A few years ago a client asked me what the area’s home values would be if the housing bubble had never happened — an interesting question, if only for academic reasons. I put together this graph to show how quarterly home values in the Reno-Sparks area have performed relative to the “average” performance from 1990 to 2001 when homes appreciated 0.97% per quarter.
Housing Bubble
As you can see by the red line on the chart, home appreciation rates simply exploded in 2003 and grew unchecked for two solid years. The housing mania created a buying frenzy, with people jumping into mortgages that they otherwise wouldn’t have, except for the fact that everyone wanted a piece of this unprecedented appreciation. New home builders couldn’t build homes fast enough, with many resorting to a “lottery system” to allocate homes to potential buyers, and existing homes were selling so quickly that sellers could basically put any price on the house knowing that if they waited long enough, someone would pay full asking price for it. And most didn’t have to wait long. The average time on market for existing homes plummeted from the 90-100 day average to just 40-50 days…and many homes sold the same day they were listed. Then, the bubble burst…
The median sale price of existing single family homes in the Reno-Sparks market peaked at $350,000 in the third and fourth quarters of 2005, and it’s been a long, steep fall from there. Since then, the median sale price has dropped by 51% to just $171,900 and is still falling. At this rate, assuming that the market stabilized today and returned to a historical appreciation rate of 0.97% per quarter, it would take over 13 years for homeowners who bought at the peak of the market to recover their investment. And that’s really optimistic at this point. Is it any wonder that thousands of people are voluntarily walking away from these bad investments? The default-epidemic is far from over in Northern Nevada, and home values are not done falling.
For more information on the Northern Nevada housing market, take a look at our housing data <<here>> and join us on the Business Empowered network for more discussion of current events that are shaping our economy.
[...] In 2008, when everybody in town already knew about the Reno-Sparks falling market, the news media started to dig deeper about the problems in our real estate market. I always wished they’d done it as early as 2006. [...]