Residential market recovers as lower prices draw buyers

Signs point to a recovery in the residential sales and construction market.

Inventories of homes for sale are declining, and lower prices are attracting investors and other buyers.

Realtors consider a standing inventory of six to seven months for single-family homes a healthy, balanced market, says Kevin Sigstad, president-elect of the Reno-Sparks Association of Realtors and broker and owner of RE/MAX Premier Properties in Reno.

Inventories of homes in Reno-Sparks market hovered around a 6.5-month supply for most of 2011, Sigstad says. When the market boomed in 2004, standing inventory dipped to a three-month supply. It ballooned to a high of 20 months of inventory when the market collapsed in early 2008.

"We have come a long way," Sigstad says. "Most of the prices are in a reasonable range. It has been pretty stable."

Developers aren't expected to rush into frenzied subdivision building as they did in the middle part of last decade, but continued sales activity should lead them to construction a few more homes than they did during 2011.

Sales activity remains brisk as homebuyers take advantage of interest rates at 4 to 4.25 percent and attractive pricing. Through October, there were a a total of 4,862 sales of existing single-family homes in the Reno-Sparks market, an 8 percent increase year-to-date.

Those numbers approach the yearly sales pace of 2004, when 5,745 single-family home sales in the Reno Sparks market. The market peaked in 2005 at 6,147 home sales.

"Every month this year was either a record month or a near-record month as far as single-family homes closing," Sigstad says. "We have never closed as many sales as we did. This year we could be looking at maybe 5,600 sales when we get all said and done; we are very close to our record year."

Carson City, too, is seeing signs of a recovery, particularly among homes priced at $100,000 or less.

"As the year ends we are seeing even more of this price range selling to investors and first-time home buyers. Sales in Carson City have doubled since the last quarter, the median price dropped by $5,000 but sales increased and the median days on the market remain stable at around 100," says Heidi McFadden, president of the Sierra Nevada Association of Realtors.

Realtors expect the market to continue strengthening in 2012.

"It starts with investors, and they're back, so this could be the turn that we've all been looking for," says McFadden.

But not all is not rosy.

Homes still are coming on the market either through foreclosure or short sales about 25 percent of all home sales in Reno-Sparks for 2011 were foreclosures, Sigstad says. Foreclosure inventory is expected to diminish by mid-summer to early fall, however, which should significantly reduce inventory levels if home sales continue at their current pace.

And don't be misled by the median sales price, either, which hovered around $150,000 in Reno and Sparks for most of the past year. Investors and first-time buyers who snapped up homes on the low end of the price range $100,000 or below have impacted the median sales transaction figure.

Sales activity and pricing also varies by submarket. Southwest and northwest Reno, for instance, have seen much different sales and pricing than other markets, such as North Valleys or Spanish Springs.

"Three or four years ago we were in a wholesale market decline, but now you have to really break it down by location and by price range, to see what is happening with those markets," Sigstad says. "You really have to look at those submarkets to find out what is happening in any price range."

Lower costs for land, water rights, materials and labor could help spur construction of new homes in 2012. When those factors are coupled with further reductions in inventory, homebuilders may decide it's time to get back in the game.

The median price of many homes sold at South Lake Tahoe also has dipped, says Amanda Adams, president of the South Lake Tahoe Association of Realtors and agent with RE/MAX Realty Today in South Lake Tahoe.

The median price as of November was $275,000 for single-family homes, down 14.1 percent year over year for properties on the California side of South Lake Tahoe.

From December 2010 through December 2011, there were 331 traditional sales and 218 foreclosure sales at South Lake Tahoe.