Last weekend I toured a buyer through Somersett. A frequent traveler, she was looking for a nice, secure, low-maintenance place to call home in between outings. We looked at everything under $400,000, which generally meant our options were: The Village, random resales in Amber Glen, Del Webb and The Vue.
The Village had lots of new inventory along with several resale options, including a few flippers gone bad. The sales staff invited my client repeatedly to make an offer, any offer... even lease options were doable. My client liked the privacy of one of the 2100+ square feet duets for $369,000, so she put it on her short list, and we moved on.
The random Amber Glen resales all backed to busy Somersett Parkway, plus they were used, so they didn't even make it to the finals.
Next was Del Webb. We toured a few nice resales, then visited the models. I hadn't been to the sales office for a while, but on this visit I saw that Pulte had been busy tweaking models and upgrade packages to offer better value at lower prices. The trade-off is that you either take it or leave it. Don't even think about asking for any little custom alteration, easy as it may seem, because they won't do it. This is how they're able to keep costs down and lower prices for the consumer without going bankrupt.
Last we stopped in at the Vue. Like the Village, the Vue is a higher-density cluster development, but with slightly different floor plans. As in their Del Webb project, Pulte has fine-tuned their models and upgrade offerings to create better value, but you must select package A, B, C or D. No substitutions. They've done away with the fireplaces, gotten rid of some dormers, moved a few walls... all in the name of cutting costs and improving construction efficiency. The important stuff like stainless steel appliances, slab granite counters, quality cabinets and 18-inch tile floors remain.
My client ended up purchasing a light, bright, 2400+ square foot duet with hardwood flooring downstairs for just under $301,000. Though an attached unit, with three sides of windows it felt like a single family home.
For my client, it's the perfect solution and a killer deal. Once Pulte sells the unit next door, they'll start building (which is another change in strategy... they won't build it unless they have it sold). So if you're interested in a 2100+ square foot duet with a master on the main level and a guaranteed nice neighbor, call me. At only $278,990, it's one of the best deals in Somersett.
Sure, Pulte maybe only closed twelve or so of these Vue units last year. But with 41 in escrow now, their retooling seems to be paying off. I'm not much of a stock trader, but seeing how pro-actively Pulte continually adapts, adjusts and moves forward in a very tough market... This is the one homebuilder stock I would definitely consider.
Regular readers are aware that I update a median Solds table each month. In this table I report the median sold price as well as the units sold by month. However, the application I use to generate the numbers only provides me with the previous two years of data. Because I began tracking these numbers in January 2007, my table presently contains data starting in January 2005. Frequently, however, readers have asked that I report data prior to 2005.
Again, due to limitations of the application I’ve been using, this is not possible. A workaround however is to manually pull these numbers from our MLS on a month by month basis and compile the median, units sold, etc for each month. This is a time intensive process and one that I did not necessarily want to perform [...I kept hoping that an upgrade for the other software package would allow for a longer historical search to be performed].
Anyway, last week I sat down and manually compiled monthly numbers going back to January 1999. And then today I pulled December's latest numbers. I now have a table reflecting Solds data for the last nine years. The metrics I compiled include: number of units sold; median sold price; and average days on market (DOM). The criteria I used in my data search are:
- MLS area 100 (Reno, Sparks)
- All Residential property types (condo/townhouse, manufactured/modular, site/stick built)
- Status: Sold
[Note: The criteria above are slightly different from the criteria I normally use for my monthly posts on median prices. Specifically, I normally exclude “manufactured/modular” properties. Because these types of properties are now included, the resulting monthly median Sold prices are a little lower than what I have reported in previous posts. The trends observed, however, are the same. For example, as is shown below the median sold price peaked in July 2005, which is consistent with the results I have found using the other method.]
102 months of data is a lot of data to absorb in a table format, so I have produced graphs of each of the three metrics so that trends can clearly be observed. And I must admit the graphs produced from this data are very enlightening.
The spreadsheet containing the data used for the graphs below can be found here. Let’s look at each of the graphs created from this data. [click on the graphs below to enlarge].
Number of Units Sold (1999 - 2007)
This graph clearly demonstrates the seasonality of sales. The summer months (June through September) consistently have shown the most units sold for any given year (see Table 1)...
Table 1: Months with greatest number of sales
| Year | Month | Units |
|---|---|---|
| 1999 | July | 432 |
| 2000 | June | 528 |
| 2001 | Aug | 520 |
| 2002 | July | 551 |
| 2003 | Sept | 681 |
| 2004 | Sept | 765 |
| 2005 | June | 847 |
| 2006 | June | 523 |
| 2007 | May | 463 |
...except for 2007 where units sold peaked in May at the lowest level since 1999 and then plunged for the remainder of the year.
The month of January leads the list as having the least number of sales for any given year (see Table 2)...
Table 2: Months with least number of sales
| Year | Month | Units |
|---|---|---|
| 1999 | January | 245 |
| 2000 | January | 250 |
| 2001 | January | 311 |
| 2002 | January | 306 |
| 2003 | January | 365 |
| 2004 | January | 432 |
| 2005 | January | 412 |
| 2006 | January | 353 |
| 2007 | December | 225 |
...again, except for 2007 where units sold continued to fall throughout the year to bottom out in December to levels not seen since January 1999.
Monthly units sold for the Reno-Sparks market peaked in June 2005 with 847 residential units sold. Last month (December 2007) less than 27% of that number was sold.
Before I get to the median sold price data, let me touch on the DOM (days on market) data.
Days on Market (1999 - 2007)
I realize that the reported DOM number is a less than accurate count of the total days a property was truly on the market before selling, but if we assume the means of reporting DOM has remained consistent (though inaccurate), then perhaps meaningful trends can be observed.
The first thing I noticed from the graph is that is appears to be somewhat the inverse of the # of Units Sold graph. As DOM dropped lower and lower, units sold continued to increase. Of particular note, though, is that DOM hit its lowest level (55 days) in September 2004. Units sold didn’t peak until June 2005, nine months later, and median sold price peaked one month after that (July 2005). In this way, perhaps DOM can be viewed as a “leading indicator”.
However, if DOM is, in fact, a leading indicator, then I worry about its present trend and the projections it portends. Currently averaging 139 days, DOM has been trending up since 2004 and is now at a record high. Even if DOM was to level off today, does that indicate the Reno Sparks market has another nine or more months of declining sales to look forward to?
And I don’t see the increasing DOM to level any time soon. Because units sold continue to decrease, the inventory of unsold homes continues to rise. This higher inventory will result in a longer time on market, thereby increasing DOM.
Finally, let’s look at the graph of the median sold price.
Median Sold Prices (1999 - 2007)
This graph is the most telling. The longer time horizon really puts into perspective just how drastic the run up in home prices was.
It looks like Q4 2002 was when the market started to take off. In fact, in October 2002 the median sold price jumped nearly 11% from the previous month. Yes, that’s an 11% increase in one month!
Compiling the median price data on an annual basis we get the following:
| Year | Median Sold Price | % Δ |
|---|---|---|
| 1998 | $136,000 | - |
| 1999 | $141,500 | 4.0% |
| 2000 | $148,000 | 4.9% |
| 2001 | $155,500 | 5.1% |
| 2002 | $169,000 | 8.7% |
| 2003 | $195,000 | 15.4% |
| 2004 | $258,000 | 32.3% |
| 2005 | $318,000 | 23.3% |
| 2006 | $305,000 | (4.1%) |
| 2007 | $285,000 | (6.6%) |
The third column in the table above shows the % change in median sold price compared to the prior year’s median sold price. Look at the run-up from 2002 to 2005. 32% annual appreciation in one year?! 88% appreciation in three years?! No wonder everyone became a real estate investor.
The air clearly needed to be let out of this overheated market. The median sold price peaked in July 2005 at $339,450. Last month’s (December 2007) median sold price was $285,000. This is off 16% from the peak price. But is it enough?
If we assume the market had been “normal” prior to October 2002 [the month I chose as the start of the run-up], and we look at the average monthly increase in median sold price from January 1999, we get a monthly increase of about 0.381 percent per month, or an annualize increase of about 4.467%.
Applying this rate of growth to 1999’s $141,500 median sold price projects a 2008 median sold price of $209,686 (see Table 3 below). This number is a far cry from last month’s $285,000. In fact, it is 26% less. Am I saying that the median home price needs to drop another 26%? No. I’m simply illustrating where a more realistic rate of growth might have placed the median sold price today.
But what is the “normal” rate of increase in housing prices that the Reno-Sparks housing market can/should reasonably expect? 4%?...5%?... 6%? There are too many factors that play into growth (inflation, population trends, wages, inventory, etc.) to discuss here, so I don’t have an answer to that question. However I did plot a few hypothetical values (growth rates) to see where these rates would have place today’s median sold based off of 1999’s $141,500 median home price (see Table 3 below)
Table 3: Projected 2008 median sold price
(based on hypothetical rates of annual increases)
| Rate | Median |
|---|---|
| 4.47% | $209,686 |
| 5% | $219,513 |
| 6% | $239,062 |
| 7% | $260,142 |
| 8% | $282,859 |
I could go on, but you get the picture. I stopped at 8% because I was curious what was the annual growth rate needed to get us from 1999’s $141,500 median price to last month’s $285,000? The answer is 8.1%. If this rate sounds reasonable to you, then we’re right on target. If 5% is more to your liking, then as you can see from the table above the current median ($285,000) still needs to drop another 23% in order to reach $219,513.
If you’re Moody’s then we’ve got another 11.2% to go before we hit bottom. [Note: we’re presently 16% off our peak median sold price]. Moody’s projection would bring our median sold price to $247,120.
What is the real answer? I don’t know. All signs point to a further decline in the median sold price for Reno-Sparks. How much more? Good question. I welcome your insights.
Data courtesy of the Northern Nevada Regional MLS - January 2008.
I would just like to echo Diane’s sentiments she made in the previous post. We are truly grateful for all of the readers of this blog. Whether you participate in the dialog through posting comments, or simply read our posts and related commentary, thank you for visiting our space.
And speaking of comments, your contributions to this blog are really what make the site so valuable. I have learned a great deal from reading your comments and by researching the answers to the questions you ask. Thank you.
And here’s an interesting stat, since this blog’s inception (December 2005) we have submitted 437 posts, and have received 3,153 comments [as of five minutes ago]. You guys rock!
Have a safe and happy new year.
I just wanted to take a moment to say happy holidays to everyone who reads and contributes to this blog. Guy and I are so grateful for all the people we've met and the clients we've served... it has been a truly wonderful year. May you all find warmth and happiness this holiday season.
Also, we are planning to move the entire blog from Typepad to Wordpress sometime this week. The changeover may take 4-6 hours. During the process, comments will be closed, but we will try to give you some advanced warning. Hopefully you'll all be out skiing and visiting loved ones rather than obsessing about the local housing market, anyway... ;)
That's the story of my cheap little listing in Wingfield Springs. Even in this market, the good deals don't last. We found $255K to be the magic price point that put this home in into escrow, scheduled to close in late January. Two major price reductions brought it into line. And if the current buyers don't work out, we have backups.
How did my sellers achieve this in only three weeks, right before Christmas, in a bad market, at one of the seasonally slowest times of the year? By pricing their house to sell. It's that simple. Yes, they're taking a haircut on this one, but they will be getting their cash out before the market worsens, and they will be getting on with their lives.
If you're serious about selling, you need to be serious about pricing.
Our friends at First American supplied the following Washoe County sales data broken out by zip code. The data reflects SFR sales for the last 12 months. Click here for a zip code map.
| Zip Code | Sales | Lowest Price | Highest Price | Median Price |
|---|---|---|---|---|
| 89402 | 2 | $2,062,500 | $9,800,000 | $5,931,250 |
| 89431 | 191 | $89,846 | $625,000 | $242,000 |
| 89433 | 84 | $95,000 | $308,000 | $256,500 |
| 89434 | 226 | $169,500 | $985,000 | $280,000 |
| 89436 | 922 | $152,138 | $9,301,866 | $330,000 |
| 89439 | 28 | $185,000 | $1,150,000 | $405,000 |
| 89441 | 205 | $199,683 | $1,300,000 | $367,404 |
| 89451 | 97 | $495,000 | $16,000,000 | $1,200,000 |
| 89501 | 8 | $175,000 | $590,000 | $345,000 |
| 89502 | 232 | $60,000 | $2,439,140 | $277,500 |
| 89503 | 219 | $124,000 | $712,000 | $270,000 |
| 89506 | 515 | $109,000 | $690,000 | $274,000 |
| 89508 | 186 | $95,000 | $690,000 | $256,385 |
| 89509 | 250 | $199,000 | $1,900,000 | $391,950 |
| 89510 | 7 | $350,000 | $884,900 | $489,000 |
| 89511 | 322 | $227,500 | $2,975,000 | $750,000 |
| 89512 | 115 | $67,088 | $540,000 | $265,000 |
| 89519 | 106 | $280,000 | $2,300,000 | $586,000 |
| 89521 | 556 | $205,000 | $1,281,600 | $371,040 |
| 89523 | 510 | $82,178 | $1,350,000 | $356,944 |
| 89703 | 1 | $925,000 | $925,000 | $925,000 |
| 89704 | 28 | $100,000 | $1,140,000 | $382,500 |
| ==== | ======= | ======= | ======= | |
| 4,810 | $60,000 | $16,000,000 | $331,000 |
Data is based on public data gathered between 12/1/2006 and 11/30/2007. It is believed to be accurate, but is not guaranteed.
As a follow-up to yesterday’s post I found a few more numbers on the topic. The table below shows data from the National Association of REALTORS® latest Monthly Membership Report.
| 10/31/07 | 9/30/07 | % Δ (m.o.m.) | 10/31/06 | % Δ (y.o.y.) | |
|---|---|---|---|---|---|
| Nevada | 20,166 | 21,090 | -4.58 | 20,678 | -2.54 |
| Nationally | 1,363,758 | 1,366,869 | -0.23 | 1,370,758 | -0.51 |
Note: To see NAR’s Monthly Membership Report for all states click here.
So, Nevada’s numbers of REALTORS® are decreasing faster than the national rate of decline. As shown in the table above, the state’s membership roster has declined 4.58% in the last month (of reported data) compared to a .23% decrease Nationally for the same time period. However, as I reported in yesterday’s post, here in Washoe County our membership has decreased less than 1% during the same time period. So the biggest declines are occurring elsewhere in the state.
But, perhaps, having a few less REALTORS® competing for a dwindling number of sales might not be so bad. Yesterday’s post received a comment from a reader asking the question how the 3,000+ agents in the area could survive on the small number of sales of late. Intrigued as to how recent sales are translating into an annual income I ran the numbers and responded in the comments. In case you missed my analysis I’ll repeat it here.
The NAR reports that the average REALTOR®’s income amounts to only $23,000 per year. How do Reno-Sparks REALTORS®’ incomes compare? Let’s do the numbers (I’ll use October’s data because that’s the month where I have the most complete data available).
According to recent Washoe County Assessor’s data , October’s sales consisted of 386 resales county-wide. That’s 772 transaction sides (one Buyer’s agent and one Listing agent). There were also 235 new home sales recorded for the same period. However, we can’t assume that all of these new home sales involved an agent. In fact, I’m guessing one-half would be a generous estimate. So, for this example, let’s add another 118 buy-side transactions. That’s gives us 890 transaction sides for the month of October. As we saw in yesterday's post, the NRED reported 3,176 Active agents for October. That’s .28 transaction sides per agent for October. For this example, let’s simply multiply that number by twelve to get an annual estimate. That yields 3.36 transaction sides per Washoe County agent for 2007. For the sake of discussion, let’s use a 3 percent commission for each of those transaction sides. Last week I posted the median sales price for October was $287,000. That amounts to an $8,610 commission per sale per side, or an annual gross income to the broker of $28,953. I say “to the broker” because, as you know, the broker receives the commission, and then divides it with the agent according to a pre-arranged “split”. This split can vary greatly depending on the brokerage and a variety of factors (i.e. experience of the agent, the agent’s production volume, office expenses, etc.) Let’s just say I have heard splits ranging from 50-50 to 90-10, and everything in-between. Again, for the purpose of this example, let’s choose a commission split in the middle of the range, say 70%. That provides an annual income of $20,267 per Washoe County agent…or slightly below the U.S. Census Bureau's poverty threshold for 2006 ($20,614 for a four-person household).
Who's Thriving in the Slow Housing Market?
On a another note I found an article that indicates not all those working in the RE industry are going hungry. Some of those who are doing a brisk business include:
- Remodeling contractors
- The auction industry
- Home Stagers
- Appraisers
See Who's Thriving in the Slower Market for the story.
Lately I've observed a lot of shuffling of personnel in the real estate industry and its related fields (lenders, mortgage brokers, title and escrow officers, new homes sales reps, etc.) Many offices are downsizing and cutting staff, while others are shutting their doors completely. Where do these out-of-work agents, mortgage brokers, and escrow officers go? Some try to find new positions with other offices and brokerages within their fields of experience. For example, our Reno office has more than doubled the number of agents hanging their licenses with Chase International this year; with the majority of these agents coming from other brokerages.
Others walk away from the industry completely and look for work elsewhere (see Market Realities Drive Practitioners to New Specialties). And still others try their hand at a new role within the RE industry. For example, an unemployed mortgage broker or escrow officer decides to obtain her real estate license and enter the exciting field of real estate sales.
I have heard that the membership of the RSAR (Reno Sparks Association of Realtors) has added close to 300 new agents to its roster this year. One may ask why anyone would willingly enter the field of real estate sales in a market such as the one we are now experiencing. Are these new agents simply displaced professionals from related fields? And, if so, is that necessarily a cause for concern?
In the bigger picture, it probably makes more sense for someone who has some familiarity with the Reno real estate field to enter it than, say, a former IT guy from Chicago. But is the supposed increase in the numbers of agents good for the market? Before I went down that path, I wanted to verify that our ranks were indeed swelling.
To answer that I went to the Nevada Real Estate Division, the licensing authority for all real estate agents in the state. According to the latest statistics from the NRED the state has 28,115 Active, licensed real estate brokers, broker-salespersons, and salespersons. Another 6,790 licensed real estate brokers, broker-salespersons, and salespersons have their licenses placed in “Inactive” status. [Note: see definitions of Active and Inactive below.]
Drilling down to focus on Washoe County, we find 3,176 Active licensees and 1,134 Inactive licensees. Looking back at the only available historical data from the site, I found the following:
| Washoe County Licensees | Active | Inactive |
| April 10, 2007 | 3,166 | 1,304 |
| June 8, 2007 | 3,221 | 1,237 |
| August 31, 2007 | 3,229 | 1,137 |
| October 17, 2007 | 3,176 | 1,134 |
So, Washoe County has been averaging about 3,200 active agents this year with no overall downward or upward change in membership. So, although our roster may not be growing, there seems to be some froth in the ranks. Unfortunately, I have only anecdotal evidence at the moment to support this notion. I wish I could have found historical data for the number of real estate agents in the area. If anyone knows a source for that data, please comment. I’d like to perform an analysis over a longer time period.
[Note: To see a breakdown by all Nevada counties click here.]
[Note: If an agent has a current license in good standing (non suspended or un-revoked) she may voluntarily submit an application to have her license placed in Inactive status. During this time the State Real Estate Division keeps the license, and the licensee may not transact any real estate business. Another application process is required to re-activate a licensee’s inactive license.]
