I was reminded recently that this month marks the fifth anniversary of the height of the Reno-Sparks housing market. Five years ago the median sold price for houses in Reno-Sparks peaked at $360,500 (August, 2005). Today’s median sold price of $180,000 is half of that.
Although all neighborhoods have declined since their peaks, some have been affected to a greater degree than others. Prompted by a question from one of this blog’s regular readers concerning the market in the 89511 zip code, I choose to compare current-to-peak median sold prices by zip code.
As shown in the table below the 89512 zip code has suffered the greatest decline at nearly a two-thirds loss in median sold price. At the other end the 89509 zip code has seen a relatively lower 38% decline.
| zip code | peak median | units sold (peak month) | peak month | median (last 30 days) | % decline | units sold (last 30 days) |
|---|---|---|---|---|---|---|
| 89431 | $270,000 | 43 | Aug 2005 | $106,250 | 60.6% | 28 |
| 89434 | $311,250 | 40 | Aug 2005 | $150,000 | 51.8% | 31 |
| 89436 | $393,740 | 95 | Aug 2005 | $204,750 | 48.0% | 56 |
| 89441 | n/a | n/a | n/a | $207,500 | n/a | 16 |
| 89502 | $337,000 | 38 | Jul 2005 | $117,000 | 65.3% | 19 |
| 89503 | $325,000 | 31 | Sep 2005 | $150,000 | 53.8% | 23 |
| 89506 | $300,000 | 113 | Jun 2005 | $130,000 | 56.7% | 53 |
| 89509 | $520,000 | 58 | Oct 2005 | $324,000 | 37.7% | 19 |
| 89511 | $755,000 | 64 | Jul 2005 | $393,500 | 47.9% | 33 |
| 89512 | $294,950 | 10 | Aug 2005 | $101,500 | 65.6% | 5 |
| 89519 | n/a | n/a | n/a | $450,000 | n/a | 9 |
| 89521 | $443,000 | 41 | Oct 2005 | $227,000 | 48.8% | 33 |
| 89523 | $416,900 | 37 | Oct 2005 | $231,500 | 44.5% | 38 |
| Reno-Sparks | $360,500 | 582 | Aug 2005 | $180,000 | 50.1% | 362 |
Note: The info in the table above includes Site/Stick Built properties only. Data excludes Condo/Townhouse, Manufactured/Modular and Shared Ownership properties. Data courtesy of the Northern Nevada Regional MLS – August 2010. This information is deemed reliable, but not guaranteed.
Wendy
Why do you suppose that in the zipcode (89509) where prices have declined the least the number of sales has declined the most? While other similarly priced zipcodes like 89521 have lost more in median value but are selling at a rate more similar to the peak. Even more expensive zipcodes like 89511 are selling more houses. Are we in 89509 just in worse denial than everyone else?
Wendy
PriceItRight
An interesting (and I am sure a time consuming) exercise. Provides some insightful results. But one should be aware that statistical quantities are prone to wild fluctuations over small sample spaces. Median of data-set with just a handful entries will be highly sensitive to the value of the next entry. I think for an exercise like this, looking at the quarterly numbers (rather than monthly numbers) is a better idea.
longerwalk
Most interesting reading, Guy. Thanks for putting the effort into mining the data.
Guy Johnson
PriceItRight,
You are absolutely correct regarding the potential problems inherent in small sample sizes. With regard to zip code 89512, I was worried about just that issue, so I pulled 90 days of data from 2005 surrounding the peak month and compared it to the last 90 days for 89512. I found a 64% decline.
For zip code 89509 I found a 45% decline using the 90 day approach.
Regarding the time spent on the exercise, it did not take as long as I thought it was going to, once I discovered and added the zip code field to the search screen criteria.
Martin
At the height of the bubble, there was no zip code 89519. It was all 89509. 89519 is now mostly Caughlin Ranch, which is why the 89519 zip code has the highest median price over the last 30 days, but shows no data for overall decline since ’05.
89519 and 89509 really need to be combined for a more accurate number. It should come as a surprise to nobody that Caughlin Ranch has held up the best of all Reno-Sparks areas. Although a 38% decline is not exactly cause for great celebration.
Reno Ignoramus
This chart shows the immensity of the bubble that we had in Reno-Sparks.
Consider that if a house loses 50% of its initial value, it must then increase by 100% to get back to its initial value.
How many years, and years, and years, is it going to take some of these neighborhoods to increase 100% in value from today?
Many of these neighborhoods will NEVER return to their bubble highs.
CommercialLender
RI,
Over at http://www.nytimes.com/2010/08/23/business/economy/23decline.html?_r=1 (NYT) today, there’s an article on this. In it, excerpts published by Case-Shiller say in their recent poll that homebuyers believe housing will go up 10% per annum over the next decade. The rest of the article says ‘bah’ to this. Apparently, Case-Shiller also found a majority of respondents believe in lepraucans, unicorns and Obama’s stimulus (sorry, couldn’t help myself on that last one).
Kidding aside, I was always told to not buy a home unless you had reasonable expectation of staying there for 5 to 7 years, if for nothing else to have enough equity to pay for commissions, fees and other costs when you later move. That sage advice was thrown out the window by the Me First generation.
I think it entirely possible to have a ‘lost decade’ or more in the housing sector. We even have historical precedent for this locally: Sacramento and SF had 11 and 10yr respective peak-to-peak cycles the last time. Given Reno’s economy is likely not going to offer more impetus to improve its housing values than either of those 2 neighbors over the next 5 and 10 yrs, it is likely and highly probably going to suffer longer.
bob_c
location, location, location (including best schools)
89509 89519 are close in and the most desirable
zips (in this depressed market)—many people
have equity and aren’t emotionally torn
89511 and 89523 are easily duplicatable—plenty
of desert to build another golf course community;
arrowcreek is at going to survive…but somersett (??????) plus most are underwater and
that creates unhappiness
89521–flatland suburbs are even more easily duplicated—–and many underwater and unhappy
the rest of the zips are non prime locations
my home in san jose, ca sold for near all time high because it was in the BEST SCHOOL DISTRICT,
the rest of san jose declined 25-50%
worst thing is that nevada has 1 in 83 foreclosure
rate compared to next worst state 1 in 200—-so
nevada isnt the location (but that info is common
knowledge and partially baked into the cake)
my 2 cents
forecast: not good , but not armageddon
bob_c
just to clarify:
i had a negative ammortization loan in a home
that was over my head when i was younger
i ended up hating the home and at least walked
away with my down payment (when it was unheard
of to not be making money) after sale
i sold because i hated feeding a bottomless pit
can just imagine the emotional toll of coming home
everyday to a home where ur 200K underwater–i’m
surprised people arent more crushed—stronger
than i
downtownjunkie
Does anyone know of a good SF blog like RRB? Might be moving….
Steve Herschbach
Hi Wendy,
People in 89509 are less likely to have to sell their house in a down market. They tend to be more affluent, so in general why not just stay put for now? Plus, it is a desirable location, so people like me who want to buy are actually looking at a relatively small number of houses for sale, which tends to support prices. The houses are unique, often one of a kind, so it is not like everyone has the same cookie cutter place up for sale.
Steve Herschbach
Waldo
If all we have is one lost decade, let us all give thanks to the skies. As RI correctly points out, once you are 50% down, you now need to go 100% up to get back to even. We are already 5 years into this downturn. For values to get back to even in 5 years, and thus be where they were in 2005, values would have to increase about 20% a year, starting today.
The Reno High School football team would have a better chance of winning the Super Bowl.
Two lost decades is more like it.
red
I like this one: http://thefrontsteps.com/ for an SF blog. They claim to have a cure for REPA (Real Estate Porn Addiction). Even though I’ve been in SF for 1.5 years, I still read RRB. If anyone knows of a better, more gritty RRB style blog about SF RE, post it.
Happy 5th year bubble bust anniversary.
Catherine
You forgot 89508…
Guy Johnson
Catherine,
I had taken a look at zip code 89508, but could find only one sale in all of 2005 on our MLS. The property sold in August 2005 for $209,900.
In the past 30 days eight sales have occurred; having a median sales price of $154,000.
This is very thin data, but the math yields a decline of 26.6 percent.
Guy Johnson
Martin,
You make a good point regarding combining zips 89509 and 89519 for comparison purposes. I combined the two and found a median sold price of $350,000 over the last 30 days. That represents only a 32.7 percent decline from the peak for zip 89509.
Chuck
According to the WSJ, Reno is ranked #1
http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703791804575439871207245044.html
Alex
Hey “RED”,
Thanks for the shout out! I’ve been a bit lax on the posts lately, but you hopefully are finding your fix on our new venture: http://pocketlistings.net.
You Reno Realtors should start getting on there too and sharing your “off market” opportunities. Guy, and the other contributors, feel free to contact me directly to get more details. We’re booming here in San Francisco!
Hi to Dianne, and a shout to to Reno (my hometown). Edward C. Reed Grad 1991 baby! Hidden Valley Local on the East Side.
Peace out!
alex
skeptical
Thesis:
We will see at least a 10-20% decline in median sales prices in Reno-Tahoe from these levels within the next 6-12 months.
Supporting facts:
1) The 14 months of “stability” have all completely occurred within an environment of significant government tax credit/stimulus/other support, much of which is beginning to dry up. Tax credits are gone, but, admittedly QE2 is likely around the corner. That said, QE2 will likely not have a quick or significant impact on Reno RE.
2) Nevada unemployment among worst in the nation and getting worse. Jobs are the primary indicator for real estate prices in non-resort areas.
3) Many have the income, but no credit: Due to foreclosures, short sales, other bad credit issues, those who might otherwise afford a home cannot get a loan due to foreclosure, short sale, or other default within last few years.
4) The rest may have the credit score, but no income: Those who haven’t been foreclosed upon might have a decent enough credit ranking to get a loan, but don’t have the income because of loss of job or low paying field. They didn’t buy during the bubble because even then, they couldn’t afford to. That’s why they rented then and rent today.
5) Supply: Supply is large and getting larger as evidenced by huge number of houses in some stage of default.
6) Shadow supply: I do not know many people that are not underwater. They could not move (let alone move up) if they wanted to. Many of the most dependable, trustworthy people I know (representing great credit risk) will not move for 5 – 10 years because they are $100k or more underwater.
7) Schools: The areas with the best schools weathered this RE cataclysm better than others nationwide. Nevada’s education issues are well documented and will not act as a magnet for future migrations of professionals.
So, we have had a respite. And I must admit that the market stats have shown stability over the next year. However, the secular headwinds listed above should give pause to any buyer looking to jump in with both feet and give the “all clear” signal.
In short, look before you leap.
skeptical
typo above, I meant to state, “And I must admit that the market stats have shown stability over the last year.”
Additionally, in item (6) I meant to suggest that many people who are trustworthy and would be attractive to banks providing mortgages, are locked in to their present residences due to being underwater. Calling them a “great credit risk” is taking it from the loan originator side of the house.
MikeZ
We will see at least a 10-20% decline in median sales prices in Reno-Tahoe from these levels within the next 6-12 months.
Well, wintertime will almost certainly bring a 10%+ drop, just as it has in past winters.
Is that what you meant, or do you expect median price to be 10-20% lower next July?
Sully
I think he should have said decline 10 – 20% in sales prices – period. The median might actually stay where its at, just more people will be buying more house for their money or getting a bigger bang for their buck. The recent price bands show similar sales percentage for the last 3 months. Nothing says that will not continue,i.e. a 350K house selling for 280K and so on through the price bands could actually keep median at 180K because the numbers are in the current price bands.
smarten
I think Sully is correct.
So if the median sales price continues to remain stable, what data are we supposed to look at which is going to explain what’s really going on in the marketplace?
BTW this observation that the market has to increase 100% in value to make it back to where it was 5 years ago is the exact same argument that was made when the stock market tanked 20 months ago. Not that it has fully recovered, but look how far it’s returned in a relatively short period of time.
downtownjunkie
I am thinking we are at the calm before the storm in regards to the stock market. Look out below!
longerwalk
Today’s stats re: the dismal national look at real estate market is much worse than I expected. Ugh.
Waldo
The observation that the market has to increase 100% in value to make it back to where it was 5 years ago is irrefutable.
The median is down 50% from 5 years ago. Basic math 101 is that it now has to increase 100% to get back to where it was 5 years ago.
This is not a matter of opinion.
Ernesto
My brother’s house is in foreclosure.
My neice’s house is in foreclosure.
My wife’s best friend’s house is in foreclosure.
My mechanic’s house is in foreclosure.
My across the street neighbor’s house is in foreclosure.
My co-worker’s house is in foreclosure.
My co-worker’s son’s house is in foreclosure.
Some of these people can no longer afford the mortgage due to divorce, some can no longer afford the mortgage due to job loss, and some can afford the mortgage but have made the decision to walk away from the debt because they are completely upside down.
I’m just one guy who occasionally reads this blog. And I personally know 7 people who are in foreclosure. I sometimes think that the readership of this blog is a little too upscale to really have a clue as to what’s going on out here.
Reno Ignoramus
Hello Ernesto. I have said many times over the years that this blog absolutely has a readership far more educated, far more savy and far more insulated than the population at large. In fact, about 3 years ago or so, some company analyzed Diane’s blog for literacy and concluded that the average comment was at the Ph.D level.
You can go to the mall and stop the first 100 people you encounter and ask them what “the median” is as a measure of statistical analysis. 95 of them won’t know. Some of them may identify the median as the thing that runs down the middle of the highway. 95 of them will not be able to identify who Keynes was, although a few may claim to have “heard of him.” Most of them won’t know what a FICO is, won’t know what a negative amortization schedule is, and won’t know the difference between a notice of default and a notice of sale.
You are right that the readership of this blog may well be out of touch. We tend to get wrapped up in a lot of esoteric psychoanalysis of the market at the RRB. Thanks for your comment and a report from “out here.” It was quite insightful.
MikeZ
Sully The median might actually stay where its at, just more people will be buying more house for their money or getting a bigger bang for their buck
So let’s see if I understand your position: When median price was rising (03-06), individual home prices were rising.
And when median price was falling (06-09), individual home prices were falling.
For 6 years, median sale prices correlated to and were connected to home prices.
But now, during a period with a stable median price (09-10), that correlation no longer exists. Median sale price is now disconnected – and has been, for more than a year – from individual home prices.
That’s your theory, right?
Now just imagine if, while median price was cratering some 40-50% from peak that someone suggested individual home prices weren’t really falling, no, it was just a statistical anomaly and that the median was really disconnected from individual prices.
Would you have believed that?!
Raymond
Thanks Ernesto for a dose of reality. Nobody can argue about what the median is of how many angels can dance on the point of a needle more than the regulars here on the RRB. (See immedialtely above). Most of them are rather self absorbed highly educated professionals who enjoy listening to themsleves blather on and on and on about what last month’s 4.675% change in the median price means for the future of the world as compared to the 3.850% change of the preceeding month.
Sully
I haven’t changed anything MikeZ. The current median, which you say is stabilized, is the price most people are willing to pay. No argument, however your theory doesn’t take into account the amount or value of that median price. 180K bought X amount of house in 2005, in 2009 it bought a lot more house, in 2011 it may buy even more. Your so called stabilized market isn’t stabilized, however the price people are willing to pay isn’t changing and hasn’t changed much in the last 14 months, so that part has stabilized and only that part.
Is that any clearer??????
Homebuyer2009
Sully, you are spot on. Looking at my situation as an example: I wanted to buy in 2007, my mortgage threshold at the time would have put me in Fernley or Silver Springs (or maybe Sun Valley, if I wanted to stay close). Fast forward to 2009, same mortgage threshold, I was able to purchase in Double Diamond.
MikeZ
Homebuyer, your example is within a time period when we all agree falling median price was well-correlated to falling individual home prices.
stupid
mikeZ
If you cannot see the obviouse logic in SULLY’S post then you are not nearly as smart as I gave you credit for..
lurker
stupid….
an apropos handle — if you thought MikeZ was smart…
diane cohn
hi guys… wow, catching up on the blog makes me feel like i barely made it out of a burning building alive. i see that nationally volume is off 27.5% YOY, meaning prices will probably follow by about that amount in another year or two, unless the government intervenes again. not sure how reno will fare, but ernesto’s point is priceless… sadly, more pain in the pipeline.
downtownjunkie, this guy in the east bay gets it: http://bayarearealestatetrends.com/
happy housing link of the day, for old time’s sake: http://www.businessinsider.com/15-signs-that-the-us-housing-market-is-headed-for-complete-and-total-collapse-2010-8?source=patrick.net#yui-main
bonus reading: http://matterhornassetmanagement.com/2010/08/16/there-will-be-no-double-dip/
cousin itt (golf dating thread): puh-leese, no need to schlep over to drager’s for an olive bar, there’s one right here at safeway.
MikeZ
If you cannot see the obviouse logic in SULLY’S post then you are not nearly as smart as I gave you credit for.
What I see is convenient logic and certainly not fact.
I guarantee you if the Reno/Sparks median price falls, the same people who are claiming it should be ignored as a metric, that it’s not actually correlated to home prices, will change their mind.
You watch.
And that’s what I mean by convenient logic.
Sully
MikeZ, you still haven’t refuted my statement. Again – I said that the people are stable not the product. House prices are NOT (as in negative) stabilizing. People are now buying anything that comes into there price range, if it used to be a 500K house and they’re getting it for 250K then more power to them, however they aren’t looking at the high end (with high end pricing). Generally speaking, for a high end house to sell it has to come down to a lower price band.
Example: you want to buy a new car, but can only afford a fully loaded Ford. You start shopping and stumble on a repo-ed one yr old Mercedes with 6,000 miles for the same price that Ford would cost, so you spurge and buy the Mercedes. You still are paying within your budget, but getting a hell of a lot more value or bang for the buck.
That is what is happening now. You keep pushing the median price like its the second coming of Obama, thank you but the first coming was enough for me.
Sully
BTW, its alright if you don’t understand that, I just remembered that you said you were an electrical engineer. I guess it really is true that in order to receive your diploma, you have to prove you no longer have the ability to use common sense in any way, shape or form. 🙂
bob_c
sully—
i understand ur post
but woundnt tyhe bands be condensing rapidly towards the median and simple math prove this out?
MikeZ
That is what is happening now.
Sully, I can accept that, but only as a short-lived phenomenon. You want us to believe this has lasted for 14 mos.
Median price tracks the market very well over the long term. Yes, there are times when it doesn’t, but those times do not last for years.
When data don’t agree with what you think, there are two choices: denial/rejection or acceptance/reevaluation.
You keep pushing the median price like its the second coming of Obama, thank you but the first coming was enough for me.
Well, suggest a better metric. Remember, “Sully says” is not a metric.
MikeZ
but woundnt the bands be condensing rapidly towards the median and simple math prove this out?
Not necessarily.
Sully’s (and others’) theory is that the upper price bands are falling and consumers are simply buying houses at the same median prices (hence the median sale price is stable) but they’re getting more house.
Correct me Sully, if I missstated.
But they haven’t thought this through.
What they’ve missed is when a $300K home becomes a $280K home, what was a $280K home becomes a $260K home, and this happens all the way down the price bands.
This brings MORE low end buyers into the market, which tends to push the median price DOWN.
Falling values are reflected in a falling median price.
This price shuffling can take some months to shake out, but never years.
Sully
MikeZ; you got most of that correct. Except the last part. Median sales price can go up, not down, when there are more sales in the high end. Using the median as a mark of stability doesn’t work here. And price shuffling can take years, I saw that in Silicon Valley back in the 80’s. Also, the high end has only recently started to decline and has some catching up to do.
Also, you are saying the market is falling across the board. I’m not saying that. The high end is catching up with reality. So, if anything, the current median sales price is temporary. The general market (i.e. – where 85% of sales are happening) has stabilized somewhat. By that I mean, anymore compressing would be minor compared to the high end prices.
When you look at the zip code pricing above, only three zip codes are outside the general market area, however almost all the high end is located there.
Now, since the median income here is 43K, I don’t see any major moves being made in those three zip codes until prices come down a lot more.
You tend to pick apart one item and make it the rule. There is NO one size fits all in this market.
The current price/sq ft average is below builders cost to sell. From that you could deduct that the Reno market is 25 – 30% undervalued, which would be another mistake.
I’ve posted many times that this area is overbuilt in the high end by a large factor, when compared to the median income. You can thank the FED for creating this environment. Still, the general population is only going to pay what they can afford and the high end is going to sit or morph downward for a long while.
I have been watching 89511 for awhile. Several houses attract my attention, I follow through to the sale. Every house (I was following) has sold for 10 – 20% below listing price. So, if you don’t like the price today, wait a month.
Although I haven’t studied most of the other areas for awhile, I did notice a 2000 ft house in Cold Springs on Mitch’s list going for 66/sq ft and it wasn’t that old.
So, buying in the general market area is probably a safer bet right now then buying in the high end. So you can use the current median and price sq/ft to determine what and where to buy in the general market range, but does no good whatever in the 400K and up range.
MikeZ
Also, you are saying the market is falling across the board. I’m not saying that.
Right, I’m the one saying that. I’m saying that one price band cannot fall without affecting the next lower band. This can be a slow, slogging process, but the ripple takes a few months, tops.
I have been watching 89511 for awhile. Several houses attract my attention, I follow through to the sale. Every house (I was following) has sold for 10 – 20% below listing price. So, if you don’t like the price today, wait a month.
I’ve already explained the problems inherent with using listing prices.
If the listing price drops from 20%, from $300K to $240K, and the home sells, that doesn’t mean the value or the home dropped from $300K to $240K.
The actual value of the home when listed at $300K (prior to the price cut and sale) is UNKNOWN. All we really know is that it was below the asking price.
To tell where actual home values are going, you should be tracking SALE prices.
Sully
OK, but I’m talking about houses built during or near the bubble. A house built with a $3 2×4 isn’t twice as strong as a house built with a buck fifty 2×4. So how do you value a house with $3 2×4’s? I know how I do it, how do you do it?
CommercialLender
Sully (and Smarten last week),
one of your posts is missing a point: a buyer formerly wishing to buy at a certain price point won’t necessarily buy more house for the same price when that bigger / better house comes into his range. The reason: confidence is down, income is down, unemployment is a concern, taxes are certain to go up, financing is harder to obtain, and so on. This is happening regardless of tax incentives or low rates.
So, a former buyer looking for a $500K home with a few bells and whistles may not in fact buy a home today formerly valued higher than $500K depsite that it has more bells and whistles. Indeed, what we are instead seeing is this buyer is no long looking for even a $500K home regardless of X’s or Y’s in quality and fixin’s, but now are looking at either lower nominally priced homes entirely or are content to sit and wait.
This becomes self fulfilling prophecy, BTW. They now expect to buy more for less but are less willing to buy at all, thus perpetuating further price declines. So, despite that the formerly unobtainable home priced at $750K and full of bells and whistles is now priced at $500K, a 33% discount, the buyer is no longer a buyer in the $500K range. Maybe $400K or maybe not at all. This is not true of all buyers, but I’d be willing to bet this is true of a very high proportion of them, and also true of most pricing strata in today’s market.
Sully
C.L., I’m not suggesting that is happening. I used that as an example. The price bands also show very few sales in that range. I am merely questioning the fact this market (all of it) has stabilized.
tallguy
One aspect of median income-median price that often gets overlooked (my opinion) is that the median income of people in the market to buy a house is by definition going to be higher than the median income of the area as a whole. There is a considerable percentage of people whoe will NEVER make enough money to buy a house. They skew median income down, but their incomes really have no effect on the pool of incomes in the home-buying pool.
Also, many homeowners have 2 incomes. Two median incomes (the 43K is an individual income number, not a household income) is 86K, not an insignificant number for buying purposes.
So I am not so sure you can use the median income argument to correctly predict very drastic declines in median house price.
bob_c
just graph the number of sales versus the sales price and look to see if the price bands are compressing
do it monthly for 2 years—i’d love to see the results
skeptical
Just wanted to thank Sully and MikeZ for one of the more interesting and respectful conversations this blog has had in a while.
FWIW, I’m agnostic. I think Sully has a strong point. But I also think that if you can’t measure it or quantify it (sinking values), then it’s difficult to prove the point.
Case-Shiller numbers on Reno would end this debate once and for all. Robert Shiller only looks at sales increases/reductions on identical properties. That would be the answer.
Unfortunately, no one compiles or reports that data for Reno. If you look at Vegas, though, things are still ugly and getting uglier. It’s the only city in the 20 city CS survey which lost more value in the three months to May 2010. It seems logical that Reno is probably more closely correlated to LV than any other city in the CS survey.
So, the CS survey (admittedly with some generous extrapolation) seems to support Sully’s point.
http://www.huffingtonpost.com/2010/07/27/case-shiller-index-home-p_n_660473.html