The first two months of 2017 started out sluggish with unit sales of homes at a five-year low. The combined January and February 2017 sales are 736 compared to 753 in 2016 and off 24 percent from five years ago. I continue to echo EDAWN in saying, it’s not a real bubble, so what is going on?
To quote Lawrence Yun, chief economist for the National Association of Realtors, “Realtors are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that’s pushing up price growth and pressuring the budgets of prospective buyers.” He goes on to say, “Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market.”
I think that sums it up for the local market as well.
In the Reno/Sparks market, inventory levels are at an all-time low. With median price on the rise and inventory levels low, sellers might logically think that now is a good time to sell. But that’s not occurring and it’s not unique to the Reno/Sparks market. According to NAR’s first quarter HOME Survey, sellers in the western region of the U.S. feel like it’s a good time to sell. However, sellers in the western region also are the least likely to think now is a good time to buy a home. This is consistent with all four quarters of 2016. We can speculate about the reasons for the gap or lack of inventory, but likely the number one reason is affordability. While companies are bringing new jobs and employees to the region, the current residents can’t afford to make a move. Wages, although increasing, have not kept up with housing prices.
Based on price points shown in the available inventory chart, you can see that in February, a buyer’s choice of available inventory was limited unless they were looking at homes priced more than $300,000.
Another way to look at this is by observing the Month’s Supply of Inventory (MSI). MSI is defined as the time it would take to exhaust all the active and pending inventory at the current rate of sales. A balanced market has between five and seven months. You can see from the chart, that the MSI for homes priced between $100,000 and $399,999 has only a two to four month inventory. For homes priced at $750,000 there is a supply in excess of 17 months.
What does this mean to buyers, sellers, renters and investors in the Reno/Sparks market?
Buyers: Seek a preapproval from a lender, know your budget and begin discussions with a Realtor early on about your housing wants and needs. One buyer’s idea of a dream home in a popular neighborhood is probably the same as many others. That’s why you’ll likely have to decide quickly if you see something you like and can afford.
Sellers: If you are relocating, moving-up or an empty nester seeking to down-size, the current market will likely bring you top dollar on your home particularly in the $250,000 to $350,000 price range. Talk to a Realtor to make sure you are pricing your home based on comparable homes in the neighborhood. Buyers are likely to pay at or near list price for a well-priced home, but the market is not such that they are paying over list price.
Investors: The affordability constraints holding back renters from buying is a signal to many investors that rental demand will remain solid for the foreseeable future. Investors also have a leg-up on the competition against first-time buyers as many investors are cash purchasers. The first two months of 2016 cash sales accounted for 21 percent of the market. For the same period in 2017, cash buyers represented 18 percent of the market.
Renters: You can expect the rents to continue to be on the increase and vacancy rates to remain low. Although homeownership may seem to be out-of-reach, speak to a Realtor and a lender to see what programs might fit your situation. It’s a great time for qualified buyers to make a purchase.
John Graham is president of Reno/Sparks Association of Realtors and a real estate agent with Re/Max Premier Properties.