The weakness in the housing market in northern Nevada is partly physical the inventory of homes on the market is large, given the amount of demand but it's partly psychological, too.
Folks who once camped overnight to be in line to buy a new home now figure they'll wait a while when they're not busily poor-mouthing the residential market entirely.
The strength of the market, a key element in the region's economic health, will depend in some measure next year on how much of the weakness proves to be nothing more than a lack of confidence among buyers.
Real estate brokers and developers expect to see a return of confidence in the market, and they say the underlying fundamentals are too strong to support fears of a free-fall in residential prices.
"The perception is more negative than it should be, just as it was more positive than it should have been 15 months ago," says Dennis Wilson, president of the Reno-Sparks Association of Realtors.
Harry Gordon, president of Reno-based Lake Tahoe Mortgage Corp., is even more blunt: "The public has been temporarily spooked."
Buyers didn't get much comfort from a much-publicized Moodys.com projection this autumn that Reno-area residential prices would tumble 17 percent from their highs.
Less noticed, says veteran real estate appraiser John Wright of Sparks, is this: Prices already have fallen 16 percent in the market, and the market may have reached the bottom already.
The economic underpinnings of the housing market remain solid, industry executives say.
Bill Miller, the president of SilverStar Development, which has residential projects around the area, notes that unemployment hovers at 4 percent, the region's job growth remains strong, northern Nevada's lack of personal income taxes continues to make it attractive to Californians, and the area's population has been growing at 3 percent a year through this decade.
That argues, Miller says, for a fairly speedy recovery of the residential business perhaps as early as mid-2007.
The key question, everyone in the business agrees, is how quickly the inventory of homes in the market comes back into balance and what price is required to do so.
At the end of October, the Northern Nevada MLS System listed 3,651 existing homes for sale a figure that amounts to a 10-month supply at the rate that homes were selling.
Homebuilders, Miller says, had another 1,750 homes waiting for sale in new subdivisions in the third quarter.
They put the brakes on construction housing starts in the region this year probably will total about 3,400 compared with 4,439 in 2005 and 4,131 in 2004 and builders started offering big concessions to clear that inventory off the market.
Price cuts have ranged as high as $100,000, Wright says, although they're often disguised as free upgrades or big giveaways to buyers. Price cuts also have appeared in the resale market, he says.
But demand appears to be firming.
Carol Kiel, director of sales and marketing for Minden-based Syncon Homes, says traffic at the company's residential subdivisions has been up in recent weeks, and consumers appear more serious about making a purchase.
"There are a lot of people who have been in a holding pattern," she says.
And a handful of the investors who fled the market when prices turned south appear to believe that a bottom is near and it's time to start buying again, Kiel says.
Miller says a reversal of demand could push the market quickly.
The area's population has been growing at a rate of about 11,500 people a year, he says, which translates into a demand for about 4,600 new homes. With housing starts falling to 3,400 this year, short supplies and rising prices could develop quickly.
Supply of new homes will be reduced, too, by the expected departure of some of the big national homebuilders who entered the northern Nevada market when it was hot, Wright says.
The case for a long, grinding bear market in housing, however, has been made by a couple of economists who made presentations in Reno in recent months.
Jay Goldinger, a Los Angeles-based forecaster of interest rates, told customers of Business Bank of Nevada a couple of months ago that he expects the downturn in the housing market to percolate through the economy. If that happens, Goldinger expects that layoffs will further weaken the demand for homes.
And Christopher Thornberg, a Los Angeles-based economist who spoke at aDecember event sponsored by Colliers International, predicts that housing prices in northern Nevada may have further to fall before they recover.
"We have not seen the worst of it," he said.
The decline in prices after the rapid run-up in the previous three years home values rose 84.7 percent from 2002 through 2005 may prove to be healthy for the overall economy, says Tom Powell, the president of IntoHomes Mortgages Services Inc. in Reno.
Home prices that rose faster than wages priced many families out of the housing market, Powell said, and may have discouraged companies from locating in northern Nevada.
