Have we reached a housing peak in Reno-Sparks? (opinion)

RENO, Nev. — In July, sales of single family homes in Washoe County decreased 17 percent compared to July 2017.

While this drop in unit sales may seem high, it can be attributed to the seasonal cycle we see annually, but also due to the fact that there’s not enough supply of homes to buy. What we have seen is that year-to-date sales are lagging behind prior years.

Does this mean we have reached the peak?

Shortly after the National Association of Realtors (NAR) released its May data reporting two months in a row of declining sales, Regions Chief Economist Richard Moody wrote this in a research note: “Given that we see little reason to expect meaningful relief on the inventory front over coming quarters, we think it’s reasonable to conclude that we have passed the cyclical peak for existing home sales.”

Although sales are slower than prior years, buyers are frustrated, and in particular, first-time home-buyers are often priced out of the market. This doesn’t overcome the fact that low inventory is what is pushing median home prices higher.

A correction in housing, like in any market sector. is normal, foreseeable and possible.

In February 2018, we started to see a shift for the first time in 16 months that pending sales were not tracking closely with new listings coming on the market.

Up until that time, this had driven the month’s supply of inventory to a 10-year low of 1.5 in March of 2018. Since March, supply of inventory has been slowing, and was up to 2 months supply of inventory in July.

In a recent Market Watch article, Sam Khater, chief economist for mortgage finance provider Freddie Mac, was quoted that he thinks there’s still room to run. Khater thinks existing-home sales have “hit the speed limit,” and recognizes that rising rates will at some point price many people out of the market. Still, he said, “Total sales should continue to go up.”

“Here we are nine years in, we’ve had three straight years of inventory decline,” Khater said in an interview. “It’s not only not-expanding, it’s contracting. The consensus is that if there’s a recession, it’s a modest, plain-vanilla recession. If that’s the case, I think what it might do is cause inventories to rise modestly and home price growth to slow.

“My base case is ... an economic recession, but not a real estate recession.”

Still, homeowners generally have built up more equity than at any time in American history, and they’re staying in homes longer. That should provide a good “cushion” for most homeowners in a downturn, as Khater puts it.

Put another way: The most vulnerable homeowners in the next downturn could be people in pricey coastal markets who bought recently and have very little equity in their homes, either because they made small down payments or because they’ve taken it out.

So, the question is, have we reached the peak locally? I think it’s too early to tell, since many of the indicators are seasonal, and you cannot dispute that we still have a supply shortage.

With that said, you only need to drive around the Reno-Sparks area to see the number of new home projects coming online. When they are in full swing, I expect the resale market will adjust.

Doug McIntyre is president of the Reno/Sparks Association of Realtors. Go to www.rsar.net to learn more.