RENO, Nev. — As the year came to an end, I thought it would be a good time to look back on how the real estate market performed in 2018.
The Reno/Sparks real estate market, like the rest of the country, cooled and did not keep pace with 2017. It was a pivotal year with a shift in the market. It’s important to look back and remember that 2017 was a record year for unit sales for the year.
The year is not yet closed on reported units sold, but we will not reach the 2017 high-water mark in units of 6,825. Year-to-date sales are down 13 percent compared to same period 2017. The decline in unit sales can be attributed to a number of things I will talk about.
SLOW DOWN IN MEDIAN HOME PRICES
As the unit sales have cooled, so has the median sales price. Although median price continued to increase in 2018, that trend has slowed.
Chart A shows that the 13-month median price trend from November 2017 to November 2018 increased 7 percent over the period. In comparison, Chart B shows the increase in median price over the 13-month period November 2016 to November 2017 was up 14 percent – a clear slowdown in median price.
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The slowdown in the increase in median price can be attributed to several things, but one of them is the increase in mortgage lending rates. It’s all about the monthly mortgage payment and what consumers can afford to pay.
RISING INTEREST RATES
Lending rates have an impact on affordability and can price home buyers out of the market. The Fannie Mae 30-year fixed rate mortgage was 3.5 in December 2017 and rose to 4.5 in December 2018.
For a 30-year fixed mortgage of $350,000, an increase in the interest rate of 1 percent equates to an increase of $200 in the monthly payment (principal and interest).
The increase in interest rates compounded the increase in median price of 6 percent. This has priced some potential buyers out of the market.
LACK OF INVENTORY AND LACK OF AFFORDABLE INVENTORY
We’ve talked for years about the lack of inventory. The story hasn’t changed. Although the month’s supply of inventory increased this year, from 1 month supply of inventory in January 2018 to 3 months supply of inventory in November 2018, it still remains a seller’s market.
The Reno/Sparks market has been a seller’s market for the past six years.
If we look at the available months supply of inventory by price range, you can see how those looking for an affordable option have little to choose from.
For buyers looking in the $200,000 – $299,000 price range, there is 2.3 month’s supply of inventory which in November 2018, equated to 164 units available in the Reno/Sparks market.
WHAT LIES AHEAD
The local economy remains strong, with good job and wage growth. I anticipate that 2019 will be a repeat of 2018.
Unit sales will remain consistent but will not break any records. Median price will continue to increase, but at a more modest pace due to low inventory levels in the affordable price range.
Sellers will be counseled by their Realtors to price their home realistically, particularly in price ranges over $750,000. Buyers in the under $400,000 price range should be working with a Realtor that can help them navigate this tight end of the market.
Doug McIntyre is president of the Reno/Sparks Association of Realtors. Go to http://www.rsar.net to learn more.