Nancy Fennell
This week we heard the national news that November sales for existing homes were down more than 10.5 percent from the previous month, the lowest it has been since April 2014. Sales from the same time last year are down 3.8 percent. What does this mean? Are we headed for another difficult real estate market? Are we back to May 2007 when the last bubble burst in housing?
Lawrence Yun, chief economist for the National Association of Realtors, suggested sales were affected as the industry adjusts to the “know before you owe” rule, affordability levels or sparse inventory. The TRID (Truth in Lending Act/Real Estate Settlement Procedures Act which created the acronym the TILA/RESPA Integrated Disclosure Rule or TRID) doesn’t appear to have been a noticeable issue in our market. The title companies did an excellent job training for the past nine months preparing Realtors and lenders of the nuances of the new legislation. In our local market, I believe it is still the lack of inventory, particularly under $600,000, along with the normal seasonal slow-down that is causing our drop in sales.
While sales were down from the previous month in our market, pricing remains stable and demand appears to remain high at least in the under $600,000 market that currently makes up 95 percent of our sales. Remember, the inventory level under $300,000 is still just a little over a one-month supply and from $300,000 to $600,000, just over two months’ supply instead of six months which indicates a “normal” market.
With supply down and prices rising, are we headed down the same slippery slope we encountered from late 2007 to 2012? Will we end up with homeowners unable to pay their mortgages and prices falling? I don’t think so. The big difference is jobs; we are seeing an increase in jobs now and we were losing jobs in 2007.
I looked at existing housing sales in the Reno/Sparks area by price range from 2004 to 2015. What I find is encouraging and hope will put to bed any concerns about parts of our market becoming overpriced. In 2004, Realtors sold 3,263 houses through the Northern Nevada Regional Multiple Listing Service in the Reno/Sparks area under $300,000. The median days on market was 46 days in 2004 versus 57 this year, and the median price was $230,000 in 2004 versus $231,000 this year. During the years of 2005 to 2015, the highest median price was $265,175 in 2006 and the lowest was $144,000 in 2011.
In the next most robust price range of $300,001 to $600,000, I found the same trends. In 2004, we sold 1,997 homes in this price range versus 2,222 this year. Median days on the market were 54 in 2004 versus 66 this year and the median price was $378,000 in 2004 versus $365,000 this year. These trends suggest we are still in a slow but steady housing recovery. So, while we are seeing higher prices in these ranges, when we look at the big picture, we are still selling houses close to what we sold them for in 2004.
For sales from $600,001 and above, it was interesting to note the median price for every price level has remained fairly consistent over the past 11 years without the disastrous drop in median price we had in the lower price ranges. In homes that sold from 2004 between $1 million and $1.2 million, the median price was $1.2 million for all 11 years except for two when it dropped to $1.1 million. We see the same trend in the $1.5 million to $2 million. The median price in 2004 was $1.8 million and dropped to $1.7 million in 2007, $1.6 million in 2008 and has remained fairly stable at $1.7 million since. In homes that sold from $2 million to $3 million, the median price of $2.2 million increased to a high of $2.6 million in 2007, and today is $2.3 million. Although, only 12 resale homes have sold over $3 million in the Reno/Sparks area since 2004, their median price has only fluctuated from $3.5 million to $4.6 million in 11 years, and with the small number of homes sold in this price range, one or two sales can affect the median significantly. I believe the median prices have remained fairly consistent over the years because most of these homeowners were better able to withstand the economic downturn and stayed in their homes, which kept the sales flat. Prior to 2007, many homeowners in this price range had the option to build their own dream home and they did.
Although the Federal Reserve Board raised interest rates slightly in mid- December, no one believes this will affect housing sales in any significant way and all signs are the Federal Reserve will apply a slow but steady increase in rates in order not to derail the slow economic recovery.
The Home Price Expectation Survey, a nationwide panel of more than 100 economists, real estate experts and investment and market strategists was just released. This is a study of where they believe home prices are headed.
To put things in perspective, in the “pre-bubble” of 1987 to 1999, home appreciation was 3.6 percent annually. During the “bubble” of January 2000 to May of 2007, home appreciation was 6.9 percent; during the bust, homes depreciated at -5.2 percent, while during the recovery to date, January 2012 to September 2015, homes have appreciated 4 percent. Their projections have homes appreciating 3.9 percent in 2015; 3.4 percent in 2016 and 3.1 percent through 2020.
That kind of stability is comforting and sustainable, and bodes well for our housing economy in 2016, although not without some challenges; mainly inventory shortages in some price ranges. The good news is we have demand for housing.
Nancy Fennell is the president of Dickson Realty in Reno.
