Homeowners in the greater Reno/Sparks area who haven’t looked up the estimated value of their property in awhile are in for a sweet surprise. According to the Reno-Sparks Association of REALTORS, median home prices rose nine percent from January 2016. The typical home value in Washoe County, according to the National Association of REALTORS is $326K. Over the past decade, we’ve gone from being Ground Zero in the Great Recession to one that’s galloping upward at a decent clip.
What’s in store for 2018? Will our area continue appreciating, or will a lack of inventory and affordable housing throw cold water on the fire? Zillow predicts Reno home prices will increase by 1.8 percent in 2018. Personally, I think that number is far too low given all of these economic dynamics heading into the new year:
A Healthy Local Economy: The Reno/Sparks housing market is as healthy as it’s been at any time over the past decade. Both negative home equities and mortgage delinquencies are well below US averages. In the past, the housing price escalations we’ve been experiencing have led us to Bubbleville…particularly in a market like ours, where median household incomes are around $55,000. But this time, it’s different. Because our market fell so far in 2007, the appreciation in housing is actually market recapture. Prices are close to where they were when things were booming…with the added benefit that our local economy is much more stable and diversified than a decade ago.
Tesla’s Gigafactory has put Northern Nevada on the map not just nationally, but globally…and the greater Reno/Sparks area has also become a serious data center player for the likes of Apple, Google and Switch. Advanced manufacturing, logistics and healthcare growth further diversify our area away from just gaming and tourism. In short, it’s not just job growth, but quality job growth, that’s shifting the demographics in our area. And creating higher demand for housing.
Affordable Housing Shortage: It hasn’t taken long for this increased demand to gobble up what was left of our market’s affordable inventory. Many homebuilders who took it on the chin during the recession were slow to crank things up again, resulting in near-zero housing construction. Add a construction labor shortage, rising labor costs and permitting hurdles (example: many existing water lines don’t have the capacity to support additional fire hydrants) continue to serve as bottlenecks for new development – especially those aimed at providing more affordable options (the projects no longer pencil out financially).
All of this has pushed housing prices higher – Supply/Demand 101. An increase in housing starts in 2018 will help ease pricing pressures going forward, but supply of affordable homes will still fall far short of demand for the next several years, particularly in the sub-$300K range (in November, fewer than 100 homes in Reno/Sparks were priced below $300,000). Expect to see more suburban sprawl in our area as Millennials and other first-time homebuyers look to purchase homes further from the urban core, where land costs are lower.
All-Time High Rents: Reno’s tight residential housing market has translated into a record-low 1.17 percent vacancy for apartments in the area…and record-high rental rates. According to real estate consulting firm Johnson Perkins Griffin, the average rent in our area rose by $83 (nearly 7.5 percent) in Q2 of 2017 – one of the largest jumps they’ve ever seen.
Just how tight is Reno’s apartment market? Supply is so constrained that Gigafactory employees resorted to renting dorm rooms on the University of Nevada campus for the summer. The spike in rental rates (over $1,700/month on average in Reno in November) creates more demand for affordable housing.
California Exodus: Nevada (particularly Northern Nevada) is proving to be a desirable alternative to the high cost of living and high taxes in California – adding even more fuel to Reno’s hyper-competitive housing market. Out-of-state buyers with relocation on their minds and lots of equity in the bank are using large down payments or all-cash deals to muscle their way into the market, keeping the temperature of median prices set on boil.
Higher Interest Rates: The robust growth in the U.S. economy in 2017 is expected to carry over this year, which will lead the Fed to unwind their quantitative easing policies of the past and begin raising interest rates in earnest. I would not be surprised to see 30-year fixed rates between 4.5 percent and 5 percent by year’s end…serving as additional incentive to get first-time home buyers off the fence. It should be noted, the media may have a frenzy with the inching up of rates, but a rate of 5 percent is still incredibly low.
The Wealth Effect: Taken a peek at your IRA or 401(k) lately? All-time highs in the stock market are boosting everybody’s net worth, and wages are finally starting to rise after 8 years of stagnation. Result? Higher consumer confidence. Coupled with the tax reform savings many middle-income families in Nevada will enjoy in 2018, the incentives to pull the trigger on large transactions like home purchases is as high as it’s been in a decade.
How will all of this affect your business as a real estate agent over the coming year?
The number of REALTORS in our area is expected to rise in 2018. No big surprise there. Coupled with tight housing inventory, you’d assume the prospects for a robust year are sketchy. And you’d be wrong. Truth is, there’s plenty of inventory for agents who understand their job is to FIND and CREATE inventory. Creating your own opportunities as a real estate agent is key. Those waiting for the phone to ring will perish. Those who remain proactive will prosper.
The wealth effect mentioned earlier will start bringing more Millennials and first-time buyers into the market. More and more renters will see the wisdom in home ownership. And the influx of homebuyers from markets with higher living costs won’t abate anytime soon. Lead generation and referrals shouldn’t be a problem for motivated agents.
The rise in interest rates is also good for your business. Now’s the time for home owners who’re looking to move up, move on or downsize to take action. By historical standards, mortgage rates are still outstanding (30-year fixed rates were 6.4 percent a decade ago and 8 percent in 2001). Now’s the time to pound the pavement and GET PEOPLE MOVING so they take advantage of lower interest rates that can mean $200-$300/month in savings, versus higher rates at year’s end.
Having the best resources at your disposal for making this happen also helps. Which is why it pays to be a RE/MAX Realty Affiliates agent. Contact me if you’re interested in learning more about the many ways RRA can help you capitalize on opportunities in today’s market.