms
Definitely the bottom, definitely…
http://newobservations.net/2010/05/19/one-in-ten-mortgage-borrowers-will-lose-their-home/?source=patrick.net
“…A record high 4.63% of mortgages were in foreclosure at the end of March… Much worse, a mammoth 9.54% of mortgages are 90-days or more past due.
Given cure rates are slim-to-nothing-at-all beyond a 60-day delinquency…all of these seriously-delinquent homes will be lost through a sheriff’s auction, a short sale, a deed-in-lieu passing title from borrower to bank….Amherst Securities Group in a Sept. 2009 report said of the cure rate: “The cure rate on 60+ loans has decreased from 66% in early 2005 to 5% in Q2 2009.”
billddrummer
to Sleezy,
You’re right that 67% of housing units are not underwater.
But how close to underwater are the rest of the housing units?
I believe (no data here) that more than 80% of the houses that aren’t underwater are close–at 95% LTV or above.
Consider the number of FHA and VA loans written over the past 2 years since nontraditional lending disappeared. From 3.5% down to zero down, those folks are probably close to underwater now, if not already there.
And there’s every indication that the underwater rate will rise further before it starts to fall.
Meanwhile, there have been more than 400 Notices of Default filed this month.
Jack
Anyone who appears to trumpet the “good” news that 67% are NOT underwater (bad arithmetic by the way, it’s actually 63%) has no understanding at all about how the real estate market works.
Reno’s current record of over 56% of homeowners with a loan underwater is at or near historical record levels.
In other words, this is UNCHARTED territory. With strategic defaults becoming more and more acceptable, no one knows how many of these properties will eventually default. And defaults beget defaults. Foreclosures lower property values by lower comparative sales prices. Lower values put more people underwater. It is a negative spiral and the very essence of the destruction of a depression.
WAKE UP PEOPLE. There’s no way to blow sunshine up this black hole. All the gleeful recent buyers better buckle up. Now’s not the time to brag.
Thank the banksters and Greenie for this mess.
Sully
Jack, you can talk until you’re blue in the face and the thirty somethings will not believe you. Of course, when it does happen, they will complain that you didn’t say “it was going to be this bad!”
Been there, done that.