Seven years after the Reno-Sparks housing bubble popped, the area’s real estate market finds itself in a much different situation.
From affordability to new home construction, here are seven things you should know about the Northern Nevada real estate market.
Stability is the new normal: In the last decade, the story of the Reno-Sparks real estate market was akin to the diary of a roller coaster rider. There’s the steep climb to the top as it reached its crazy highs during 2006 and 2007, followed by an equally steep drop to the bottom.
This year, however, has been markedly different.
After seeing noticeable appreciation on the last couple of years, home prices have reached a plateau in the last few months. Since June, the median price of an existing home in Reno-Sparks have stuck to a holding pattern in the $250,000 range.
“Stabilization is the trend for home pricing in Northern Nevada and Nevada as a whole,” said Peter Counts, a graduate assistant with the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas. The institute produces a regular housing report with the Nevada Department of Business and Industry.
For those who remember the crazy days of the overheated market and the resulting fallout, stable is a good thing. For the Reno/Sparks Association of Realtors, the pricing trend of the last few months could indicate something the area has not seen for quite some time: a more normal market.
“From 2008 to 2012, we had so many distressed properties that we did not see the traditional winter slowdown we’ve seen in the 20 years before that,” said Mark Ashworth, RSAR president. “I believe this is a sign that we’re returning to our traditional market.”
Housing is less affordable: In January of 2012, the median price for a home in the area was around $135,000. More than two and a half years later, home values have jumped by about 85 percent. In contrast, median salaries have not seen a similar jump, which is understandable given how much farther home values dropped in relation to wages.
Even as the pace of home value increases started normalizing at a slower rate, however, wages continue to be flat.
In 2013, for example, wages saw growth in the last three quarters after posting a decline in the first three months of the year, according to the Nevada Department of Training, Employment and Rehabilitation. The 1.1 percent increase in overall wages that year failed to keep pace with inflation, which grew by 1.5 percent.
Meanwhile, an estimated 55 percent of houses in Northern Nevada are affordable to the area’s median income earners, compared to 62 percent nationwide, according to the Lied Institute.
Flat wages are a concern for maintaining continued growth in the housing market and the economy, specifically as it relates to first-time home sales.
“New home sales generate more economic activity than a housing move from one part of town to another,” Ashworth said. “That’s because new home buyers buy more new furniture and appliances and do more remodeling, so they generate more economic activity.”
Although houses are less affordable now than they were two years ago, the situation still does not compare to the peak of the housing boom. At the bubble’s peak in 2006, for example, only 18 percent of homes could be afforded by median income earners in Northern Nevada despite a record 4,518 homes being actively listed in July.
California also continues to be a key part of the local real estate market’s equation. Androo Allen, interim president of the Builders Association of Northern Nevada, remembers the buyer mix for one high-end community project. Of the 19 homes it sold, 18 of the buyers came from Nevada’s next door neighbor.
New homes are back: After the collapse of the housing bubble, the hum of bulldozers on new home construction sites went silent. With the value of new homes going up, however, new housing is back in business.
Reno posted 1,387 new home starts in the second quarter of this year, up 43 percent over the same period last year, according to Metrostudy. Meanwhile, only 36 percent of homes are priced below $300,000 compared to 64 percent last year.
This is causing many builders to finish rough cut lands that were started during the boom but got paused during the recession.
“We’re starting to see more confidence among builders, including the smaller ones,” said BANN’s Allen. “The price of a new home has gone up enough for a builder to absorb the development cost of a lot … and still come out with a profit.”
At the same time, smaller builders aren’t jumping full steam into the new building craze like larger builders. Although, they like to see price increases in new homes, they don’t want a repeat of the unsustainable spikes seen during the bubble days and the ensuing crash, Allen said. At the time, builders were making houses as fast as they could as buyers were snapping houses, at times sight unseen.
“We don’t want to see rapid growth, we want to see slow, consistent growth,” Allen said. “The market needs to define itself first so the next 12 to 18 months will determine just how solid it is.”
Unit sales are down from last year: Although year-over-year house sales saw steady increases in the first half of 2014, the last few months are a different story. In July, for example, 520 homes were sold in Reno-Sparks compared to 591 during the same month last year. The trend continued in August, which posted 548 sales in contrast to 638 units the previous year.
The RSAR’s Ashworth attributes the dip to a variety of factors, including lower inventory and the return of new home sales.
Demand remains healthy in relation to market supply, however. Supply for regular homes with no special conditions is at 2.5 months — 1.6 months for short sales and 2 months for foreclosure sales. There are 1,385 active listings in Reno-Sparks as of early September.
“Demand has remained constant for the year and that indicates desirability in the market,” Ashworth said.
North vs. South: While real estate trends in Northern Nevada and Southern Nevada mirror each other in many ways, there are also differences. One interesting difference, according to the Lieds Institute, is that building starts for single-family homes are up year-over-year in the north but down in the south.
Conversely, multi-family starts, which includes multi-unit facilities such as apartments, are up in the south but down in the north.
Fewer homeowners are underwater: Nearly three in four Northern Nevadans have equity in their homes, according to the Lied Institute. That’s a big improvement from the 2009-2010 period when only 27 percent of homeowners were not underwater on their mortgage.
With banks being more judicious in putting distressed properties in the market, the market likely won’t see a repeat of 2009, according to Ashworth.
“They basically flooded the market in 2009 with foreclosures and that’s why prices plummeted,” Ashworth said. “”Hopefully, they learned their lesson.”
There’s less distress: Only 14 percent of homes sold in Reno-Sparks involve a distressed property. That’s a big change from 2010 to 2011, when troubled houses accounted for 80 percent of sales.
“Foreclosures haven’t changed much over the past year (but) there are less than half as many short sales now as there were this time last year,” Counts said.
Data from the Washoe County Recorder’s office back Counts’ claim. Through August, the county posted 640 short sales, a large drop from the 1,485 it recorded last year.
Part of it could be related to the lack of an extension from the federal government regarding so far for a deficiency forgiveness program related to short sales.
Meanwhile, there are also continuing concerns about the bank-owned properties still out there.
“The elephant in the room that everybody sees and nobody talks about is shadow inventory,” Ashworth said. “You can see homes in neighborhoods that don’t have a for sale sign but are boarded up and unoccupied. As long as they come to the market slowly, then that’s fine.”
Overall, however, the Northern Nevada real estate market is on the right track, according to Counts. One thing everyone agreed on, however, is that the area is not quite out of the woods yet.
“Home prices are still gradually increasing and the construction industry is still building homes that can sell,” Counts said. “However, we still have a long way to go before to get to where we were before the housing market collapse.”