A dwindling supply of residential resale properties is pushing up prices and should lead to a new wave of residential construction, Reno-Sparks residential brokers say but they expect the upturn in residential development will be different from the frenzied days of the mid-2000s.
The Reno-Sparks area had a 4.6-month supply of inventory in April, says Amy Lessinger, broker/owner of RE/MAX Realty Affiliates. The National Association of Realtors regards a balanced market as having a six-month supply.
"We are trending into a seller's market," Lessinger says.
This isn't the same story as 2005, though, Lessinger cautions. First, the sub-prime lending that led to unqualified buyers purchasing homes with mortgages bigger than their budgets has ended. Today's buyers are better qualified, and due to the correction they are purchasing more affordable homes. Secondly, the wave of investors purchasing homes to flip for quick profit has largely evaporated. Lessinger estimates that about 20 percent of today's buyers are investors.
"Today's buyers are much more stable," she says. "The buyers we are putting in homes are able to afford those homes, and they want to live in those homes."
Shrinking inventory primarily due to low-priced housing and Assembly Bill 284, which placed stricter requirements on the foreclosure process beginning Oct. 1 has led to multiple offers on homes priced under $500,000. Properties over that half-million mark still have an 8.5-month supply, the Reno-Sparks Association of Realtors says.
Lessinger says buyers may need to offer more than a home's asking price in the coming six to 12 months a definite turn of events for agents and buyers.
"Buyers need to be prepared to act," she says. "They need to be prepared to be in a multiple-offer situation. We can have six or seven offers in a weekend on a new listing."
Vince Scott, president and chief executive officer of Intero Real Estate Service's Reno office, says homes priced between $100,000 and $200,000 are a "smoking hot" market. Prices for homes in that range are beginning to creep upwards to $150 to $155 a foot, Scott says, and buyers are offering anywhere from 20 to 40 percent over asking price to beat out competing bids.
Even homes in upscale markets such as Arrowcreek, where the majority of residences are priced between $400,000 to $600,000, are seeing multiple offers, Scott says.
"It is the perfect storm, and all of this is happening at once," he says. "This is unusual because it has happened really quick, almost within last six months. Normally we can anticipate this kind of turn, but its because of the freeze or slowing down of foreclosures, coupled with a little bit more financing being released through FHA, lower price points and people cleaning up their credit."
Many people who went through the short-sale process in 2009 or earlier are now qualifying to purchase homes again, Scott says, and investors are re-entering the market while prices are still low.
Despite the ground being gained in the resale market, the Reno-Sparks region is far from healthy, says Nancy Fennell, president of Dickson Realty. More than 60 percent of the mortgages in the region are under water, Fennell says.
Current market conditions have created a small window in which people who have equity in their homes or would like to short-sell should put their homes on the market, she says.
"There is a window of time where they are going to get the highest price possible for the next few years," Fennell says.
Another trend: Cash sales. The majority of cash transactions involve investors, Fennell says, which gives them a competitive advantage over potential buyers who must slog through the financing process. To even the score, she says, buyers must be prepared.
"The buyers we are working with, they need to have a very strong prequalification letter. You want something that a bank will look at and know that other than appraisal it is a done deal. You can't wait a couple of days. You need to be ready when you start looking, otherwise you will be frustrated."
So is the combination of conditions signaling residential builders that it's time to get back in the game? The big players, Scott says, are still in a wait-and-see mode, which creates opportunities for smaller, local developers who can get out of the ground quickly. Scott, who also heads Midtown Development Group, is eyeing a proposed 52-unit town home project in the midtown area.
Fennell says much of the new construction in the region in coming months will be from smaller builders filling in vacant lots in existing master-planned communities rather than any new large-scale subdivision developments.
"Toll Brothers, Homecrafters, Ryan Homes, they are all doing very well but they don't have 10 houses under construction, they might have house or two," Fennell says.
