Three years after the residential market in the Reno-Sparks area began sliding from its peaks, the end to the downturn may be in sight but it's a ways off.
The bad news: Inventories of existing homes on the market remain high, the number of unsold new homes in subdivisions spiked a bit during the final three months of last year, the value of land for residential development has fallen sharply, residential construction remains slow and prices are likely to continue sliding.
But even with all that dark news, people who watch the market closely see some positive signs.
A key factor to watch is the number of new homes under construction, says Mark Krueger, managing director and land specialist with Grubb & Ellis | NCG in Reno.
The number of permits for new homes in the Reno-Sparks area fell below 2,000 last year. Because new home sales totaled about 2,300, the slow construction helped clear some of the inventory that's weighing down on prices.
Unsold inventories in subdivisions peaked in the fourth quarter of 2006.
Housing starts in the area are likely to be even lower this year, even though sales may creep up a bit, Krueger told participants in a forecast event sponsored by the Builders Association of Northern Nevada last week.
"New home inventories should reach normal levels by second half of 2008," he said.
In the meantime, he said, landowners are likely to mothball some planned subdivisions, the number of homebuilders working in the market will decline, speculators will flock to the area in search of distressed properties and lenders may end up as the owners of failed housing developments.
Developers have seen the value of residential property fall by about 50 percent since the start of the downturn, Krueger said, and the market for land essentially shut down during 2007 as uncertainty swept the market.
The 8,038 lots available in active subdivisions, he said, is enough to meet demand for 3.4 years at the current pace of sales.
Inventories also remain high in the resale market for existing homes, said Wayne Capurro, president of the Reno Sparks Association of Realtors.
Real estate analysts generally figure that the market is in equilibrium favoring neither buyers or sellers when there's enough inventory to meet demand for six months.
But the current inventory is the Reno-Sparks area would meet demand for about 12 months.
As supply and demand remain out of balance, median home prices have fallen from a peak of $365,000 to about $282,000 last month. But there is some evidence, the Realtors association says, that the rate of decline is beginning to slow.
Smart home sellers are positioning their homes slightly below the market, said Amy Lessinger, broker and owner with RE/MAX Realty Affiliates in Reno. But that's hard medicine to take.
For buyers, on the other hand, falling prices mean that they can purchase a home these days for the same price they might have paid two or even three years ago, Capurro said.
Realtors are paying a great deal of attention these days to getting first-timers into homes and developing expertise in affordable housing programs.
An unknown in the marketplace, Capurro said, is the amount of inventory that might come from subprime borrowers who are unable to refinance adjustable-rate mortgages when they reset.
Subprime lending may have been involved in as much as 20 percent of the home sales in the Reno-Sparks area during the go-go years, Capurro said. Nationally, the figure is about 9 percent.
If they're unable to refinance their mortgages, they'll either put the property up for sale themselves or turn the keys over to the lender who, in turn, will put it on the market.
On the other hand, interest rates remain attractive, lower prices open the possibilities of home ownership to more people, and the market's stall in the past couple of years may have created some pent-up demand, Lessinger and Capurro said.
They predict that the re-sale market in the Reno-Sparks area will reach its bottom in the middle of this year, and the market slowly will begin to regain strength.
But before that happens, they said the median price of existing homes is likely to fall another 5 to 8 percent after declining 10 percent during 2007.
