Whenever real estate prices began to rise significantly, people ask the inevitable question, are we in another bubble? They know that when the bubble bursts, and it always does, somebody gets left holding the proverbial bag. Like musical chairs, one kid is standing when the music stops. Yet, this is real life. Losing your wealth is a serious possibility.
So, go ahead and ask the question, “is the Reno, Nevada, area in a housing bubble?” According to most indicators, the answer is no. Despite some serious challenges, the future continues to look bright for real estate investors and homeowners.
High Median Home Prices
Prices have risen greatly, according to market analysts at Realtor. Rapidly rising median home prices is the first sign of a possible bubble. However, the high valuation of Reno real estate must be taken with a caveat.
The Reno area experienced record depreciation in real estate during the economic difficulties of 2008 to 2012. So, in reality, the current housing prices are right where things would have been had there been a steady, natural growth from 2008 to the present. Reno witnessed a median home price of 1 percent growth per quarter, when discounting the losses of the last recession period. Actually, things look quite healthy when seen from this perspective.
Few Housing Speculators
Furthermore, house flippers are in rare number these days. The easy credit that banks issued before the last recession helped drive down the value of Reno real estate. Speculators took out mortgages with the intent of selling the properties in a short period of time. Many never even set foot in town.
Well, today, with regulators forcing financial institutions to tow the line and uncertainty in the global economy, lenders are quite tight-fisted. The last 18 months, in particular, have proven difficult for those in need of mortgage loans. This hard credit environment keeps out the house flippers, who are largely responsible for real estate bubbles.
Price to Income Ratio
Now, analysts admit that the median home price to income ratio is a source of some legitimate concern. Nevada wages have not kept pace with home prices to any degree. Traditionally, when this happens, houses go unsold. Nevertheless, Reno is a bit of an outlier. Since 2012, over 100 major employers have relocated to the metro area, boosting the employment rate. Some of these companies, including Tesla and Switch, plan to hire large numbers of workers in the near future. Thus, residents have steady work and the ability to buy a home. In sum, Reno is a community with a healthy economy and hardworking residents.
No Overbuilding
Brian Bonnenfant, an analyst at the University of Nevada, Reno, Center for Regional Studies, recently calculated the new home formation rate. Experts believe a community has a healthy home formation rate when there is one more household started for every property built. Bonnenfant found that in 2015, Washoe County had 1,318, households formed; meanwhile, there were 1,475, homes built. This reliable source proves Reno is well within the healthy real estate market category. There has been no overbuilding.
Good All Around
Perhaps best of all for home buyers, a recent Gallup poll found that most Americans still consider home ownership the number one way to create wealth. Almost everybody wants to own a home. The value of real estate rises when the demand is high. So, for the time being, Reno real estate investors can expect to sustain a profit from their real estate purchases.
Jodi Bakst
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- Go Ahead And Buy Because Numbers Indicate No Reno Housing Bubble - September 22, 2016
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