Home affordability under pressure
The Reno/Sparks area continues to enjoy positive economic trends. The flip side of the good news, however, is the slow downward slip in housing affordability. The issue can be seen in all categories of the home market.
For new-home construction, lots and supplies are getting more expensive and the availability of lots with infrastructure is dwindling, driving up construction costs, which gets passed on to buyers.
The inventory of existing family homes for sale is tightening, causing prices to creep up.
And apartment vacancy-rates are almost as tight as they can go. Increased demand increases rents.
Builders are beginning to address affordability with new construction.
In the first quarter of this year, 37 percent of new home starts were priced below $300,000, up from 33 percent, according a Metrostudy report recently released. Those are being built mostly in outlying areas where the cost of land is cheaper.
The bulk of new construction — almost 50 percent — is in the $300,000-$399,000 price range this year and last.
The inventory of finished vacant single-family homes is less than a one-month supply, the lowest level since Metrostudy began tracking the Reno market in 2006. However, the number of homes under construction has increased 40 percent since last year.
Oversupply is still a long way off.
The supply of improved lots ready to develop is dwindling. The Reno market has 26-months of supply of finished and vacant single-family lots. Three years ago, there were 14 years of lot supply. Washoe County has only 14-months of supply.
“… Lack of lot supply and affordability pressures may hinder stronger new home growth,” Greg Gross, director of Metrostudy’s Reno market, said in the report. “Over-supply of lots along with diminished demand has driven down lot prices and land values in the past, but the quickly shrinking supply will force builders to pay more for future lots, which may pressure affordability which is already worrisome.”
The lack of home supply is also seen in the reports on existing home sales.
The Reno/Sparks Association of REALTORS report for April showed the sale of existing family homes decreased by 4 percent compared to a year ago and by 5 percent from March. The median sale price increased 8 percent.
The median price of existing condominiums/townhomes in the county increased by a whopping 47 percent over a year ago.
“Demand continues to exceed supply in the market,” William Process, 2016 RSAR president and a Realtor with HomeGate Realty of Nevada, said in the report. “When this happens, homes sell quickly and prices rise. “
In the apartment market, vacancies are dipping below 3 percent, barely enough to account for vacancies as tenants move in and out. That’s driving up rents, which increased 4.65 percent from the fourth quarter of 2015 to the end of the first quarter 2016, according to the Johnson/Perkins/Griffin quarterly apartment survey.
Approximately 1,500 new apartment units are under construction with 6,000 more on the drawing board.
“Although several projects are under construction, supply within the major apartment projects in the region is expected to remain extremely tight the coming year,” the JPG report said. “Vacancies are expected to remain extremely low over the next year, and rental rates should continue to show increases.”
New apartments are on the way but few are designed to address affordability.
An exception is the Summit Club off Mount Rose Highway, which is expected to break ground soon. The 584 apartments will include 80 percent market-rate housing, and 20 percent for those who make 50 percent or less of the median income for Reno, which is about $44,226 per year.
Overall 1,458 apartment units are under construction and another 4,0623 are in various stages of planning, according to the CBRE first quarter report.
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.