[Note: I originally had titled this post “How realistic are local house prices?”. However, as I performed the analysis for this piece, some interesting numbers came to light.]
SmartMoney recently performed an analysis of home sale data in markets across the nation in an attempt to determine those markets where listed home prices were most (and least) “realistic”. See SmartMoney‘s Cities With Least Realistic Home Prices.
In the study SmartMoney compared a market’s median list price with its median sales price to determine the difference. The greater the difference, the more unrealistic the list price. For example, the three cities with the “least realistic” list prices are…
| Metro | Median list price | Median sales price | Houses selling for… |
|---|---|---|---|
| Atlanta, Ga. | $150,000 | $90,000 | -40% |
| Jacksonville, Fla. | $184,775 | $121,600 | -34% |
| Washington D.C. | $359,900 | $313,300 | -13% |
On the other end of the spectrum, the three cities with the “most realistic” list prices are…
| metro | Median list price | Median sales price | Houses selling for… |
|---|---|---|---|
| Las Vegas, Nev | $120,000 | $121,800 | +1.5% |
| Boston, Mass. | $319,000 | $325,000 | +2% |
| Tampa, Fla. | $139,900 | $135,500 | -3% |
So, how does the Reno-Sparks, Nev. market compare with its list prices? I took a look at the list prices for all current active and pending houses listed on our MLS. The median list price is $179,900. I then looked at sold prices for houses sold over the past 30 days. The median sales price is $150,000. This equates to a -16.6 percent difference. So, relative to SmartMoney’s ranking, Reno-Sparks’ listed prices would rank at the “unrealistic” end.
Next I decided to look a little deeper at the numbers. If I separate the active listings from the pending listings, the median prices become $299,950 for the active listings, and $152,500 for the pending listings. This equates to differences of -99.9 percent and -1.6 percent, respectively. It’s also worth mentioning that the number of pendings outnumber actives by more than 2-to-1.
What can we make of these numbers? Well, it appears that the pending listings (forthcoming sales) are inline with the current median sales price. If all of the pending listings were to sell in the next month, then we would see the market’s median sales price rise to $152,500. Given the current market conditions, i.e. multiple offers; sales for more than list price (see Inventory now measured in days, not months), a gradual rising of the market’s median is not unexpected.
However, the more concerning number is the current median price of the market’s active inventory – namely that it is double the current median sales price. The median buyer in the Reno-Sparks market is not suddenly going to go from purchasing a $150,000 house to a $300,000 house.
So, how many affordable houses are currently available? At the moment there are a total of 826 Active (non-pending) houses listed for sale on our local MLS – by itself, a very low number given that the market has been average 482 sales a month during the 1st quarter of 2012. But the number becomes frighteningly low when we see how few houses are priced at or below the current median sales price. How many? Presently, only 133 listed non-pending houses are priced at or below $150,000.
Unless the market receives an influx of new affordable inventory, monthly units sold are going to fall off a cliff. There simply is not enough current inventory to support the number of sales that the market has been averaging. Using the 482 monthly sales average above, and looking at the median list price of the 482 lowest-priced active listings, we observe a median of $214,000. So as one can see, without new inventory entering the market either unit sales will fall to about a quarter of where they stand now, or the median sales price will soar to $214,000 – a 42 percent increase. Which scenario is more likely? In actuality, the outcome will likely be some combination between those two extremes. Predictions?
When will see these changes in the market numbers? I predict June’s or July’s numbers will begin to show some noteworthy changes – either to units sold or to median sales price – or to both. Given the large number of pending listings, currently over 1,800, there are enough transactions already in the pipeline to maintain some consistency through April’s and May’s market numbers. After that things will get interesting. …as if they aren’t already.
Ralston
Guy I don’t think one has to be a genius to see that in the coming months sales volume is going to drop significantly and the median is going to rise. Both of these things will occur.
And thanks for a fine analysis.
Guy Johnson
Ralston, I agree. These trends have been discussed often on this blog.
It was the magnitude of the potential drop in sales units that I found startling.
tyler durden
AB 284
BanteringBear
The funny money is gone. When people can’t qualify on income, the sales will not happen. Looks like AB 284 is going to be a REALTORS worst nightmare.
Twister
AB284 and a s#@t-load of buyers. Nice piece of work, Guy and well done to set up the ?….whats your prediction. Mine is 200K sometime in the next year and I’ll throw in $3 gas as a bonus just for fun. Read it and weap negatories!
Its just me
When AB284 first came along, most realtors saw it as an opportunity — hurry up and “BUY NOW”, the inventory won’t last! And they were right, about that last part at least.
But now that the existing inventory has moved — in a lot of cases at marked down prices, and to investors looking to turn the units into rentals —- realtors are starting to dislike 284. No new Inventory means nothing to sell, and no new commissions.
The bottom-end value properties that investors have been scooping-up are drying up. (Btw, has anybody else noticed just how many “on-off” rental units seems to have come up for rent on-line, in such a short period of time, or is it just me)? All this talk of the rents soaring because people being foreclosed upon and becoming renters doesn’t seem to be materializing, in fact just the opposite — certainly nobody new is getting kicked out of their houses, and now the investors seem to be bringing a wave of newly purchased rentals to market.
I’m assuming the bulk of people actually purchasing from here until 284 gets sorted out, will be those that absolutely need to have housing regardless of the deal (within reason), and for whom renting is not an acceptable option. But they do so knowing (or maybe not knowing), that roll-back of 284 is out there lurking.
My guess is that realtors are not going to stand for more-or-less zero new inventory coming on-line (other than new construction, where they don’t get as much of a cut), while mortgage holders sit in their houses not making payments, and acing them out of their commissions.
An “AB284-protected-house”, is also a house where real estate agents won’t see a commission until AB284 is addressed, and when you extrapolate that across a good portion of the city, that starts to stand in the way of realtors making a living. I think as soon as we see this wave of pending sales clear, we’re going to hear the outcry from realtors about the unfairness of 284, and then after the election this November, the legislature will finally do something about the elephant in the room.
My predictions are for:
– AB 284 to be addressed sometime after January 2013.
– declining (seasonally-adjusted) monthly unit sales between now and then.
– increasing median price for the units actually sold, however the actual price for any given house stabilized with little to no appreciation, except perhaps modest appreciation on the low end, and potentially continued depreciation on the high end.
– double-dip in pricing and replenishment of inventory occurring with roll-back of 284 in 2013.
– a potential flooding of rental units onto the market, as investors bring the recently cleared low-end inventory onto the market as rentals.
Reno Ignoramus
Very thoughtful post IJM.
AB 284 cannot be amended until the Legislature goes into session in February of next year. Then it takes most of the 120 days for them to get anything passed and on to the Governor for signature. Typically, new legislation does not take effct until October 1 of the year (thus AB 284 did not take effect until October 1 of 2011). So in all likelihood, we are still 17 months away from anything significant happening with AB 284 and the unfortunate artificial constraint it has imposed on the market’s recovery.
Remember also that AB 284 is a statewide law and the same thing is happening in LV where there are several times the number of unhappy realtors. I believe there will be a concerted effort by the lending industry and the real estate industry to make AB 284 less onerous. But nothing is going to become effective until October 1, 2013.
skippidie doodle
Iggie,
Thank you for your post, did not know the Nevada State legislature calendar worked like that, and I assume that its too late for any addressing of 284 to be put on the docket for the current session.
I guess the good news is that if the Mayans are right, we won’t have to worry about roll-back of 284, but just in case we do, I suppose the realtors better save their commission money from this little surge created as banks started doing their business. Maybe the builders will see some action for the next year and a half — just we here in Nevada (and especially Vegas) need right now, more housing units built!!!
AB284 scorecard, as I see it:
Winners = Delinquent mortgage holders certainly, and maybe the builders ?
Losers = Banks, Realtors, and anybody new moving into the area, trying to go from renting to buying, or trying to upsize/downsize their current Reno house.
skippidie doodle
Dear Guy,
You looked and spoke very well on television, and your commentary was, as always, insightful. You clearly have options and opportunities beyond real estate within the world of broadcast journalism, should unit sales fall 70% as perhaps postulated. Keep up the great work — love the blog, and its many diverse viewpoints and participants.
REreno
So what if the inventory dries up and the median actually falls? That’s was it looks like the April numbers will show. With about 70% of the April sales already posted on the Assessor’s site, the SFR median is $140,000. The methodology I use is slightly different that RRBs, but here is how our median numbers compare YTD for reference, REreno/RRB:
Reno Ignoramus
skippidie,
The Nevada Legislature only meets every two years (odd years) for 120 days. Many have said, and I overall tend to agree with them, that we all ought to be thankful for that fact. In any event, the Legislature is not now in session and will not convene until Next February. Hence, the timetable I described above.
Grand Wazoo
Ack.
I still read the blog, and felt I need to come out of retirement to comment on this post, although there have been many others like it.
The local real estate market is poised to go right off a cliff. Here’s why:
Where’s the demand? Do you think Northern Nevada is still in expansion mode? Nope. Very few people are moving here, hence there is very little demand for housing from new arrivals. OK, so who are buying these cheap houses that are available? Investor, who see a cheap deal, they can fix them up and rent them out. Who are they renting to? Mostly people who have lost their houses to foreclosure, be it strategic or otherwise.
Do you see a problem here? You bet! Once no one is getting foreclosed anymore thanks to AB284, both the availability of cheap homes goes away, as does the demand for people to rent them from the buyers. *Poof* The local market grinds to a complete halt.
Remember, no one is moving here anymore. For the first time in a generation, Northern Nevada is shrinking. When discussing the “shortage” of inventory, nobody seems to remember that. This market is more screwed than it has ever been, just wait.
I’ll be back in six months to see if I was right. My other comment is that “Twister” is obviously a realtor, and a shill realtor at that.
Good night and good luck.
Guy Johnson
All, interesting comments, guys. Thank you for your thoughts.
skippidie doodle, thank you for your kind words. It’s good to have options. 😉
Twister
Not a realtor, just calling them like I see em. As far as people not moving here anymore, in my own experience, Ive had 3 renters move here from out of state for jobs in the last year. One was from the midwest and two from California. Its a pretty cool place to live especially if you like the outdoors and no state income tax. Of course people are going to want to move here if thats the kind of thing they like!
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Gijoe
Wasn’t there a recent post on here that noted washer county experienced .9% population growth in the last year? Certainly not impressive but its not shrinking grand wazoo.
Gijoe
*washoe county* population has increased .9% over the past year.
Gijoe
Here is the link
http://www.rgj.com/article/20120406/NEWS/304060085/Census-figures-show-Washoe-County-growing-barely
Don
I understand the concern of a dwindling inventory, but there are so many variables to consider that indicate there is plenty of inventory to choose from. Please check out the website: http://www.deptofnumbers.com/asking-prices/nevada/reno/ . It uses current public records of our area. Also, approximately 30-35% of pending/pending short sales are never completed to sale status. Also, all pending short sales are indicated as active/pending short sale, as they have an accepted offer by the homeowner, but the lender has not approved the offer and may not for 1-12 months or more, and also require the listing agent to accept continuous offers as if the property is still active, of which it technically is until lender approval. I have seen many properties after only one offer for several months be turned down by the lender or the offer expired and the property is back on the market, and additional offers are looked at just like a first position offer in the lenders eyes. Yes, many homes have completed sales, but there is no lack of inventory to make an offer on based on the above evidence in my opinion. I am not an expert and could be wrong, but I have worked with many Realtors in our area over the past 40 years, and have bought and sold 15 homes in that period of time which I lived in and remodeled, and have never seen so many homes listed for sale at many bargain prices, whether foreclosures, reo’s, or regular sales, and I think there are many more to come down the pipeline without worrying about AB284.
Guy Johnson
Don,
You make a valid point regarding the successful close rate of pending short sales. …for that matter, pendings in general. In fact, I have tracked that very metric in the past (see 2010’s 90 days later and 2008’s Pendings Schmendings – 90 Days Later). From the August 2010 post:
The 70% drop in unit sales I mention in the post above is one extreme in the spectrum of possible outcomes.
Thank you for your comment. Incidentally, because it’s been nearly two years since I performed the pendings analysis, I will run the study again beginning today.
April median sold price, units, DOM, $/sq.ft. | RRB Home
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