Yesterday I saw a piece in the Wall Street Journal discussing the lack of housing inventory in certain parts of the country – see Slim Pickings Are Latest Headache for Home Sales.
From the article: “There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.”
Lack of inventory is not a scenario that is frequently discussed with regards to the Reno-Sparks housing market, however the WSJ piece caused me to take a closer look at our market in that regard. Looking at the most-recent monthly numbers I’ve posted (see September median sold price, units…) we see that there were 2,044 active listings at the end of September. Looking back to September of 2010 we find there were 2,186 active listings at that time. So, we see a 6.5 percent decrease in the number of listings from a year earlier. Not the 20 percent decline seen nationwide, but a decrease nonetheless.
But looking closer at the numbers, we see that both unit sales and pendings are up dramatically from the previous year in the Reno-Sparks market. September’s 546 units sold represented a 17 percent increase over September 2010’s 467 units sold. But more remarkable, is the number of pending properties. September’s 1,967 pending properties represented a whopping 34 percent increase over the number of pending sales (1,473) in September 2010.
So, to recap:
- Listings down 6.5%
- Sales up 17%
- Pendings up 34%
If these numbers continue, I think you can see where this is going. The Reno-Sparks housing market may flip from a Buyer’s market to a Seller’s market – if it hasn’t already. When I look at September’s 2,044 listings divided by its 546 sales, I get 3.7 months of inventory, or an absorption rate of 27 percent. That’s a Seller’s market by definition.
So the next question is will sales prices follow? Stay tuned.
Martin
Guy, are you going on record now and saying there is a seller’s market in Reno? Are you suggesting we are running out of houses for sale in Reno? Does this seller’s market exist at all price strata, or just the bottom?
I think you have to look at the tale of two markets that we have had going on in Reno for quite a long time now.
What is the inventory for houses listed above $300K? How many of them are there on the MLS, and how many have sold recently? If we divide all the listings above $300K by all the sales above $300K, I suspect there is lot more than 3.7 months of inventory.
Like everything else in this market, all the sales numbers are being driven by houses at $300K and under, something like 92% or so.
Of those 1967 pendings, I suspect about half of them are for $150K or less.
I suggest that only by some real torture of the data can one suggest there is a
“seller’s market” for houses listed above $300K.
All of which is to say what anybody who has been following this market has known for a long time now: sales at or below $150K have been brisk. Between $15oK and $300K sales tail off significantly the closer they get to $300K. Over $300K the market barely exists.
Maybe that is because $300K is about 6 times the median household income in Washoe County, and without liar loans people cannot qualify to buy houses at that price point, and maybe it is because almost 70% of all sales now generate no move up buyer. The sellers of 70% of those lower end houses are either banks who are not looking to buy another house or short sellers whose credit is being clobbered and who cannot obtain a loan to buy another house.
I have a relative who is trying to sell his house in Arrowcreek. Listed now at about $650K. It has been on the market, off and on, for 2.5 years. Nobody ever comes to look at it. Should I tell him that he is now in a seller’s market? Maybe, in the light of the pending shortage of houses in Reno, he ought to consider raising the price?
What say you, Guy?
Carney
“Will sales prices follow?”
Guy, help me out with some analysis here. If we run out of $150K houses for sale, does that mean that buyers will simply start buying $200K houses? And when we run out of $200K houses, does that mean that buyers will simply start buying $300K houses? How does this work? If I am a buyer with $60K in household income, and I can afford a $150K house, how is it that I can afford a more expensive house just because all the $150K houses are gone? How does the shortage of houses increase my buying power?
The implication of your comment is that a shortage of houses will drive up prices. How does a shortage of houses enable a buyer to pay more? Can you please explain that to me.
Thanks.
bob_c
The WSJ article states that low inventory is largely due to sellers removing their properties from the market, rather than selling at todays low prices. Its a take it off the market, rather than give it away mentality. Whether that proves a proper decison, remains to be seen.
Reno Ignoramus
Carney,
Your point is well taken. A buyer can only pay what he can pay. If all he can pay is $150K, and all that is available for sale is over $200K, then he rents. This is what always happened until the Great Bubble came along.
For more likely is that the sellers, if they really want to sell, will have to drop their prices to the point where the buyers can afford them.
Only if we return to handing out $400K nothing down, interest only, teaser rate no doc liar loans to keno runners will the situation change. In other words, unless we return to the practice of enabling buyers to purchase houses they cannot afford.
Toomey
So Guy, does this “seller’s market” exist in the $1 million price range? Can we expect to see a price increase on the Skyline house you have listed? Because these $1 million and over houses are becoming scarce and hard to find? Are there bidding wars going on for million dollar houses because there are more buyers than sellers?
Cal
The only sensible definition of a “seller’s market” is one where there are more QUALIFIED buyers than there are sellers. If you have 100 qualified buyers, and there are only 50 houses in their market segment, then those 50 houses will be quickly sold, and they will rise in price to the maximum price the buyers can afford to pay. They will not, however, rise in price beyond what the buyers can afford to pay, because the buyers cannot afford to pay more. Shortage of supply does not make a buyer more qualified to pay more. Unless, as RI points out, something artificial is introduced into the system that enables a buyer to borrow more than he can repay.
We tried that. It ended badly.
MikeZ
Given this week’s 15% week-over-week drop in mortgage volume ( http://online.wsj.com/article/BT-CO-20111019-705585.html ), I question the straight line extrapolation (which ignores the decline) that yields 3.7 mos. of inventory.
Grand Wazoo
Wow Guy, you’re getting your ass handed to you!
bonanza
I see the Debbie Downers are out in full force. Banks are not going to just start dumping houses if prices start inching up. I bet they are going to become even stricter on allowing short sales. Prices will inch up even more. Refugees from California will start panic buying ….
more_shill_talk
“I see the Debbie Downers are out in full force. Banks are not going to just start dumping houses if prices start inching up. I bet they are going to become even stricter on allowing short sales. Prices will inch up even more. Refugees from California will start panic buying ….”
Dumbest post of the year award.
Carney
I am not out to hand Guy’s ass to him. I just asked a simple question. How does a shortage of houses increase a buyer’s ability to pay more? If all a buyer can afford is $X, how does a shortage of inventory increase the buyer’s ability to pay more than $X?
I am still waiting for the answer.
Phil
Not to divert from the topic here, but you all see the story in the RGJ about the tax assessment of the Siena being lowered? This is a great story. The Siena’s lawyer goes before the Tax Board and argues that the Siena’s valuation ought to be lowered because the property is struggling and is in a bad part of town where there is high criminal activity. Yep. All the while the Siena keeps saying that it is a 5 star destination catering to high dollar customers who are willing to pay for the best.
What a load of crap. What is it Siena? Are you a primo 5 star destination or a “struggling property in a high crime part of downtown”?
Free Falling
Carney,
You mistakenly assume our buyers are all borrowing money. I can’t recall the exact stats, but in Vegas it is around 50% and Reno something like 30% of buyers are paying cash. These cash buyers can easily pay more for the same house if that is what it takes to close the sale (and they think the value is there). At the lower end of the market, Reno homes have pencilled as investment properties for some time, fully covering the costs of ownership. If prices rise 10% (in six months or two years), the properties will still pencil as investment properties. The investment buyer is of course looking to pay the least possible price, but there are plenty of them in the market.
As for the owner occupant coming to the table with a loan, you have twisted the logic inside out. If the former $200 k house now costs $220 k (in six months or two years or whenever), the $200 k buyer has no choice but to buy the former $180 k house. It is the old law of supply and demand from Economics 101.
I laughed at the WSJ article. “Shortage of inventory is bad for the market”. No, shortage of inventory is good for the market and will eventually lead to increasing prices due to that interesting intersection of the supply and demand curves.
The article is as dumb as all the other articles stating lack of new home starts is bad for the market. No, lack of new home starts is the only way the excess supply from the days of irrational exuberance will eventually become absorbed.
While job creation has been and remains dismal during this Great Recession, the population continues to grow. New home construction is not keeping up with population growth which is a good thing given overbuilding in the Countrywide Liar Loan days. When we eventually get job creation (and I won’t predict if that is one year or three years or ten years out), all those 20 somethings still living with their parents and all those 30 somethings and 40 somethings who moved back in with their parents or siblings due to financial stress will eventually want new homes. Increased demand will return and with it modest price increases.
Unfortunately, the collective belt tightening of all the people paying the mortgages on their upside down homes is drastically reducing the amount of cash moving through the Reno economy. This negative wealth effect is keeping a strong damper on the prospects for local job creation, so Reno will be one of the last areas to bounce out of the unemployment mess.
MikeZ
Phil, I was in Sienna last night, passed through on a downtown walk between 7 and 8pm. It was so deserted I swear I saw a tumbleweed blow by the blackjack tables 😉 Since it reopened, I don’t remember seeing more than a dozen customers inside at any one time.
MikeZ
One additional point about buyers, prices and income. Many of us have been saving for the last 5 years and $50, $60 even $100K cash down can get you into home 4-5-6x income, or more, with a mortgage that’s still within 3x income.
Joe
Carney,
A shortage of houses might not increase a buyers ability to pay more, but rather his willingness to pay more. You assume buyers who get a mortgage are borrowing the max that the bank will lend. While there are surely some who do, I would think most of those types of borrowers purchased during the bubble and either learned their lesson or are unable to secure financing for a few more years.
Cipher
Phil, the owners of the Siena claim to be debt free, and that may be correct. I too, like MikeZ, stroll through the Siena on occasion and I can confirm his observations. The place is basically a morgue any time of the day or night. Being debt free will allow the owners to hang on no doubt. But I cannot see how in any way the place can be making any money. How long can any business stay open if it is losing money?
There are some bright people on this blog. Am I missing something?
Emily
I work downtown and a coworker and I have gone to the Siena coffee shop several times because it is easy walking distance for us. During the lunch hour the coffee shop is usually about 50% full. One day we didn’t get to lunch until 1:30 and the coffee shop was empty except for us. The shushi place is always vacant. As for the casino, yes, you could roll a bowling ball through the place and not hit anybody.
inclinejj
Siena property value cut by $2.4 million
RGJ piece written by Brian Duggan
Guy Johnson
inclinejj, thanks for the link to the RGJ piece. I’ve added the link to your comment above.
Guy Johnson
All, many good points made in the thread above. Thank you for your input.
Martin, inre the tale of two markets, excellent question. Here are September’s numbers:
In the < $300K segment: 1,147 Active listings currently ÷ 496 units sold in Sept = 2.3 months of inventory In the $300K+ segment: 597 Active listings currently ÷ 64 units sold in Sept = 9.3 months of inventory
Sully
Lemme see, the previous owners spent $54 million remodeling the building from a Holiday Inn which musta cost a few million to build in the first place. The new owners paid $3.9 million for the place and added another $4 million in remodel. So now the BOE agrees to reduce assessed value to $5.1 million because the economy sucks. However, the casino is “debt free” but has no customers……
I gotta take a course in this “new math” cause I sure can’t figure it out. 🙂
Uncle Tom
Actually, it was never a Holiday Inn, to the best of my recollection. It was called the Holiday Hotel and was developed in the late 1950s. I was there in about `61 or`62 with my father on business trips, when it was still a fairly new place, and Newt Crumley, Nevada cattleman and the owner, had strolling violinists in the casino. It was a classy little place at the time. It did change hands later, was closed for a couple of years as I recall, and finally, and after many years of operations, the present owners acquired it through a bankruptcy purchase. The owners before them had spent a bundle remodeling the place, and the present ownership has done more. It is an attractive property. I think a multi-faceted marketing plan would help them, I don’t know what type of regional marketing they are doing in northern california suburban communities, but that is where I would spend money on print media and FM radio advertising. The target demo for this property in my judgment is upper mid-level income couples aged 45-70 who live in northern California upscale communities. I would emphasize a quiet and compact casino, friendly employees, utilize old school R & B live music, and quality food service. I think it is entirely possible to sell rooms and get players into the casino, with the right regional marketing campaign based upon special events. I am watching them with interest and I hope they succeed.
bonanza
What I like about the Siena is that you can park right in front of the entrance. Of course that is because it is so dead there. They need to do a major ad campaign in the Sacramento/Bay area. Maybe have some super cheap room/spa packages. Get the place some excitement to draw crowds. I sure hope Comm Row makes it. The food we had there was really good.
Cornell
Is 9.3 months of inventory considered a “seller’s market”?
I doubt it is. And thus Martin’s point is well taken. I would guess that in the really high end of the market, ie, $800K, $900K, over $1,000,ooo, the inventory is counted in YEARS. Many YEARS.
I can assure you there is no “seller’s market” at any price level above $300K.
MM
(I can assure you there is no “seller’s market” at any price level above $300K.)
I do feel the same way.
Jeffrey Dow Jones
I read the post a couple times and I don’t see any predictions here. I don’t see any claim that prices will rise, nor do I see any obviously bullish perspective. I see a simple assessment of last year’s data and an assessment of similar data for this year. Then I see a question about which way prices go from here. It’s possible I missed something, though.
Anyway, I raise all this because it’s highly relevant for the industry I work in (investment strategy and management). You see disconnects between sentiment and data all the time in all sorts of markets. Most of the time, if the disconnect is big enough and the fundamental misunderstanding is great enough, you can make a lot of money. The problem with most investors is that, emotional creatures that they are, use sentiment and emotion rather than data to make decisions. The actual track record of the average investor is not very good and I happen to believe that his broken psychology is one of several reasons why.
Sentiment on housing is still ridiculously negative (as witnessed in the comment thread). I’d say that’s specifically true in Reno and generally true nationwide. If I had to guess, I’d say that it’ll stay that way for a while. The point is that anyone who wants to get serious about real estate — and that could be buying a home, acquiring some investment properties, or even making the decision to sell and avoid the asset class altogether — should be looking at data and not listening to sentiment. It’s worth asking if the data is now at a place where the sentiment is no longer justified.
The more data we have, the better. Posts like this help that.
Raymond
True enough. But it always comes down to interpreting the data, doesn’t it?
Recall the story of the lecherous husband and the prudish wife. He says: ” We have sex three times a week. Seems like hardly ever”. She says: “We have sex three times a week. Seems like all the time.”
They both have the data right.
inclinejj
Lets see high unemployment, people loaded with personal debt, kids coming out of college loaded with student debts, tough job market, banks flushing the stale loans out of the system?
Like catching falling knives!! sooner or later you get cut.
inclinejj
Oh and record low rates but lenders being tough with underwriting, appraisers being called from out of the area to do the report, lenders controlling the appraisers.
What could possibly be wrong with the housing Market???
Still Looking
It’s so very hard to find anyone not full of bullcorn in the RE industry in your area – so I went looking online, and here is MORE of the same fertilizer. “Sellers Market” – oh, please. Maybe if all the liars in the real estate industry get together and chant “Bubble come BACK! Bubble come BACK!” and crinkle $100’s in unison, it really will turn into a seller’s market and prices will rise again! In the meantime, I’m still looking for an agent who isn’t full of shinola, and eyeing southern Oregon as a better bet than investing in Reno properties.
Comeback Kid
Still Looking,
Look up Bantering Bear when you get to Oregon. He can set you straight on the Real Estate situation.
Rory
Southern Oregon? I was under the impression the Medford market was pretty dismal, much like Reno. Now Ashland is a quaint town but they only thing going there is a popular Shakespeare festival and a small public University. Plus, home prices are steep as compared to the surrounding cities in the valley. Not exactly a great place to invest given it’s relative isolation and an airport which has few direct flights.
October median sold price, units, DOM, $/sq.ft. | RRB Home
[…] Active listings have dropped sharply. The 1,682 current active listings represent a nearly 18 percent decease from a month ago. Similarly, Pendings have also dropped ; currently at 1,646 – a 16 percent drop from last month. Much of the decline in these numbers can be attributed to seasonal factors as home sellers remove their listings from the marketplace for the holidays or winter months. Of note, the number of Pendings has nearly reached the number of Actives. […]
November median sold price, units, DOM, $/sq.ft. | RRB Home
[…] greater demand vs. lower supply mean to home prices? The last time I brought up the subject (see Looming inventory problem in Reno-Sparks?) a spirited thread of comments and opinions ensued. Perhaps, the conversation will continue with […]
January median sold price, units, DOM, $/sq.ft. | RRB Home
[…] first brought the dwindling inventory point to light in October – see Looming inventory problem in Reno-Sparks? At that time, the months supply of inventory was at 3.7 months. It is now at 2.2 months. Folks, […]