The Reno Gazette posted an excellent story this morning about the growing affordability problem for local median homebuyers. Though I do think prices will come down this winter and help somewhat, will they come down enough? read
Meanwhile, coming soon to a bank near you… stiffer lending laws beginning in January 2007. While this is certainly a positive step designed to mitigate the rampant proliferation of voodoo loans sold to an unsuspecting public, it will make it harder for people to actually purchase (no more fluffing the income via stated products) which will make it harder for sellers to actually sell which will probably put pressure on prices to come down. Just a theory… read
And now that the housing ATM is empty, people seem to be cutting back on their new car and restaurant expenditures here in Northern Nevada (though I guess the Hummer dealer is still probably doing well given that Lennar is tossing one in with each home purchase). I bet when the homebuilders cut back on construction and lay off all the workers because they can’t move the inventory, that’ll put another dent in our taxable sales income. read
gotlots
What?
Why do we care about this? I thought we were now in a “new paradigm” where “population demographics” will continue to insure 10%-15% annual appreciation in house values into the sunset. I thought we didn’t have to worry about this here in Reno. I thought there were so many rich Bay Area people coming here to buy our houses at dirt cheap prices that it didn’t matter what the locals could afford.
Are we running out of rich Bay Area multimillionaires??
Do we suddenly care about the locals now??
Scott Schrantz
Don’t be silly. We’ll never run out of Bay Area millionaires. A pair was photographed in their native habitat (house hunting) on the front page of the Nevada Appeal yesterday.
http://nevadaappeal.com/article/20061003/NEWS/110030074
Mike Van H
I for one have always cared about locals.
I am not sure what a task force can do? Can they convince sellers that the $100,000+ most homeowners gained in equity in two years should be halved in order to get housing prices back in order?
Or perhaps a home being on the market for over a year without one showing might motivate homeowners to lower their prices to reasonable level.
The frightening thing is this also comes down on the realtors. I have had at least 4 realtors come by my home/office on Holcomb Ave and say ‘Oooh you can sell this for $300,000’ or ‘ooh you can sell this for $280,000.’ Right, in what dream world are THEY living in? A two bedroom 880 sq. ft. 1920 home (in awesome condition mind you) for $300,000? Pfft. I don’t think so.
So judging by how realtors talk about my home, I think both Sellers AND some realtors need a reality check.
Oh and speaking of web development, the Northern Nevada MLS database has decreased in size by over 5 megabytes in one week. That’s a lot of text data taken off shaven off. Must be either expired listings, homes being taken off the market, or a little of both.
Prime
Well I was going to buy a house in the next month or two but gotlots has me worried about declining value.
But, after watching two houses I was considering to buy, sell close to market value and a third which is now pending, I wonder about renoignoramus and gotlots doomsday predictions. Is the sky really falling?
Anyways, if I am way off base here someone let me know. I am counting on Ms. Cohn, gotlots and Renoignoramus to alert me to when the we are at the bottom of the falling prices.
Reno Ignoramus
Prime:
Is the sky really falling? Well, even the RGJ is now running stories that the median price is down 10% so far YOY. And Gotlots is correct when he says that sales price is a lagging indicator of a market. Look to the listings/pendings ratio to see what is up ahead. I have posted about that recently. I guess only you can decide for yourself what direction you think the market is going.
When you say “sell close to market value” what do you mean? How do you determine what the market value is today? Do you mean close to the asking price? If those asking prices are below good recent comps, then that may be current market value. But isn’t the bigger question: in what direction is market value going??
Asking prices are doing only one thing in this market: going down.
How do you know what market value is today? I am not being sarcastic here. One of the major issues now in our market is determining the value of a house. If you have been reading here for a while, you have seen many posts where I and others have demonstrated that if you would have bought a house at asking price a year ago, or nine months ago, or six months ago, or even three months ago, you would have been the greater fool the seller was waiting for.
As for alerting you when we are at the bottom, well, I can’t do that. A housing market cannot be timed any more effectively than a stock market. We only know for sure when we were at the bottom looking back. Diane has commented that she thinks prices have room to fall at least throughout the winter, and I agree. Many economists (for whatever their opionion is worth) are now saying prices will fall at least through Q2 of 2007. The problem still remains: the median price of a house in Reno is out of whack to the median income. The only way people can buy at all is with voodoo loans, and as Diane’s post suggests, voodoo loans may be coming to an end. In such event, prices can only fall.
Prime, I encourage you continue to do your research and check out every source you can, including this blog.
Perry
It’s about time for the real estate market to get a reality check. Home prices have been driven here for the last few years on a supply of Bay Area buyers but the supply has run dry. Now the market must be driven in most part by those who live and work here. The reality is jobs in Reno don’t pay comparably to their Californian counterparts. Most people make about $15 per hour. Two people, that’s $62,400 per year or about $4000 take home per month. Factor an average $300,000 home in Reno with little down and your mortgage is $2100 per month. Now you’re at $1900 take home. A mortgage payment at 50% of income is terrible. This is a house of cards waiting for the transmission on your 10 year old car to go out or your 20 year old furnace to blow. If this family of two has children the numbers just plain don’t add up.
As for Lennar and their “free HummerH3”, it isn’t that free. What they don’t tell you is they “give” you the Hummer and a 1099. Now you’ve just added $30,000 to your income! Not only do you finance a car for 30 years you pay income tax on it this year! Go Lennar! If you press them, they will lower the price of the homes for that amount.
Chris
Perry – Good point about the the 1099 for the Hummer giveaway. Most people don’t consider this.
gotlots
Prime,
Consider this: It took this bubble five years to inflate. You really think we have already arrived at the bottom after 10 months?
Don’t be the greater fool.
renojedi
Perry, I hope you are right. I sold in Reno in 2005 and have had a one year assignment to Washington DC upon which I will return to Reno. Lennar and KB are still about the gimmicks from what I can determine talking on the phone. Lennar with their Hummer and 2005 prices and KB with the chance to get a 2005 priced home for 1100 a month (interest only of course). NW home builders have figured it out and there are price adjustments going on in all the subdivisions. My limited experience is SE isn’t ready to deal just yet. I’m coming out in a couple of weeks to buy so I hope you are right that Lennar can be pushed. Last thing I want is a Hummer to park in an overpriced house.
renojedi
And gotlots, you’re right about not being the bigger fool. That is why I have steered clear of existing homes since those guys are nuts. Everyday you see a new place popping on the market at a dream price. So I figured buying new would be the best alternative because the builders have the most flexiblity in price. Hopefully they use it.
I have a wife, three kids, and some pets so I want to avoid renting since the last thing I want is to end up in the house of some joker who can’t afford his I/O loan resetting during my lease and an apartment is just too small.
Any suggestions on avoiding being the “greater fool” in my home search? Any new homes you think I should visit?
Perry
renojedi,
What is your price range for a home and what part of town are you looking to live in? I’m curious to see how things are looking for the new home builders in the dead of winter.
gotlots
Renojedi:
Almost all of the new house builders in Reno are national companies that are publicly traded. As such, it is possible to review their most recent filings with the SEC. What those filings show is that 2006 has been a very lousy year for them. Inventories up, cancellations up, sales way down, most of them backing out of options to buy land.
However, the years 2001-2005 (at least through Q3 of 05) were tremendous years for them. The best years in their history. The result is that they are cash flush and still financially sound.
The decision to lower prices here in Reno is not a local decision. It is made at the regional level, with approval from the top. The decision is therefore evaluated in the overall context of the company nationwide.
My belief is that most of the builders are just not in enough pain yet. These are huge companies with sales in the billions annually. They can withstand some lousy months.
But, at some point they will have to move their ever mounting inventory. Just drive through the new developments. Street after street of unsold houses. And all those units still in production that will be done in the next 3-6 months.
Builders hate to lower prices becasuse it lowers comps. And it greatly offends their recent customers who now have instant depreciation. (Which is very ugly if you bought with a nothing down I/O loan). That’s why they have all these nonsense incentives, like Hummers. But, at some point, they will have to blink.
So when is that point? Who knows. My thought is that come this winter, when it is 30 degrees outside and nobody is coming to their sales office, they may blink. They cannot hold this inventory forever.
Diane Cohn
Builders also hate to lower prices because it negatively affects their own construction financing packages.
renojedi
Perry, I can go as high as $417 though obviously I want to go to the high threes or better for a 2000+ sq ft, 4 BR, 2.5 BA, 3 car garage house. I like NW but SE is more convenient because after 3 years in Reno, my position will be in Carson City. SE is only an 11 mile difference over NW but with the spaghetti bowl, that equates to another 20 minutes or so each way.
And to you and gotlots, you’re right on about the lack fo reductions from the big companies (Lennar and KB in this case) and having to wait for them to blink. It is the local/regional builders where I am seeing the most price adjustments.
To be honest, I plan to be in the house for at least 6 and probably up to 15 years so a dip in prices won’t kill me so long as when I initially get into a house, I can get it at a 10-15% reduction over the bloated prices that they are sticking to from the start of the year. My credit score is good enough to get a low 6 interest rate and housing costs will only (only–ha, ha) be in the mid to high 30 percentile of our income.
Thanks for the responses folks.