Last year this time I think I was too chicken to post much of a prediction about what I thought the market would do on my then-new blog. But I do remember telling people, "I think prices this year will hold, or go down maybe 5%."
Over the course of the year as inventory climbed, my number crept conservatively upward. When Moody’s predicted 17%, it seemed rather fantastic at the time. And yet it turned out to be pretty accurate compared to the nearly 16% average price decline actually experienced in 2006.
So this year, CNN Money is predicting a nearly 9% decline in local prices. Given all the foreclosures and short sales that I’ve been encountering these days bringing down the comps in some really nice neighborhoods, that’s totally believable.
But the question remains, how many bad loans are out there in our marketplace? How many are going to fail? And how will that affect pricing in the coming year or two? I am trying to figure this out.
The Center for Responsible Lending predicts that 23% of the subprime loans made in 2005 and later in the Reno-Sparks area are going to go bad. Then there’s the Mortgage Bankers Association estimating that 17% of loans now made for home purchases are subprime.
If we assume this ratio holds true for Reno-Sparks, perhaps we can say that of the 13,292 homes sold since 2005 (MLS only, not counting builder unlisteds), 17% of them were purchased with subprime financing, 23% of which are going to go bad. That means that 520 of these sales will be coming back as short sales and foreclosures that will drive down the comps in their respective neighborhoods.
So in 2006, 5156 residential resales sold in the Reno-Sparks market. If 520 come back as troubled sales, that’s roughly 10% of volume. Is that 10% enough to significantly drag down prices for the entire area?
Or maybe they won’t all come back on the market this year. Maybe they’ll trickle out… 5% this year, 5% next year. Will this seriously impact prices in our market? Or will this just be a little ripple in the overall setback scenario?
And what about all the new home sales that aren’t in the MLS? Another wild card…
NAR Says: The Sun Will Come Out Tomorrow
Vacant Homes Leave Owners On Hook
Even in Sonoma: Home Sales at 10-Year Low
Subprime Mortgage Derivatives Tumble
Housing Construction Plunges in January
Big Banks Control Fate of Subprime Lenders
Housing Sales Drop in 40 States
Reno Ignoramus
Did y’all see the USA Today article about how 1 out of every 5 houses on the market in Sacramento is a short sale?
Sacramento. You know, about 130 miles down the road.