Observers: Slowdown in housing is healthy

The slowdown in northern Nevada's housing market that started in the second half of this year is expected to continue into 2006, say local real estate observers.

After almost three years when annual price appreciation ranged from 20 percent to 30 percent which was impossible to sustain the moderation is being welcomed by an industry that sees it as an adjustment.

Much of what the local housing market experienced in the past few years was the result of migration mostly retirees from California, either buying a second home or choosing to retire here.

When they cashed out on their California homes, came here and paid cash, the result was a big spike in housing prices in northern Nevada.

That seems to be settling down, and real estate brokers hope speculation is declining.

"I don't know how good my crystal ball is but I think 2006 is going to be a 9 percent to 10 percent year," says Pat Schweigert, a trustee at Northern Nevada Multiple Listing Service and a broker at ERA Realty."That is a normal kind of market.

It's good for the sellers, and it's OK for the buyers."

The slowdown is evident from the length of time it's between 70 and 90 days that homes priced between the high $200,000s and $500,000 are on the market.

Homes priced over $500,000 are on the market for an average of 120 to 180 days.

The good news, observers point out, is the prices have not gone down.

The median price of an existing family home in Washoe County was $359,000 in October, an increase of 1.6 percent from September's figure.

Though the demand is cooling a little bit, the market is going to remain healthy in 2006, says Mark Krueger, a senior advisor Grubb & Ellis who brokers land for subdivisions.

"It's one big market.

If existing homes get more competitive, it will pull buyers out of the new-home market and make it difficult for it," he says.

A significant jump in the supply of new homes is coming.

Krueger tracks about 65 subdivisions today, and by summer, he says it's going to go up to 80.

"I'm curious to see with that increase in supply what's going to happen with the demand that's cooling a little bit," he says.

Any oversupply can be corrected by slowing production by new builders of new homes, says Bill Miller, president of SilverStar Communities.

"That's an easy adjustment to make because instead of building 30 to 40 units in a phase we'll build 10 units in a phase to make sure that the number of units we are building is being consumed.We are driven by sales and not by the availability of permits," he says.

He acknowledges, however, that some big developers build 300 units at a time and hope they sell.

Similarly, phasing of new condominium projects is going to decide their success, believes Teri Scharosch, acting director of the Builders Association of Northern Nevada.

Rising interest rates also are a worry.

"We are going to see the adjustable rate mortgages that come due are going to be at a higher rates.

Depending upon how the buyer responds to that,we might see some difficulties," Schweigert says.

But with a strong local economy and the population continuing to grow, the expectation is that the demand and supply will even out.

"You build the right product in the right place and price it competitively.

If you don't, you're not going to sell," says Krueger."The bulk of the market is going to have to sharpen their pencils a little bit."

Centex Homes, a national builder with a big presence in northern Nevada, is aware of the need to stay focused.

The company builds single-family homes and townhomes for first-time buyers as well as those who are in their first or second move up.

"And that market is still going to be a very good market," says Dennis Wigent, operational marketing manager for Centex Homes in Reno."When you hear about all the other development that's going on in Reno new businesses, retail,warehousing those are the people that need homes.

Or people that are moving in from California, the empty nesters."

Another challenge is affordability.

The National Association of Home Builders says Reno is the 33rd least affordable housing market in the nation.

That's determined primarily by the gap between wages and the home prices that have risen rapidly.

"Until we address that, it's going to be difficult to provide housing for someone who's never owned a home before," Scharosch says.

Though not affecting most of the new homes coming onto the market next year, escalating water rights and land prices are going to impact the industry over the longer term, say builders of new homes.