Is Washoe County at Risk of a Price Drop in the Next 12 Months?
A housing bubble requires both a rush of speculators entering into the market and “overvalued” home prices. According to Moody’s Analytics chief economist Mark Zandi, the pandemic housing boom, unlike the housing bubble that burst in 2008, is not underpinned by a frenzy of speculation. While home flipping has increased during the pandemic, he says, it is not happening with the same exuberance as the previous housing bubble.
Presently, Zandi would not call the pandemic housing boom a bubble, his research finds that America is once again a historically “overvalued” housing market. Moody’s Analytics analyzed whether fundamentals, including local income levels, could support local home prices and found that at the end of the first quarter of 2022 national house prices were “overvalued” by 24.7%. That’s an increase from the fourth quarter of 2021, when national house prices were “overvalued” by 20.9%
Does this mean that home prices are about to drop by 24%? No. It means that home prices are, historically speaking, priced very high relative to local household incomes. When home prices are very high relative to local household incomes, it is harder for home price growth to push upwards.
If a recession materializes over the next 24 months, then Zandi predicts national homes prices in significantly “overvalued” housing markets could be slashed by 15% to 20%. Among the 413 regional housing markets measured by Moody’s Analytics, 96% were deemed “overvalued.” 183 regional markets were “overvalued” by more than 25% in the fourth quarter of 2021. According to this data Washoe County is overvalued by 39.1%
Since Washoe County is “overvalued” by 39.1%, will home prices drop by the same percent? No. Does it mean that home prices in Washoe County are guaranteed to fall? No.
To determine the likelihood of regional home prices dropping, CoreLogic assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels. Then CoreLogic put regional housing markets into one of five categories, grouped by the likelihood that home prices in that regional market will fall over the next 12 months. Here are the groupings the real estate research firm used for the June analysis:
- Very high: Over 70% chance of a price dip
- High: 50–70% chance
- Medium: 40–50% chance
- Low: 20–40% chance
- Very Low: 0–20% chance
According to this analysis, Washoe County has a 0-20% chance of home prices decreasing over the next 12 months.
Local real estate data further buttresses CoreLogic’s analysis. According to the Reno/Sparks Association of Realtors, Reno/Sparks saw 517 sales of existing single-family houses in May 2022, an increase of 4.4% from April 2022 and a decline of 5% from May 2021, according to their monthly report. In May 2022, the median sales price for an existing single-family home in Reno/Sparks was $615,000, an increase of 3.4% from the previous month and a rise of 23% from the previous year.
The good news is that simply being “overvalued” does not guarantee a price correction. With low-inventory and California’s high taxes, stifling regulations, and incredibly high cost of living driving many residents from the state and into Nevada, the likelihood that Washoe County will experience a price drop in the next 12 months is relatively low.
Lance Lambert, “The Housing Market Just Slid Into A Full Blown Correction, Says Top Economist Mark Zandi,” Fortune, May 27, 2022, https://fortune.com/2022/05/27/housing-market-correction-peak-mark-zandi-moodys-home-prices-outlook/
Lance Lambert, “Housing Markets Labeled ‘High’ Risk Of A Home Price Drop Just Spiked 73%—Find Your Local Market Using This Interactive Map,” June 23, 2022, https://fortune.com/2022/06/23/housing-markets-labeled-high-risk-of-a-home-price-drop-just-spiked-housing-chart/
Lance Lambert, “A Closer Look At The 40 Housing Markets At Risk Of A 15% To 20% Home Price Decline,” June 30, 2022, https://fortune.com/2022/06/30/housing-markets-at-risk-of-a-15-to-20-home-price-decline-closer-look/?queryly=related_article