The current inventory levels are crashing. The housing market now has less than a months supply of active inventory in some of the faster selling areas around Reno and Sparks, Nevada (see table below). Keep in mind that a neutral real estate market is typically described as having five to six months supply of available inventory. More than that, the market is described as a Buyers market; less than that, the market becomes a Sellers market.
So what do you call the market when less than a months supply of inventory exists? How about Stead, or perhaps Donner Springs, or maybe the South Meadows.
I’ve been writing about the dwindling supply of available listings over the past few months, but it appears the market has tightened even more. It is difficult to even see a new house that enters the market; much less make an offer and have it accepted.
This weekend I was showing properties to clients. At one house, there was literally a line of agents waiting their turn to enter and show the property. Yesterday a new listing hit the market. Before my clients and I could even set an appointment to see the house, another buyer made a full-price, all cash offer, sight-unseen. The status was quickly changed to pending.
Below I’ve reported on the number of houses presently available for sale in a few of the best-selling areas around Reno and Sparks. If you would like me to report on an area that I have not included in the table below let me know and I’ll pull the numbers.
| MLS Area | February Units Sold | Active Units* | Days Supply of Inventory |
|---|---|---|---|
| (MLS 134) Reno – Stead | 43 | 21 | 14.2 days |
| (MLS 143) Reno – South Meadows | 39 | 28 | 20.8 days |
| (MLS 141) Reno – Donner Springs | 11 | 8 | 21.1 days |
| (MLS 181) Sparks – East | 27 | 20 | 21.5 days |
| (MLS 120) Reno – Old Northwest | 23 | 24 | 30.3 days |
| (MLS 185) Spanish Springs – East | 6 | 8 | 38.7 days |
| (MLS 121) Reno – NW Suburban | 26 | 36 | 40.2 days |
| (MLS 183) Spanish Springs – South | 31 | 46 | 43.0 days |
| (MLS 100) All Reno Sparks | 460 | 812 | 51.2 days |
*Active Units means non-pending, Active Site/Stick Built properties with a current status of New, Active, Extended, Back On Market, Price Raised, or Price Reduced. Data excludes Condo/Townhouse, Manufactured/Modular and Shared Ownership properties. Data courtesy of the Northern Nevada Regional MLS – March 2012. Note: This information is deemed reliable, but not guaranteed.
Matthew
I think the common response will not apply.
You might normally conclude that when the available supply falters that the shortage would command a price increase to fulfill the demand.
I contend that the demand we’re seeing is *primarily because* of the lower prices, and that buyers now recognize the pricing structure and inventories are artificially impacted.
Therefore “normally” in real estate peoples’ options to “buy now or wait” imply a price *INCREASE* should they opt to wait.
Contrast with the present when participants likely anticipate additional inventory at the same (or lower) price.
A shortage of inventory would imply, to me, merely a reduction in a sales volume until the artificial inventory anomaly is corrected. It would not imply an increase in prices… because most people understand that sales at current prices are distressed or that they *derive from* a distressed sale.
Uncle Tom
Guy,
What is the current Inventory status up in the Mount Rose Corridor part of Zip Code 89511, in the over $650,000 price range? Is that also showing a decreasing inventory of available properties, and if it is, might it be due to sellers holding back until market price conditions improve?
Thanks
Tom
Twister
Cue the homebuilders and get ready to go back to work!
lynneb
The same thing is happening in Martinez, CA. My son is looking for a house there and they aren’t on the market long enough for him to look at them.
Guy Johnson
Uncle Tom,
The Mt. Rose Corridor to which you refer falls into MLS Area 171 (Reno-Southwest Suburban). There are currently 56 properties listed for sale in MLS #171. Sales are not as numerous in that area compared to the MLS areas on which I reported above. In fact, since January 1st, there have been 15 sales, or roughly five per month. These numbers equate to approximately 11 months supply of inventory in Reno’s Southwest Suburban area.
If I add the $650,000 price constraint to the search, I see 39 current Active listings. And since January 1st there have been only five sales over $650,000 in said area. So, at the $650,000-plus price point, there is at least 20 months supply of inventory.
Cornell
I’m not exactly sure of what price pints you are talking about Guy. Could you tell us at what price point you and your clients wwere looking this weekend?
Across the street from me is a house listed at $245K. It has been on the market for about 7 months. There is nothing wrong with this house. It is neither particularly good nor particularly bad in its condition. It fits right in with the neighborhood. I have noticed that the realtor has held an open house two times in the past three weeks. Nobody comes to the open house. The owner and I are friends, and he tells me there are no offers. The house is priced in accordance with current comps.
So, if houses are flying off the market, why no offers on this house?
Could it be because all the activity is at the bottom of the market?
What we really mean is that at $150K there is no inventory, right?
Stewart
Of course that’s what we really mean Cornell. But the Memo that has been circulated to all realtors is to just talk about inventory. Just talk about inventory. Just talk about inventory. Talk to any realtor in town, and they have all the same Memo. Just talk about inventory. Every realtor in town realizes that sales volume is about to drop off a cliff, and commissions from selling $150K houses are going in the toilet very soon. So the hope is to create the (incorrect) belief that prices just have to go up because there is no inventory. You know, better buy now before you priced out. Offer more now, before you can’t stay in the game. The realtors understand that if their closing are going to go south, and they most certainly are, they are going to need to make bigger commissions on the fewer sales that are coming.
Just talk about inventory.
lynneb
Color me dumb..but I don’t see how Realtor’s could make it appear there is no inventory when there is..
Guest
It’s the banks with their shadow inventory that is making things appear so…I don’t understand how they are not getting into trouble for price fixing…
bennyl
I wonder how all those 2,500 @Realtors are going to support themselves when the sales volume falls through the floor?
Raymond
This situation has been entirely predictable since last October when AB 284 became effective and the foreclosures were artificially stopped. In fact, Guy even offered up a video link to a LV realtor who predicted this exact situation and who very plainly told his fellow realtors to start saving up some hibernation money for when the market screeched to a halt.
If I recall corrcetly, that LV realtor even said it would probably take about 6 months for the full impact of AB 284 to be felt. The guy was totally spot on.
BanteringBear
I call it a completely artificial, temporary shortage of low-end houses for sale, with a positively MASSIVE glut of shadow inventory in all price strata building in the background. This cannot end well.
Stewart
bennyl, I did not say that the realtors are making it appear there is no inventory when in fact there is inventory. What I said is that all the realtors can talk about now is the lack of inventory in a desperate attempt to incite in buyers a fear of rising prices. The realtors see their commissions sinking into the sunset along with the sales volume, and they clearly understand that they are now going to have to sell one $300K house in the immediate future to make the same money they made selling two $150K houses last month. And they all have the unpleasant feeling in their gut that it ain’t gonna happen, because neither of those two $150K buyers could ever be a $300K buyer. But they have to hype the market somehow to raise prices and maintain commissions in an environment of dwindling closings, and all they can chatter about to do that is the lack of inventory.
Twister
I’ve been hearing about all this Shadow Inventory for a long time now and this is prior to Ab284. If it exists then where is it? Why havn’t the banks put it on the market?If they have it why havn’t they continued the flow or even increased the flow onto the market to meet the strong demand? I would think that if they had completed foreclosures to put on the market then they would be doing it now. What are they waiting for? Maybe its a planned coordinated effort to squeeze inventory and tighten up the market. Either way the effect will be the same and that is higher prices. The banks are either running out of pre AB284 foreclosures or they are trickling out what they have for a reason.
As someone on here said before, just because a person buys a house for $150K doesnt mean they cant afford a $200K house. When the $150K houses are gone, some will pay more because they can afford to.
Matthew
Twister,
There are a few potential explanations. The one I like best right now is that of accounting practices. Previously mortgage holders would have had to mark-to-market their real estate assets. In order to make insolvent banks appear solvent, congress changed the these rules so that they are not required to do so. As such, as soon as banks sell these assets they take a significant asset write down.
Likewise, they incur costs to move these properties “through the pipeline.” Local governments impose obstacles to this *and* banks have no desire to “dump” everything at once because of the supply shock’s impact on pricing.
This would have been mitigated if the pipeline were permitted to flow… That rate of inventory introduction was somewhat proportional (slightly less than) to rate of NOD incidence. This allows inventories to trail off slower than NODs and to be introduced seasonally.
Banks, like any business, are seeking cost-minimizing approaches. Our legislators have artificially changed this approach to reduce the incentives of introducing inventory.
William
Twister,
In the last 5 years, from 1/1/07 to 12/31/11, there were 35, 077 NODs recorded in Washoe County.
There were 10,875 NOD cancellations recorded.
There were 13, 845 TDs recorded from foreclosure sales at the courthouse steps.
That means there are 10, 357 properties in some stage of foreclosure that are unaccounted for. Now, yes, we all know that some of these NODs are on the same property, and some are for commercial properties, and some are for HOA recordings. But not most of them, and there are still thousands and thousands of foreclosures in the pipeline being manipulated by the banks.
That is what is called the shadow inventory. Now you can continue to delude yourself into thinking that these foreclosures do not exist if you want. But the numbers are the numbers and anybody can look them up on the Washoe County Recorder’s website.
Twister
Ok, interesting…so it sounds like you think the foreclosures will continue to flow but at a slow rate, mainly because of accounting practices. That would imply that AB284 will not effect the rate of foreclosures onto the market at any point including after the law is ammended. Do I have that right?
Twister
William,
I’m not trying to delude myself just trying to understand why weve seen a big drop off in the number of foreclosures entering the market over the past couple of years. It doesnt look like anybody really knows for sure but some interesting theories.
AngryInvestor
As a rental property investor I’ve gotten some pretty good deals over the last few years but it really ticks me off that the prices are still artificially high and I could have been getting INCREDIBLE deals instead if the market was just allowed to be free. The government and the banks seem to be in cahoots with each other in a strategy to inflate prices and I just think it’s so wrong and un-american frankly. By the way does anyone have any numbers for strictly multi-family residence inventory levels? I’m tempted to just sell everything I have at this point if things are as crazy as Guy seems to think at the moment and just re-enter the market when the “shadow inventory” inevitably comes and re-gluts the market. What do you guys think?
Move to Reno
Great time for folks to short sale their underwater house.
Sandbank
William, that is very fine post. And let’s not kid ourselves now. Being added to that shadow inventory that you describe based upon the Recorder’s filings, are the 400-500 defaults per month that would be going NOD but for AB 284. I have to agree that there is going to be a massive number of foreclosures coming on the market once the artificial haitus imposed by AB 284 is removed, whenever that may be. Thousands of foreclosures already in the pipline, and thousands piling up because of AB 284. This is good news for the market how?
Norton
Maybe Move to Reno. Maybe not. Because of AB 284, underwater borrowers now have the option to just stop paying and live mortgage free for likely at least a couple of years. Maybe more. Why not just stay put, stiff the bank, and put the money that would have gone to pay the mortgage into a sock?
When somebody sells a house short, by definition they take no equity out. To qualify for a short sale, people have to prove to the bank they have no assets to pay off the loan. So these are not people who are likely going to be able to buy another house. So, instead of having to go pay rent, why not just live for free until sometime in 2014 or 2015, when AB 284 is changed to allow banks to start foreclosure again and the sheriff finally gets around to kicking them out?
Cal
Norton is absolutely right. For any underwater borrower who managed to avoid a NOD before Oct 1 of last year, (whether they were current on their mortgage or not)they now have the ability, if they choose, to live for free for a couple of years. Not saying everybody will do this, many will not for ethical reasons. But no doubt some will.
Twister
So I’d like to hear what is going to trigger a massive wave of foreclosures. If we are not seeing it now with pre AB284 foreclosures then what will cause it in the future?
Matthew
Twister, “massive wave of foreclosures?”
No, the issue is banks will strategically control release of their inventory because the current regulations *incentivize them to keep real estate assets on their books rather than sell them.*
Twister
Matthew,
No you didnt understand. My question went out to those who believe that we are going to be hit by a “massive wave” of foreclosures. I dont see it but some do and I’d like to get an answer to my question.
Matthew
Upon the repeal of AB284, any NODs which had built up and not added to the “pipeline” will begin foreclosing at an accelerated rate.
Do you disagree?
Twister
I think we’ll see more then we have lately but not a “massive wave”. What are you saying?
Matthew
Twister,
Following then enactment of AB284 our NODs went from averaging 600 a month to 30 a month.
When the law is repealed or amended, those defaults will be processed without some other new deus ex machina.
Twister
Ok, so I guess I’ll have to interpret what youre saying and it sounds like you think a massive wave of foreclosures is coming.
Reno Ignoramus
I agree with the above posters who suggest that a lot of NODs are going to be accumulating between last Oct 1 and whenever AB 284 is repealed or amended to allow the lenders to foreclose on borrowers who have defaulted on their note without requiring them to do what is effectively impossible. I even agree that the number of such accumulating NODs could be called “massive” because the number is going to be in the many thousands. However, I tend to agree with Matthew that there is a very good liklihood that the banks will not roll out several thousand NODs in the first few months following the repeal/amendment of AB 284. I think Matthew is likely correct when he suggests that the banks will moderate the number of NODs they actually record. So I would suggest that following the repeal/amendment of AB 284, the first few months will not see a “massive” number of NODs recorded, but over time, which may be years, that “massive” number of accumulated defaults will eventually be introduced to the market through the foreclosure process.
This is why AB 284 is such an unfortunate experiment. It is going to set back the market’s ultimate recovery by years.
booch221
WoW!
We live in interesting times!
Twister
No doubt! I think the recovery has begun and the only thing that will derail it over the next few years is if the banks swamp the market with foreclosures. Since the banks apparently have a few thousand foreclosures on their hands currently and are not swamping the market then theirs no reason to believe they will after AB 284.
BanteringBear
“A few thousand” does not even begin to scratch the surface of the shadow inventory. How naive. Seemingly every street in the entire area has one or two empty, decaying houses. The area is grotesquely overbuilt. The population is declining. Unemployment is UP. Wages are DOWN. Recovery? Don’t make me vomit.
gomez
but all those cash investors are you going to buy a new house built by the homebuilder. Just as Twister!
gomez
but all those cash investors are you going to buy a new house built by the homebuilder. Just ask Twister!
patrick
almost 70% of washoe is underwater.
obama will probably pass legislation to allow them to refinace, but that will ultimately
only help a few as most underwater resent their home purchace and will default.
the tail wind of a rising stock market will subside and the reality of a slow growth period nationally and a no grwoth period locally will fully set in and the stagnant market will resume
the bulk of the damage has been done….but best case is flatline from here
the FED and markets engineering low interest rates forever will keep investors buying up the inventory of rent size properties….but rents should decline a bit putting pressure there , also
ITS A MACRO BUYERS MARKET DONT BUY THE AB 284 ANOMOLY
the high end is permenantly dead
Matthew
Recovery?
Consider that 14 of the last 16 economic indicators (including those on homes) have missed their expectations.
I’m not saying there are no deals or that people should be stuffing their mattresses instead of investing, I just signed on a property this week and I’m looking for more.
But make no mistake: the active market now is for investors seeking rents or low-cost cash flip (a la NRES)… Average Joe Taxpayer has a while to wait, at least until the next government-fueled bubble.
Twister
Recovery never starts from a bright, shiny place. Its a dark place where people have given up and thrown in the towel.
Reno madness
I was seriously thinking about buying, but now that its become a seller’s market, I’m going to wait and see, at least until the banks are able to start foreclosing again and some decent selection comes on the market. Selection was just starting to look promising and then they stopped the foreclosures, oh well, seems like a temporary propping up of the market to me.
Its nice to know that Stead has finally turned the corner and become a seller’s market, but I don’t really want to live there myself, and I personally would rate Reno overall as merely “OK” in terms of a place to live. It has access to some really nice things to do in the general area and there are some nice neighborhoods scattered about, but overall (to me) its kind of gritty, and seems generally under-employed since it relies fairly heavily on outside tourism and gambling dollars (not really my thing).
Hard to get excited about buying in Reno, unless you’re getting a bargain, and that doesn’t seem likely in a seller’s market!
lurker
Reno madness,
Not sure anybody is calling Reno a seller’s market. If your real estate search is limited to perusing comments on this blog, you’re probably not that serious anyway.
Switching gears, it feels like some of the permabears above seem to be having a bout of cognitive dissonance. Stats that challenge my bearish view (which I only acquired in about 2010….thinking it was just going to be a “dip”)? Hogwash!
I especially enjoyed the initial comment in the remarks where the poster basically stated that the laws of supply and demand don’t apply to Reno real estate. Nice! How are your other investments doing?
Matthew
Hi lurker,
It’s not that “the laws of supply and demand don’t apply” it’s that the price elasticity of demand is impacted greatly by the number of underwater mortgages.
Because of the significant price decline, demand presently (which is certainly inclusive of people who own devalued properties) is more impacted by median price…. the demand now is not “traditional” in the sense that it was in the years leading into the boom. It is specifically reactionary to the bust.
See what I’m saying?
More concisely, and for me personally: I am a buyer below 150 but my demand drops quickly above that… not because I can’t afford it but because I don’t see the ROI at those prices.
Matthew
Oh, and lurker, to your point that you’re “not sure anybody is calling Reno a seller’s market”… I quote Guy Johnson himself on March 8th of this year:
“Folks, we’re in a Seller’s market.”
https://renorealtyblog.wpengine.com/2012/03/febuary-median-sold-price-units-dom-sq-ft-2.html
Stewart
Of course Guy says we are in a seller’ market. He is a realtor. That is the latest Memo. There is no inventory! We are in a seller’s market! Hurry and buy!
Try and tell everybody who has a house for sale above $250K we are in a seller’s market. They will laugh you out the door. Guy takes all the sales, one-half of which are below $150K, and then says the entire market is a seller’s market. What a bunch of hogwash. I noticed Guy never did respond to the poster above who asked him at what price point he was shopping this past weekend where there were no houses. If you are shopping for $150K houses, then, yes, for that price point, this is a seller’s market. But please stop insulting our intelligence and saying the entire market is a seller’s market.
Guy Johnson
Stewart,
The clients I referenced in my post above are looking at the below $170K price point. At that price point, based on current inventory I would describe the market as a seller’s market. And, of course, I agree a seller’s market does not exist at all price bands. […simply look at my response to Uncle Tom’s question in the comments above – 20 months supply of inventory at the $650K+ price point does not a seller’s market make.]
Anyone who has been reading this blog for any length of time realizes that the market is stratified and exhibits different characteristics at different price bands. But thank you for your concern.
If you’d like, feel free specify a price range, and I’ll report the inventory level at that range. For example, in the $250,000 – $300,000 price band there is currently 3-months supply of inventory. By some definitions, three months supply is a seller’s market.
Twister
Wow….thats amazing! People are actually buying houses over 250K? From the sounds of things I would have thought we couldnt buy a tent to live in let alone a house for 250K.
Reno madness
Guy,
Thank you for your comment and explanation. I’m not a real estate expert, but it seems to make sense, however it still makes me wonder — if it a seller’s market below some price level (albeit varying from one neighborhood to another more desirable neighborhood), but properties over each area’s “magic number” sit, doesn’t that put a pretty significant barrier on any price appreciation for the properties that are moving, at least until the higher end of the market finds its footing and starts to clear at asking price?
Or worse, if the higher-end properties in each strata can’t clear at today’s asking prices, and the folks trying to sell these better properties are eventually forced to lower their price to sell, couldn’t it put downward price pressure on the lower-end homes selling today?
Let’s say I buy a $250K house today, but the nicer house down the street currently listed at $300K — which I didn’t buy and just isn’t moving today — finally ends up selling in six months for say $260K, doesn’t that hurt the value of my purchase???
I mean, I guess it could go the other way, and when all the less expensive houses are scooped up the only inventory left becomes the higher-end properties, at which point buyers might step up only because that is what is available — but is that really where we are headed in any significant numbers across the market, what with the economy being the way it is these days? Seems kind of optimistic.
I’m simplifying to illustrate the thought, but it seems like folks might be able to get a better class of property down the road for price points closer to where lesser properties are going for today, by simply waiting this thing out until the whole market show signs of improvement.
Twister
Hey, does anybody have a tent for sale? My uncles in the market looking for a new home!
Dirtbagger
For better or worse, since 2008, the Feds (Treasury and Fed Reserve) policy has been to prop up the large banks through a number of tactics such as ZIRP, offloading Tier 2 and 3 assets onto the Federal Reserves Balance Sheet, change mark to market accounting, and most currently to reclassify the status of lower standing liens on mortgages (HELOC’s). The policies have been designed to give the large banks some breathing room so they can repair their balance sheets and perhaps recapitalize by issuing more stock.
The only way that the large banks can pretend to remain solvent in any meaningful way is to SLOWLY release housing inventory to the market and then write down the bad loans as the inventory is cleared. I do not see how this policy is going to change regardless of the November election outcome. Those waiting to see a large dumping of inventory on the market by financial institutions after AB 284 issues are resolved are likely to be disappointed.
Guy Johnson
Reno madness,
Thank you for your post. You’ve raised some good points. I wish I had a definitive answer. Unfortunately it is difficult to predict the market – especially with new laws and programs intervening. I can only report on current data and trends – and then attempt to draw a conclusion.
In regards to the scenario you outline of the higher-end houses dropping in value, that is a possibility. One metric to track would be the ppsf (price per square foot) – both listed ppsf and sold ppsf.