To understand the future of the housing market, we need to understand the housing data through the end of November 2016.
In the last six months, the median price has gone from $310,000 to $318,000, and is now back to $310,000. The number of days that houses are actively marketed before they are sold has gone from 79 days to 97 days in the same six months. The median price has increased from November 2015 to November 2016 by 7.3 percent. The number of units sold in the same time frame has increased by 21.4 percent. Last November, we had a few more new listings at this time and a few more listings in general on the market. Pictures are worth a thousand words so the mix of houses sold through the end of November might explain a lot (See charts).
Every real estate market has “micro markets,” identified by geography, and each of those “micro markets” are further diversified by pricing. For northern Nevada, houses priced $300,000 and below equal 55.4 percent of all sales in November (some very limited Lake Tahoe numbers are included). That percentage has been consistently high all year long. The $300,000-$600,000 range equals 39 percent. Adding those two price ranges together make up over 94 percent of our entire market. It should be obvious when there is little inventory, and those price ranges ($600,000 and under) are such a large part of the sales total, that prices will rise due to supply and demand. Sales units may increase only slightly or may be flat because of limited inventory.
In the $600,000 and under price range, sales this year will look much like they have in 2016, perhaps experiencing a bit more stress in the market. We have a shortage of homes in these price ranges and because of the great job that EDAWN, the state and industrial developers have done attracting new companies, we have jobs and people moving into our community. Supply and demand will continue to increase prices until we see new construction start to catch up. Once the supply of new construction catches up, we will see prices start to flatten and perhaps fall, which may entice the investors who purchased homes in the downturn to sell. However, this won’t be corrected in 2017.
Currently, we have a 2 percent vacancy factor in apartment rentals, which is extremely low. Again, supply and demand will cause rental rates to continue to rise until the approximate 7,500 new “doors” currently approved become available.
Mortgage rates went up in December. With predictions from the Federal Reserve Board, there will be more increases in 2017. Projections from most economists don’t expect the rates to exceed 5 percent in 2017. Rising prices will affect the down payment and credit scores needed to purchase a new home creating a new challenge in addition to the limited supply. Competition from cash sales will continue to be a challenge for buyers who must obtain a mortgage.
Luxury home sellers may get a short term bump in sales with a new administration coming into office who inspires confidence, and mortgage money will be plentiful, but all eyes will also be on the stock market. Currently, we have more than a 45-month supply of homes in the $1.5MM and above price range. I believe prices may come down based on the absorption rate in this price range but also by the changes in buyers’ tastes and lifestyles by the end of 2017.
In summary, I predict there will be a modest gain in existing home sales in 2017. The National Association of Realtors (NAR) is predicting sales to increase a modest 2 percent, from $5.42MM to $5.52MM in 2017.
NAR is also predicting median home prices to increase by 4 percent. I believe we will see median prices continue to increase at a higher rate in our community due to the supply and demand in the properties available for sale under $600,000. This will be coupled with job and population growth, and tempered by rising mortgage rates and possibly consumer confidence. The median home price has increased 42 percent over the last five years while the median household income gain has only increased 17 percent. This disparity will hurt affordability and is not sustainable over the long term. We are starting to see some California markets (e.g. San Jose) slide into a negative growth category because of this disparity, but I don’t believe we are there yet in our market.
The last survey about first-time homebuyers and where they wanted to live was published by NAR in December 2014. While their preferences may have shifted in two years, I don’t believe it has changed completely. What the first time home buyers (millennials) really wanted was what their parents pursued — a single family house in the suburbs at 66 percent, with 10 percent wanting to live in a city. I believe that is good news for our area because we still have available land for homebuilding not too far outside our cities’ cores.
It is critically important for projects like West 2nd District, the Park Lane project, the Summit Apartments, Kiley Ranch and Verdi to be funded and built as quickly as possible, along with the many fine builders creating affordable housing and apartments in northern Nevada.
Finally, I do not believe we are in a housing bubble. Rising prices were only one of many factors that created the bubble of 2006-2011. We need to remain focused on the availability of affordable housing, the attraction of people to our area to supply the workforce needed to fill the jobs that are being created (who must have places to live), and the training and education to perform the jobs needed in this new economy.
Nancy Fennell is president of Dickson Realty.