The median home price in the city of Reno just reached half a million dollars for the first time, and real estate experts say they’re seeing record median sales of homes across Nevada.
But in a recession, they say you would normally see prices going down.
Don Layton is the senior industry fellow at Harvard’s Joint Center for Housing Studies and the former CEO of Freddie Mac, the federal program that backs mortgages.
He said there are two big things that factor into housing affordability. One is the downpayment, which is usually a percentage of the sale prices, and the second is the monthly mortgage payments, which are extremely low now.
“The monthly payment is reflecting not only the high home prices but interest rates, and interest rates are at record lows for mortgages,” he said, “Under 2.7 percent by the government index. So actually, the typical monthly payment is way down despite the home prices being up.
He said nationally the average mortgage is only about a third of the value of the home, “which is astoundingly low” and “equity in housing is sky high.”
However, everyone who had to deal with the fallout from the Great Recession wonders if this hot housing market will collapse, as it did then.
Layton noted that one of the issues that fueled the recession was the “gimmicky” loans that allowed people who didn’t qualified to buy a home get one, which led to massive instability when those loans started to default.
“That is not happening,” he said, “The government took a strong hand in the reforms after 2008. The vast, vast majority of mortgages now are just conventional 30-year mortgages, over the regular fixed rate.”
One thing that is fueling housing prices is the lack of inventory, Layton said. Homebuilders are only now catching up to a lag in homes. He said the decrease in interest rates last year is working its way through the system and homebuilders are becoming more active.
“They haven’t made up for all the shortfall years between 2008 and now, but they’re finally producing houses at a level that is more of a normal level,” he said.
Layton said there were many reasons for the lag in home building, but one of the main reasons is local regulations on land use and zoning that has stopped development from moving forward.
“Land use regulations and zoning or all the versions of NIMBY – not in my backyard – have become very popular around the country,” he said, “The biggest problem is preventing more homebuilding on normal economic terms.”
He said it is a local problem that needs to solved by city councils and county commissions – not the federal government. However, he said there is mounting political pressure to move away from a focus strictly on single-family homes, but instead, loosening regulations to allow more multi-family housing and ADU’s – accessory dwelling units – like casitas or mother-in-law suits.
Brian Bonnenfant is a housing market expert from UNR’s Center for Regional Studies. He agreed that the lack of housing inventory is part of the pricing problem in the state.
“There’s a lot of obstacles for the homebuilders to bring in the 3,000 to 4,000 units that we saw pre-Great Recession,” he said, “Right now, they’re bringing in 2,000 units.”
Things became worse when demand started to pick up during the pandemic, he said. People were asked to work from home, and home could really be anywhere. Many corporations have decided the remote working model will be permanent.
“The demand really picked up in [Third Quarter] in April when the listings are supposed to come online for the summer peak season, we didn’t see those,” he said, “They hid out in their caves. No homes came up for sale, and the demand came at the same time, and so we saw the prices shoot up.”
Bonnenfant said supply and demand is only part of the story of why prices are high in Reno. The other part is rising incomes. Reno’s tech boom has fueled higher incomes, which means more people can afford more expensive homes.
Add to that, an influx of baby boomers from California who have sold their homes for a lot of money and moved to the Reno, Sparks and Lake Tahoe area.
“It is from all sides,” Bonnenfant said, “It is kind of that perfect storm.”
When housing prices appreciate too quickly, it can push entry-level home buyers out. Bonnenfant said it would be ideal if the Reno area moved back down to an appreciation level of between 4 and 6 percent – not the double digits it is currently in.
In Southern Nevada, Aldo Martinez, the president of the Greater Las Vegas Association of Realtors, said Las Vegas is still a great place for entry-level buyers.
“Vegas has always been a really good market place for housing,” he said “It’s been affordable. Let’s people get into entry-level homes. That’s where we get a lot of our influx from California that rolls in here as well is because they can buy a much better lifestyle in Las Vegas than they can elsewhere.”
With prices so high, many people are concerned about affordability. But Martinez said when you compare the price of rent with the price of a monthly mortgage, it might make a lot more sense for people who are renting to buy a home.
“When you look at the average price for a rental unit in Las Vegas right now, it’s at $1,708 a month,” he said, “The median price for a rental unit is about $1,595 a month… When you look at the same purchasing power for a $350,000 house with today’s interest rate at 2.69 percent, they can purchase for principal and interest a payment on that for $1,418.”
Martinez said people should be taking advantage of the extremely low interest rates because there is no telling when they will go back up again. He suggests that people who want to purchase a home talk with a real estate professional about their options.
For first-time buyers who need help navigating the process, Nevada Partners is there to help.
Kenadie Cobbin-Richardson is the executive director of Nevada Partners. The non-profit helps people with downpayment assistance with both conventional loans and federal loans like VA and FHA.
She agreed with Martinez that now is the time to take advantage of low interest rates, which are even lower if a buyer qualifies for VA or FHA.
While there are people buying and selling homes, there are many people who want to buy but can’t because they are currently furloughed because of the pandemic.
Cobbin-Richardson is hopeful federal programs will step in and help that future market.
“We will definitely need government implementation of aggressive forbearances, reporting mandates for credit, as well as forgiving the fact that the employment history may be short due to the pandemic because if we apply normal, traditional mandates or what we normally consider for buying a home more people, especially in lower-income areas, will again be priced out.”
She said the housing industry will have to wait and see how the new Biden administration will address those issues for new homebuyers and existing homebuyers who have been out of work as the country exits the pandemic.
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