[Feb. 23, 2010 – Note: it has been brought to my attention that some posts (like this one for example) are not displaying correctly depending on the browser used. I am investigating this, but it seems that this post displays correctly in Firefox or Chrome, but not certain versions of IE. If you have observed weird formatting of posts (i.e. post being cut-off, or misaligned), please let me know what browser and version you are using. I would appreciate it. Thanks, Guy]
[Feb. 24, 2010 – UPDATE: I think that the embedded code to display the Zillow Chart is behind the formatting problems. I have removed the embedded chart code and replaced with a link instead.]
In a previous post, longtime reader billddrummer posted a link to an article by blogger Randy Sharrow, entitled Nevada Housing: More Reasons for Pessimism [Thanks for the link, billddrummer.]
Among other things, the article contains some nifty housing market charts created by Zillow.com. Though the focus of the article and the charts are on Nevada statewide, any of the comparisons made with the charts could be made at the Reno level. [See http://www.zillow.com/local-info/ or my previous post Zillow’s ‘fresh and new’ local housing data for a more detailed look at Zillow’s Real Estate Market Reports.]
As an example, I quickly pulled the median sales price for the Reno metro area compared to the US as a whole over the past ten years.
The resulting chart shows the dramatic difference of Reno’s housing bubble compared to that of the entire country. What also is interesting to note, is that December’s medians for the Reno and the US are now almost equal. A phenomenon not seen before…at least in the prior ten years of data that Zillow presents.
Going forward, will Reno’s median sales price fall below that of the country as a whole? If so, can this be seen as an overcorrection give the historical “spread” between Reno and the US? Or is the rest of the country simply lagging?
Perry
If the employment outlook in our area does not improve then where else is there to go but down? What jobs there are in the area pay next to nothing. Unless we go back to the California dream (rich Californians buying our houses) I don’t know who can afford expensive houses.
SmartMoney
At the end of the bubble cycle, prices always fall to well below fair value. Look at the Nasdaq. From 5,000 to 1,200. Now that Reno real-estate is finally approaching fair value, it would make the most sense for it to continue down, and ending a year or two from now well-below fair value. Then the rebound slowly begins.
Sully
Actually this chart shows what many of us on this blog have been saying for the past few years. The Reno market is way overpriced for the median income of the area. The speculation was way out of proportion to any reasonable expectations based on common sense.
SWJP
Interesting post –
Full disclosure: Californian who moved here in 07, and love the lifestyle (remote sales worker), continued good income.
I think the low paying jobs are the symptom, not the root cause. The cause is terrible city planning, and leaders who still rely on gaming and tax incentives as the base for growth.
Having been to every state but two (Rhode Island, North Dakota) with regular travel I have been to some pretty bumf*ck areas that still have managed to lure technology, medical, and education facilities. Most started this in the 80’s or 90’s but as a result are much more job diverse and resilient.
Until Nevada figures out how to invest in education and attract a new business segment through true investment, not tax BS for blue collar crap jobs, will we get anywhere.
Harry Reid and our local leadership has done us no favors. Gaming is a dead horse in this city – but has a disproportionate voice. Grow up Reno.
Lurker, but had to post.
Sane Economist
Interesting point from the above sourced article…Nevada’s aggregate property value is apparently lower than the total outstanding mortgage debt, making the entire state underwater.
Another first for Nevada!
BanteringBear
What is so hysterical about the current situation is the chatter that the solution to the problem is higher prices. High prices were the problem. What’s lost in all of this, is that affordable housing is in the best interests of the country as a whole. Very few people benefit from runaway real estate prices. We’ve already seen the damage done, and yet they’re trying to re-inflate the bubble. It’s insanity.
Sully
Guy, Opera opens this site with all columns stacked on the left. IE only opens to the chart and nothing else shows. I have to use Firefox.
Guy Johnson
To those who have responded (both on blog and off) thank you for your feedback. Trying to determine if this is a WordPress issue. May have to finally update to the latest version of WordPress.
Zen
BB you have exactly pointed out the beauty of the situation. Affordable housing is coming back and hopefully hear to stay. Affordable housing means more home ownership, which means more money available for retirement accounts and other purchases without piling up the credit cards. We have become slaves to debt in this country. Nobody ever thinks about the cost, only how much the payment will be. Collectively we have been brainwashed into consumer zombies. We have been convinced that both mothers and fathers should work their tails off so that the family can afford all the garbage that surrounds us. I’m not saying you can’t enjoy yourself or splurge once in a while. I’m just saying pay cash for it and work on owning your home. It’s easier than it sounds. The bankers will never tell you how. Read the Millionaire Next Door or go read about it on the internet. Affordable housing is a great way to help people forever leave debt behind. Now we just need to get people to help themselves. I hope that is the lesson learned from this great debacle. Maybe when we start getting ourselves out of debt, we will demand it from our government too.
billddrummer
I too must agree with BB’s take on the situation. Median incomes drive prices. With unemployment as high as it is here, median income is falling. Until median incomes start to rise, home prices will continue to fall.
Another thing that’s at cross-purposes is that the employment system here penalizes the highly educated. If you have an advanced degree, you’re better off leaving town to find work–even if you earned your degree at UNR.
I believe that the lack of progress with our local school system will continue to stifle job growth for years.
(FWIW, I logged on with Firefox.)
billddrummer
And to answer your question, Guy–
I believe the median has farther to fall. As you know, post-bubble, prices tend to fall below trend for a time, until fundamentals recover.
We haven’t fallen below trend yet, but the next 60 days should tell the tale. In the meantime, national prices may stabilize or even rise, but our prices, I fear, will continue to languish.
skeptical
The general trend on this blog for the last year or so has been that the downturn has been bloody, but the worst was maybe behind us. There have been stalwarts, like BB, who adamantly insisted that we had a long way left to go. Most, though, seem to believe that we’re in shooting distance of the bottom. In Guy’s informal poll of median prices for next year, for example, the “median of the medians” was ~$168k.
While my own estimate in that survey was above that level, I believe now that things only get worse from here. I see now that I was way too optimistic.
I do believe that people are waking up to the possibility that we may well only be in the early to middle innings of this mess. By the end of this year a $168k median will look quite optimistic.
So, in short, yes, Reno will overshoot. It will hit a level below the overall US median. It will do so because there are no high paying jobs (or no jobs, period) to suck up this inventory of over 10,000 homes in default (half of which is currently shadow inventory).
I saw a house in Arrowcreek hit the MLS the other day for just shy of $1.3M. I just had to chuckle. I don’t care if that house is gold plated. I just had to chuckle.
Shows you how deep and strong denial runs. It sure ain’t just a river in Egypt.
RB
I love it when people tell you the sky is falling. I immediately think, what’s their agenda? It’s quite apparent that the pessimistic bears have sold the market short. So in turn, they ROOT for bad times to persist. It’s sick actually. Then again, most Sadists are bears by nature just like BB.
Sully
New signs emerged Wednesday that the economic rebound is sputtering. Sales of new homes hit a record low last month. And mortgage giant Freddie Mac signaled it will need more federal aid — and might never repay it.
http://news.yahoo.com/s/ap/20100224/ap_on_bi_ge/us_bernanke
RB, it would be interesting to hear your reasons for thinking everything is so rosey. Perhaps, Santa Obama and his many spending programs excite you. At any rate, please tell us backwoods bears where all the meat is. 🙂
BanteringBear
RagingBullsh!tter posted:
“I love it when people tell you the sky is falling. I immediately think, what’s their agenda? It’s quite apparent that the pessimistic bears have sold the market short. So in turn, they ROOT for bad times to persist. It’s sick actually. Then again, most Sadists are bears by nature just like BB.”
I won’t speak for anyone else, but I’m not shorting anything. In fact, I don’t delve into the scam market. I’m smart enough to realize that it’s nothing more than gambling, and praying that you’re on the right side of the trade. I’d rather invest my money in myself, and things like small businesses where I have a certain level of control. I don’t like my money tied up in places where the pigmen feed, and where flash trades, rumor, and panic can wipe me out.
Rooting for the bad times to persist? I have never, ever hoped for hard times, and have been screaming out loud about the bubble for years, warning of the negative consequences of the policies while greedy, weasels like you were stuffing your pockets without a care in the world where things were headed. You’re part of the reason we find ourselves in this mess, and for someone of your unsavory character to cast stones is about as hypocritical as it gets. Thanks for the laugh.
skeptical
RB,
If you re-read Diane’s post; if you bought a Somersett/Arrowcreek/Montreux McMansion in 2004-2007; if you are a educator/administrator/janitor in a Reno public school; if you bought a Smithridge condo for $175k in 2006; if you just got laid off from your casino job….
AND you think the sky has not already fallen, then you live on another planet.
This is an unprecedented housing depression of historic proportions. People have lost up to 75%, and the market continues to go down.
Like a frog boiling in a pot of water, I’d like to know, RB, when we will get to the point where you think things are actually bad out there?
Are you a homeowner? Do you live in Reno? Please lay out the case for the rest of us why things are so great right now. Easy to take pot shots, perhaps a bit more challenging to lay out your case. Perhaps you’ll persuade a few “pessimistic bears” to change their minds.
skeptical
At least the chicken littles have an argument to substantiate their claim.
http://www.businessinsider.com/20-reasons-why-the-us-economy-is-dying-and-is-simply-not-going-to-recover-2010-2
“Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly.
But this time around that is not the case. The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover.
The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.
And it is going to be painful.”
Whereas the Pollyannas sole argument seems to be, well the cost of these houses used to be…..
smarten
Skeptical said that “the reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover…Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.”
What you’re predicting Skeptical, is armagheddon. If the average Reno/Sparks wage earner can’t afford the $168K median priced SFR, do you think he/she is going to be able to afford that $75K BMW or MBZ? Or are you telling that me those former delusionally priced automobiles, like other tangibles, are poised to drop 75% in cost? If not, who’s going to buy/lease them?
As I’ve commented before, if our country goes down the tube then it really doesn’t matter what any of us do/don’t do insofar as residential real estate is concerned.
skeptical
Smarten,
Please note the quotation marks, as the statement is listed below the link to the document from which they were taken.
A bit bombastic? Yes, indeed. And even I am hopeful that we will not get sucked into a black hole. That said, I believe the author is making a point, and his point stands.
The halcyon days following WWII wherein the greatest generation built historic wealth (and the hippie kids subsequently spent it) are gone — gone forever. We (the government and the individual) have lived beyond our means for so long that we have literally bankrupted ourselves.
Is it possible that sanity returns and a stable, growing economy is one day in place? I hope so. But there will be a lot of pain between now and then. This debt issue hangs as a sword of Damocles above our and our children’s heads.
For those of you who may have forgotten the myth regarding Damocles: He was an obsequious courtier in the court of Dionysius II of Syracuse, a fourth century BC tyrant of Syracuse. Damocles exclaimed that, as a great man of power and authority, Dionysius was truly fortunate. Dionysius offered to switch places with him for a day, so he could taste first hand that fortune. In the evening a banquet was held where Damocles very much enjoyed being waited upon like a king. Only at the end of the meal did he look up and notice a sharpened sword hanging directly above his head by a single horse-hair. Immediately, he lost all taste for the amenities and asked leave of the tyrant, saying he no longer wanted to be so fortunate.
Well, Smarten, the banquet is over. And the BMW dealers are closing up shop.
Reno Ignoramus
If I may paraphrase the late US Senator Daniel Patrick Moynihan:
The decade of 2000-2009 was an extraordinary time in the United States. We took $ 3 trillion and threw a party.
Polly
It was indeed quite a party.
And now the bill, and the hangover, are going to be with us for years and years and years.
DownButNotOut
S – I couldn’t agree more that Reno has a ways to go, unfortunately for those that bought in ’98 and are becoming upside down. But is it your contention the whole country is going down unilaterally?
You do know there are BMW dealers in other cities besides Reno, right?
One of the problems I read here is comparing Reno to IV and then comparing both to the rest of the country equally. Believe it or not there are places that are doing OK, or maybe a better way to say it is holding there own.
Reno has a ways to go, but that’s not true of everywhere.
Sam
Federal Housing Finance Agency 4th Quarter 09:
http://www.fhfa.gov/webfiles/15454/finalHPI22510.pdf
Nevada #51 – worst in nation (page 14)
Reno-Sparks #297 – 3rd worse in nation (page 27)