In the last two years, I have been interviewed several times regarding the state of our local real estate market.
Many professionals in the media have been looking for the ultimate catchy headline. That is their job, after all.
I believe the headline that they want to hear goes something like this: “The sky is falling, the sky is falling.” To phrase it in real estate terms, it would sound like this “the real estate market is heading for a crash.”
Buyers and sellers are reading the news and, understandably so, are seeking the same headlines in hopes of finding answers to their questions.
Questions from buyers such as “is this a good time to buy or should I wait until prices come down?”
Questions from sellers such as “Is this a good time to sell and can I find something else to buy?”
I’m here to be honest with you: there is no one-size-fits-all answer to any of these questions. It is a bit more complicated and involves a little history and taking a step back to see the bigger picture.
The last great housing run-up occurred in the 2002-2006 period of our century.
Prices shot up dramatically, fueled by a financial system that was broken and allowed too many unqualified buyers to secure ownership in residential real estate. To put it simply, people were allowed to buy that really could not pay for the home(s). When our nationwide economic system began to collapse in 2007, it was too late to correct course. What followed was the “Great Recession“ and the states of Nevada, California, Arizona and Florida were the hardest hit.
Thousand of homes were foreclosed on and many thousands more were sold via a short sale process that was emotionally difficult to understand for those affected.
Real estate values plummeted in some cases to over 50% less than what was owed on the home. To add to the frustration of so many was the massive loss of jobs. People who had always paid on time and had good credit were thrust into losing almost everything.
Just writing about this brings pain and bad memories to the front of my mind.
Our region remained in this economic downturn until it bottomed in 2011-2012. The available properties for sale in 2012 were made up of 75% short sales and foreclosures. Smart investors were buying everything they could lay their hands on. For those who had jobs and could afford to buy, there were bargains to be had. It is estimated by some that at that time, homes were selling for up to $100,000.00 less than they could be built for.
Our market began to turn upward around 2014-2015 and by 2016 we entered into a seller-favored marketplace that has lasted until today.
So how would I answer the questions presented earlier?
In the media, statistics tell the story of a leveling marketplace.
The COVID-19 pandemic unlocked the ability of many job holders to work remotely. Instead of paying $4,000 or more to rent a garage or its equivalent in metropolitan areas like San Francisco, people started to look at our region as a tremendous value in terms of lifestyle and affordability. Suddenly, it seemed, homes for sale had multiple offers, and in many cases, thousands over asking prices. It was indeed almost a feeding frenzy.
From 2012 until 2022, the region averaged a 14% year-over-year increase in value. When the pandemic hit, that increase shot up dramatically to 20 to 25% year-over-year.
The marketplace was fueled by skyrocketing demand, a shortage of homes, a huge run-up in things like the stock market and cryptocurrency, and finally, historically low mortgage rates.
A perfect storm benefiting sellers and working against buyers.
Today, things are beginning to show signs of leveling out.
Rising Interest rates have cut into the buying power of non-cash purchasers. The stock market has been reacting to rising inflation and has dropped dramatically along with the value of the aforementioned cryptocurrency. This has resulted in our market finally seeing a rise in the number of homes available for sale. The federal government is on a mission to control inflation and this may mean even higher interest rates in the future.
So for buyers and the media, the best answer that I can give is that sales may slow up just a bit.
Is our market going to collapse again? I think not.
We still have a strong demand and a lack of available properties for sale. If someone is qualified and wants the possibility of home ownership — go for it. If you are buying speculatively, thinking that prices are going to continue their meteoric rise of the recent past — I urge caution.
For sellers, I say this: the market has changed — and while it is still considered a “seller's market,” your position on the higher ground has been altered.
Properties are not seeing the frenzy of activity that has occurred over the past two years. It is imperative to price the home to market. 52% of the homes on the market have been experiencing price reductions. Chasing the market downward is not a great idea.
When in doubt, listening to your realtor is the best advice I can give to those interested in buying or selling in this fast-changing market. As always, I am ready to assist.
Gary MacDonald is the Immediate Past President of the Reno-Sparks Association of Realtors and is a Realtor with Dickson Realty.