My outlook for the residential market in Washoe County in 2012 is pretty bleak. Sorry to be the bearer of bad tidings, but I just do not see much in the data that gives me hope that 2012 will be significantly different than 2011.
In 2010, new home sales sunk to their lowest level in decades — barely 500 new homes found buyers last year and it was a disaster for most area home builders. In 2011, the pace has been even worse and we’re on track to close less than 400 new units. The problem with new homes is that they are competing in the marketplace for the same tiny pool of qualified buyers, and most of the buyers in today’s market are purely looking for the best deal. New homes are unable to match the bargain basement prices of existing homes — over 60% of which are being sold in distress. Also, investors comprise a rather large proportion of today’s buyers, so for them it makes more sense from a cash flow standpoint to focus on picking up a bank owned home or a short sale. So I don’t see much good news for new home builders in 2012.
As far as the existing home sales go, I think we are going to see a similar level of sales in 2012 as we have in 2011, but I think it’s a safe bet that prices will continue to slide even more than they already have. The “wild card” in terms of sales volume will be what happens in response to AB284 — now that NODs have basically stopped in Nevada as a result of AB284, the flow of foreclosures through the pipeline will be seriously affected, and no one really has a great understanding of the impact yet. One thing is for certain: banks will find a way around this. Meanwhile, you may start to see existing home sales taper off should the inventory of bank owned homes begin to dry up — even if that is only a temporary reduction in inventory.
Existing home prices have been relatively flat during the last few months of 2011, which is a good thing, but the sheer volume of distressed inventory (and shadow inventory) tells me that there’s nowhere but down for home prices until other areas of the economy — namely employment and personal income — begin to rebound. That remains the biggest challenge for the housing industry. Once the overall economy begins to rebound and people begin to feel more stable in their jobs and begin to earn more money, the housing problem will resolve itself naturally. This economic recovery cannot and will not be lead by the housing industry.
For more information on the area’s housing market, be sure to check our website each month for the latest data and trends.
Cheers, Brian Kaiser