January 2007 - October 2008

October Market Update

Values Continue Downward Spiral

Weakening Market Conditions Prevail

October sales prices continued their relentless decline, mirroring weak economic conditions and shaky financial markets.

Grim economic news continues to hammer the US.  Bailout after bailout is being foisted on the taxpayer, with no end in sight and no recovery in the housing market. 

Incredibly, Congress seems shocked that homeowners are not seeing relief from foreclosure with the trillion dollar bailout package.  Too bad Congress didn't stipulate that before they handed over the cash!  Perhaps they should have read my article in the Reno News & Review as to why banks are not going to voluntarily re-negotiate any home loan (Dirty Secrets of the Real Estate Collapse).

The housing crisis is particularly intense in Nevada, with 48% of all homes worth less than the face value of the mortgage.¹  According to Realty Trac Inc.(a foreclosure tracking company), 1 in 74 homes in Nevada  and 1 in 62 housing units in Las Vegas received a notice of default in October.²  Treasury Secretary Henry Paulson's 11/13/08 announcement that the Feds will not be using the bailout funds to provide guarantees for home loans³ pretty much ends any near term hope for distressed homeowners seeking relief.

Government officials seem somewhat willing to at least discuss the plight of owner occupied homes, but no one is interested in helping those who hold investment property.  In my opinion, this is patently unfair, and in this market, catastrophic.  A major proportion of renters are now past homeowners who have lost their homes, and not sending any relief to landlords is causing even more social disruptions, not to mention scams of all types preying on renters.  A common ploy is for an owner who knows they are losing their home to rent it at below market rates, and disappear with the tenant's security deposits and rents.  Renters have little recourse if the landlord cannot be found or has spent the money.

Energy prices have eased substantially as the economy cools. The precipitous drop in gas prices are a boon to struggling citizens, but there appears to be no corresponding upswing in economic activity.  Energy prices overall have gone up, with Sierra Pacific quietly upping their electric rates 10% last month.

Lenders show little inclination to negotiate with borrowers who are having difficulty making their payments, and seem more inclined than ever to cut off lines of credit and start foreclosure proceedings against homeowners. It's a triple whammy.  Homes are worth less than the mortgage, because median home values have dropped 61% since January of 2006, so it is impossible to refinance.  Individuals’ credit scores have plummeted because of late and partial payments, so the bank is less likely to qualify the borrowers for another loan, especially with squeaky tight qualifying criteria.  And, the house can't be sold for enough money to pay off the mortgage.  Homeowners are left with no option except foreclosure.

Notices of default are being recorded against about 100 homes a week in Reno/Sparks, the final notice that the foreclosure auction is 120 days away. The quantity of REO (bank owned) single family homes has ratcheted up by 50 homes since last month to 937 as of this writing. REO condos have added 8 units since September, and are now numbered at 198.

REO properties and so called pre-foreclosure or "short sales" continue the trend started in September and increasingly dominate the market.   As of this writing, there were 3459 homes for sale listed on multiple listing service, and 51% of them were already bank owned or soon to be.  62% of all homes sold in October were either bank owned or pre-foreclosure sales.  Not only do REO properties depress sales prices for resale homes, but they also "remove" the opportunity for the seller to "move up" in the market, as there is no family selling one house to buy another. 

The brightest sector of the real estate market is rentals.  With so many homes being foreclosed on in the area, many renters as well as homeowners are losing their homes, contributing to a fairly good rental market.  Many homeowners are turning into semi-investors: renting their homes instead of selling in order to wait this downturn out.  For those who have the money and the credit, this market is a great opportunity to pick up an income property.  Many tenants are also asking for longer term leases at this point.

Condo sales increased in October, with 46 resale condos changing hands, 31 of which were REO or pre-foreclosure properties. From the assessor's recordings, it appears that only 15 new condos were sold, a drop of 14 units.  These are a mix of new projects (remodeled older buildings) and resale.  (It's difficult to obtain an accurate timely accounting as recordings trickle in).  There is likely some overlap in these figures; however, in general, condo sales were relatively good in October.

Resale home figures decreased 7 homes to 324 in October.  With the deluge of bank owned properties competing to be the lowest price, the median home price fell $9000 to $224,000.

October’s average sales price also took a big hit as high priced home sales sharply deteriorated.  The average sales price slipped to $263,544 or $41,000 from September. The spread between initial asking price and sales price was about 27%

The high end of the market slid last month, with only 6 homes selling for over $900,000 in October, and 3 homes selling for over one million.  

New home sales stumbled, and appear to be down 11 homes from September. Approximately 46 new single family homes were sold.  (It's difficult to obtain an accurate timely accounting as recordings trickle in.) However, new home sale prices rose somewhat in October.  The median sales price of a new home increased slightly ($4,950) to $279,950 and the average sales price of a new home increased $29,658 to about $332,446.

Sellers are more aggressively pricing their homes with increasing time on market. The final selling price on homes was within 4.6% of the asking price.  The average days on multiple listing for sold homes in October increased 6 days to 142 days.

¹ Alan Zibel reporting Associated Press story 10/31/08 Reno Gazette Journal

² Adrian Sainz Associated Press story 11/13/08 Reno Gazette Journal

³ Martin Crutsinger Associated Press story 11/13/08 Reno Gazette Journal