The state of the housing market for 2017
In the Truckee Meadows, 2016 was a seller's market. In Washoe County, existing single-family homes increased 4 percent from 2015 and the median home price was $304,990; an increase of 9 percent from the previous year.
Looking ahead into 2017, the overall message from the The Reno/Sparks Association of REALTORS® is that the market is healthy, and the seller's market trend looks to carry into 2017. But that doesn't mean we're going into 2017 without any concerns.
"There are two big challenges," John Graham, 2017 president of The Reno/Sparks Association of REALTORS®, said. "Lack of inventory and affordability."
The current inventory is about three months... half of what is considered balanced.
"We're short on inventory which creates challenges in terms of finding places to live," Graham said. "We currently have a little over 1000 properties for sale."
Stagnant construction was a contributing factor to the problem of low inventory. But even as builders start to construct new homes, Graham says it's not enough.
"Builders are starting to build," he said. "They're starting to build a lot, but they're building an awful lot of the same stuff that they'e built in the past."
Meaning they are building homes in the $400,000 and up price range.
"That's a price point they can build at and make money at so that's what they are interested in.," Graham said.
But those aren't the homes we need.
"We have an awful lot of entry-level demand in the $225,000 to $250,000 range and nobody is building that product," Graham said.
In December 2016, the median home price was just under $300,000; a 4-percent increase from last year and a 3 percent decrease from November 2016. Experts say looking ahead into 2017, they expect home prices to hold steady. But at the current price point, affordability becomes an issue for entry-level home buyers.
"There's definitely pressure on the entry level end of the market," Graham said. "Both from a sales perspective and the rental perspective. An average two-bedroom apartment in Reno-Sparks is about a thousand dollars a month. That's a lot of money. I think we've got to find a way to get more affordable housing. That's going to take some partnerships between state, city, county, builders, lenders, everybody coming together and trying to figure out a way that we can do this."
Another concern is stagnant wages. According to the U.S. Bureau of Labor Statistics, the median hourly wage in Nevada was $16.20 as of May 2015.
"Wages are behind, there's no doubt about it," Graham said. "Especially if we look at our service industry workforce. Their wages have been pretty stagnant for the past few years and they're more or less being priced out of the market."
Though home prices are expected to hold in 2017, interest rates will likely increase. The Federal Reserve raised interest rates by 0.25% in December 2016 and it's likely they will raise interest rates at lease three more times in 2017.
"We really expect interest rates to go up in 2017," Graham said. "We predict probably ending 2017 in the 5 to 5.5% interest range."
Interest rates on 30-year fixed-rate mortgages did decline for a third straight week to their lowest levels since early December, according to a new report from Freddie Mac released this week. The borrowing cost on 30-year mortgages averaged 4.09 percent in the week ended January 19.
Graham says for most buyers, that rate won't make a significant difference.
"One of the things we've seen historically in the past is when interest rates go up home prices will tend to off set a little bit to balance that impact out and come down a little bit,"
For other buyers on the cusp of being able to qualify for a loan, 5% interest rates may just put them out of reach of buying a home. But Graham says they expect the rise in interest rates to happen slowly, and there's optimism heading into 2017. Graham says most homeowners have recovered most of the equity in their homes they lost in the crash, and the consensus is there are no signs of another bubble.
"We see no sign of the bubble at all," he said. "All of the things we would look at- pending sales, median price, inventory levels, appreciation things like that- nothing is out of line. So we think we're going to stay at a nice comfortable 2.5% growth."