Are we about to see a spike in the Washoe County median priced single family residence? From where I sit, it looks not only possible but probable.
First, a couple notes on my data sources and how they vary from Guy’s. I use the recorded price and date information from the Washoe County Assessor’s data base, not the MLS, so my area of search includes Incline, Washoe Valley, Gerlach and parts of Carson and not just Reno Area 100. It includes new construction and Trustee’s Sales to third parties (the MLS data does pick up new construction listed with a realtor). Despite these differences, the median trend lines from Assessor and MLS data a very similar.
| Assessor Data | MLS Data | |
| March 2010 | $185,000 | $176,000 |
| 1st Half | $150,000 | |
| 2nd Half | $220,000 | |
| April 2010 | $185,000 | $179,450 |
| 1st Half | $150,000 | |
| 2nd Half | $215,000 | |
| May 2010 | $185,000 | $175,000 |
| 1st Half | $152,500 | |
| 2nd Half | $218,625 | |
| June 2010 to date | $186,000 | NA |
I can’t explain why there is such a variance in the median price of house sales recorded in the first half of the month vs. the second half, but it seems consistent. The June first half median looks like it is going to significantly higher than the May first half figure.
| $50,000 and under | 5 |
| $100,000 – $50,001 | 44 |
| $150,000 – $100,001 | 120 |
| $200,000 – $150,001 | 90 |
| $250,000 – $200,001 | 69 |
| $300,000 – $250,001 | 32 |
| $350,000 – $300,001 | 21 |
| $400,000 – $350,001 | 17 |
| $450,000 – $400,001 | 16 |
| $500,000 – $450,001 | 3 |
| $550,000 – $500,001 | 5 |
| $600,000 – $550,001 | 3 |
| $650,000 – $600,001 | 3 |
| $700,000 – $650,001 | 4 |
| $750,000 – $700,001 | 2 |
| $800,000 – $750,001 | 2 |
| $850,000 – $800,001 | 2 |
| $900,000 – $850,001 | 1 |
| $950,000 – $900,001 | 0 |
| $1,000,000 – $950,001 | 0 |
| $1,000,001 and above | 7 |
My assumption has always been that the number of units sold by price band would resemble a bell curve centered on the median price. In fact, the peak number of sales occurs significantly below the $185,000 median and heavily into "first time buyer" territory. Graphically, it is a rapid spike from $0 to $150K, then an even slide down as price bands increase. If the first time buyers start to fall out of the market, the median will get pushed up.
It is becoming clear that the expiration of the $8000 tax credit "played forward" sales. I would posit that this is particularly acute in the below median and first time buyer price tiers, where the tax credit represented a significant percentage of the purchase price. Much less so in the higher price ranges where the $8000 is a nice Bonus Jack and Fries, but not as significant a factor in the "buy now" decision.
As has been posted in previous comments, mortgage applications have fallen off the cliff since the expiration of the tax credit. I have no data to back this up, but I sense this drop off is again more acute in the lower price bands, and it is more business as usual in the higher price bands.
If in fact the low end is freezing up, what effect would it have on the median? Based on May 2010, if 10 below median sales went away, the median would increase $3000, increase $5000 if 20 fell out, increase $14,000 if 50 fell out, and increase $21,000 if 100 fell out. This would be trumpeted as a sensational rebound by the RSAR! In fact, it would represent a weakening of our housing market.
So am I crazy to believe the Washoe median is about to spike?
Joe
Not only by the RSAR. There are many that you will not be able to convince that “it would represent a weakening of our market.”
smarten
Another interesting post Mike. Thank you.
I agree with you that if SFR sales below $175K fall off and those above $175K remain steady, the median sales price is going to increase, and possibly markedly [as you suggest]. Will that then signal that the market has turned? Not necessarily. What I will be closely looking at are unit sales and the # listings. If unit sales increase and the # of listings decrease [which I don’t expect to happen], I would said the market’s no longer flat and we’re on the upswing. If unit sales decrease and the # of listings increase, we’re going to be in a situation which is very similar to what we experienced here in Incline Village 1-1/2 years ago. With high inventory and very little sales, the median sales price becomes almost meaningless. This is the very reason why I started placing more emphasis on price/sq. foot.
As skeptical has noted, July should be telling. By then the effects of the first time homebuyers’ tax credit will be behind us and if unit sales remain high…
inclinejj
May and June are normally the 2 busiest months of the year. People buy and want to move right when kids are done with school. You have a little spike in closings in August.
Lets not get too excited till after this summer when the kiddos are all back in school.
Lets see what sales do in Sept and Oct.
E.Edward
OH WOW….
The only thing that will be spiking is the amount of Dreamers on this blog!
MikeZ
Oh, my!
If the median price spikes for June, that’ll drive the permabears to new heights of silliness and excuses.
We should have a secret blog pool for the date and time when the first permabear comes up with the first excuse. 😉
billddrummer
Maybe there’s hope yet for my prediction.
I wish I could post more.
My new employer seems nice, but there’s the normal apprehension that comes with being a new employee.
There’s a new sheriff in town, and he’s calling the shots.
billddrummer
Further on the spinmeisters–
Did you notice how many homes sold over $1 million?
Someone will point to that and say that the million-plus market in Reno is ‘extremely viable.’
Which will contribute to stickiness in listing prices as the sellers with million dollar price tags on half-million dollar homes stubbornly hold out.
Reno Ignoramus
Mike, what you hypothesize has been predicted on this blog by several readers for at least 2 years. A rising median while the middle to upper market segments continue to deteriorate is not going to surprise anybody. There has been a lot of conversation about that likilhood.
What I find most interesting about the thread is how the median for the first half of the month is so much lower than for the second half of the month. What might possibly explain why the median price for houses sold before the 15th of the month is more than 30% lower than for houses sold after the 15th??
Norton
Quite right, billd. When the median “spikes” from $175K to $185K (using Guy’s figures) that will be heralded as the end of the downturn and irrefutable proof that sellers of $1 million houses ought to stand pat on their price.
MikeZ
Why is it that …
A reduction in low-end sales volume (from the expiring tax credit) is being treated as a market distortion, pushing the median price artificially higher.
But no one has considered the possibility that the increase in low-end sales volume (from the same tax credit) might have been the actual market distortion, pushing the median price artificially lower?
billddrummer
To MikeZ,
That’s a good point that I hadn’t considered.
So what does a market that isn’t manipulated by the government look like?
Can any of us tell?
Sully
Mike, the difference in assessors data and MLS is because the assessor is using the year to date median, whereas MLS is monthly.
Also, the current year to date list shows 527 sales for May – adding quite a few high end (800K) and a 5 million sale. The assessor shows 185 yr to date for May, these extra 5/27 entries move it to 188. This is about 67 more sales than the list I downloaded just a couple of days ago.
DonC
bill — Not to put too fine a point on it, but perhaps it looks a lot like 2004 to 2006. During that time the Chinese government artificially held down the exchange rate of the yuan, which resulted in lots of exports AND a huge slug of liquidity in the US as China recycled its export dollars by buying US Treasuries. Those recycled dollars were the fuel which feed the housing bubble.
Or how about the crazy deduction for interest paid on mortgages? Or how about tax free sales that net less than $500K? Next to these things the $8K tax credit doesn’t amount to much at all. (At the moment the big deals would be Fannie and Freddie buying most mortgages and the dropping interest rates due to the flight to the dollar after the Euro governments mismanaged Greece debt crisis).
IOW government action is always part of the real estate market. It is what it is. Whether you call it “manipulation” just depends on whether you like it or not.
Mary Pope-Handy
I love what you do with the price bands – it is great information for home buyers and sellers both. It will be interesting to see what happens in terms of the price spike…. Great analysis!
smarten
I agree with DonC’s observation that, “government action is ALWAYS part of the real estate market.”
I have a friend who reminded me that in the mid-1970s the Government offered a $2K first time homebuyers’ tax credit.
Since the inception of FNMA/FreddieMac, the Government has: in essence set the private industry bar on residential mortgage rates; and, purchased/insured the overwhelming majority of residential mortgages.
For many decades the Government allowed homeowners to reinvest capital gains on their primary residence sales into a more expensive replacement primary residence, tax free. This was replaced for a decade or more with legislation that allowed [married] homeowners 55/over to sell their primary residences and keep up to $500K of what would otherwise be capital gains, tax free.
So really, what’s new?
Futurebuyer
An example of a market without government intervention would be the above 1 million dollar homes. Buyers have NEVER been eligible for the 8k tax credit if you make over 250k per year. I’m fairly sure 100% of the buyers who qualify for these homes, at this point, have to prove they earn at least that amount. The tax credit on mortgages at this amount are not really worth the interest you pay either…Lower interest would be an incentive though, but that has always been the case.
Free Falling
Here’s a theory on the spike from the first half of the month to the end of the month.
Most financed deals close near the end of the month, so that would imply that the front end deals are cash deals. The cash investors (who are not participating in the $8 k tax deal) are closing early in the month and they are more interested in the cheapest product on the market.
longerwalk
Free Falling says what I’m thinking. Those closing early in the month have different motives, usually, than those buyers moving from rental-to-owned. They may be buying to rent, or have the wherewithal to pay rent & mortgage for a few weeks. In any event, qualitatively different.
skeptical
A bit of a late comment here, and perhaps this is of little relevance/interest, but those 7 sales above $1M really stuck out to me.
What is the avg. monthly sales above $1M? for May? for this year?
Are there any special situations with those sales?
Just wondering.
Martin
Skep,
How many of those 7 sales were at Incline Village?
GreenNV
Skep, I’ll try to respond. but I’m having Charter issues right now, so who knows? Million + sales in May were:
– 955 Caddie, $1,030,000
– 135255 Saddleboe, $1,050,000
– 6545 Legend Vista, $1,125,000
– 1000 Apollo. %1,200,000
– 5895 Lausanne. $1,200,000
– 615 Country Club, $1,300,000
– 1535 Debra, $3,300,000
– 727 Champagne, $5,000,000
Martin
As expected, most of these 7 are in Incline Village.
Conrad
Yea, don’t get too excited. Inlcine Village happens to be in Washoe County and so the sales there show up in Washoe stats.
There is no million dollar market in Reno.
There is barely a $400K market in Reno.
skeptical
Thanks all. Makes sense.
Five are definitely IV…though Lausanne is a Montreux address. Can’t find anything on Saddleboe (do you mean Saddlebow in Arrow Creek, Mike?) or Legend Vista.
Regarding that Montreux address, according to the sale site, it was originally priced at $2.95M, then down to $1.5M, selling for $1.2M for nearly a 3 for 1 split, the hard way. Never thought I’d say this about a million dollar purchase in Reno, but the buyer’s might have done ok. It’s a 5k sq.ft. castle on one acre in Montreux.
I do love me some Montreux. Don’t want to pay those property taxes, though….
smarten
Hey Skeptical –
Lots of over $1M activity in an area that has tanked according to a few on this blog. Unit sales in IV are now up nearly 100% YOY, and the number of listings during the comparable period are down over 13% [remember what I’ve said about pricing when you have increased unit sales and and the number of listings falls?]. In about two weeks we’ll have our second quarter numbers and you’ll see a massive improvement, YOY, over first quarter numbers [as I predicted a couple of months ago].
The $5M sale on Champagne is impressive given the market we’re in inasmuch as it is located on the very upper reaches of IV close to Mt. Rose Highway. A 6,500 square foot $10M Lakeshore Lake front on over 2 acres just went into escrow. And of course one of those three newly constructed SFR College Ave. REOs we’ve discussed on this blog recently sold for close to $1.4M. NONE of this having anything to do with the expiring first time homebuyers’ income tax credit.
With this in mind, take a look at the Montreux home which sold last month. A Montreux castle originally listed for nearly $3M that finally sold for $1.2M [how can anyone say that a home like that still has another 30% to fall in value when it has already fallen by 60%?]! If you’re into Montreux and looking for a steal, this was it. And really, that’s the point.
Sully
smarthen, actually what you’ve confirmed is my statement regarding the listing prices coming down and price compression. Three of the sales were discounts of 24 – 46% off peak price. One of these was a foreclosure in Feb/09 and sold for about 200K above the bank price. However, the Montreux unit is a much better example of this trend. Built by a local high end developer who followed the price down for almost three years finally sold at, what looks like, cost. Had he priced this house realistically sooner, or ahead of the curve, it might have sold for more.
These sales are not exceptions, but becoming the rule. IMO there will be many more like it. There isn’t much govt influence to skew the sales prices at this price range. When a majority of the listings get priced in line with the market, sales will pick up and the price compression will really show up down the line.
homepop
Obama is setting his sites on eliminating the mortgage interest tax deduction, at least for “wealthy” people. Any idea what that will do to housing prices? It is crazy making…on the one hand the feds came up with all kinds of $$ incentives (tax credits) to buy a house and then takes away a major incentive with the other hand.
DonC
homepop — So government interference in the housing market is a bad thing unless it’s a good thing? Can’t keep some people happy any of the time I guess. Most economists would say eliminating the home mortgage deduction is a good thing on policy grounds. But that’s not likely to happen.
FWIW eliminating the deduction on expensive houses, at least like the ones we’re talking about here, shouldn’t matter much. The deduction is only for mortgages under a million dollars. That’s combined, meaning mortgages on both first and second homes.
billddrummer
Off topic, but on:
Anyone remember the discussion we had about Fassil Properties? How the group bought 19 SFRs at the peak with inheritance money, put big cash down, and financed the deals with Option ARMs from Wachovia and Home Savings?
https://renorealtyblog.wpengine.com/2008/09/renos-housing-price-decline-compared-to-other-msas.html
Well, 16 of those homes are slated to be auctioned the first week of July.
And here. we. are.
billddrummer
To DonC,
Most people who have million dollar mortgages are in the higher income brackets.
Those people are subject to a phase out of their itemized deductions AND their exemptions based on their incomes.
I don’t think this is much more than a grandstanding play by the current administration.
The folks subject to the proposal don’t get to deduct the full value of the mortgage interest now, anyway.
And the amount of revenue it will raise?
Negligible.
DonC
Bill — Interest on a home mortgage is not a preference item under the AMT. Seconds yes. Firsts no.
Also keep in mind that the AMT phases out as well as in. Make enough money and you aren’t subject to the AMT. FWIW this is why the end of the Bush tax cuts won’t matter to most people making less than $500,000 — the AMT rate is already higher than the old rate. But it will matter to those making more than $500,000. (You don’t want me to get started on the AMT).
So yes some folks are deducting interest on their mortgages. From personal experience a lot of people don’t even know about the $1M limit and they happily deduct the interest payments on mortgages over $1M. I don’t get the impression that the IRS even checks so tax preparers don’t flag it.
lurker
making over $500k/annum….something I don’t need to worry about….nor do 99% of the population of Reno….
billddrummer
To DonC,
I wasn’t referring to AMT (although you raise a good point). The provision I was talking about refers to the gradual phase out of itemized deductions if AGI exceeds $166,800 for 2009 ($83,400 if married filing separately). For incomes that are higher than that, the phase out extends to exemptions as well.
I haven’t studied the impact on AMT. Nor am I a tax preparer or attorney.
billddrummer
FWIW, the exemption phaseout applies with an income of $250,200 for 2009 (married filing jointly). But the exemption can’t be reduced to less than $2,433.
Go figure.
DonC
Bill — The 3% limit on deductions was phased out starting in, I believe, 2006. I think it’s completely phased out in 2010.
LikeBigBottoms
Definitely the bottom. More spikes on the way, get used to it.
http://www.mynews3.com/story.php?id=20423&n=5037
smarten
Definitely the bottom…
IN MORTGAGE INTEREST RATES [ http://www.efanniemae.com/syndicated/documents/mbs/apeprices/archives/cur30.html ]. If I’m not mistaken, an all time low!
inclinejj
Ya try to get that rate. The lenders are putting on add ons for everything.