The financial recession of 2008 created an environment whereby few affordable homes were built in the last eight years. Two things happened: 1) record number of foreclosure resulted in either homes being taken off the market or converted into rentals 2) few affordable housing became available to support the growing population. As a result, starter homes and rental housing have become more expensive, and in some areas, has forced residents out.
The current state of housing markets across the country may have first-time homebuyers wondering if the concept of a starter home is the stuff of legends, or if someone, somewhere is getting a great deal on their first house.
With low housing inventory and new construction focused on luxury condominium and apartment buildings, homes that would have once been considered entry level – those on the lower end of the price range, typically most affordable for buyers entering the market for the first time – may now exceed starter home prices.
While high demand is driving home prices out of budget for many first-time homebuyers, it’s not the only factor leading to an apparent lack of entry-level housing. In many cases there are homes available, but they are maybe a little too “starter” than most homebuyers today are willing to accept. “Buyers today, as much as they say, ‘I want a starter home,’ they want the second one up,” says Gina Giampietro, a Realtor for Re/Max Select Realty area.
Traditionally, a starter home requires some elbow grease to make it a comfortable place to call home, and homeowners stay for just a few years while they build their savings to buy a larger home to live in for longer. Homeowners feel an entry-level home is now out of reach.
In 2015, Nevada squeezed its way back up to having the fastest-growing private sector in the country, with 4.5 percent job growth, according to the Nevada Department of Employment, Training and Rehabilitation, And while that growth bodes well for unemployment numbers, it also decreases inventory, raises housing prices and cost of living, making it more expensive.
While the quantity of new jobs doesn't compete with larger states, such as California, the growth rate is almost twice the national average. Nevada is expecting about 40,000 new jobs per year, while Northern Nevada is expecting close to 10,000 per year, according to the Economic Development Authority of Western Nevada projections. This means, the region needs at least 5,000 new homes per year.
With all of these new people moving to the area, Northern Nevada's housing inventory is far below demand. A healthy market has six months' worth of houses to supply buyers. Northern Nevada has slightly less than three months available, meaning that if builders cannot keep up with demand, Reno-Sparks will continue to see rising housing prices as demand increases faster than supply. Property values have been increasing at the rate of more than 5% (according to Zillow) per year for the last five years
William Process, the president of Reno-Sparks Association of Realtors, has told builders to start buying land and building to keep up with the sudden growth caused by Tesla and other big-name businesses.
An "affordable" home in Northern Nevada is based on the region's median household income of about $44,000 per year. That places an affordable home at $225,000.
The majority of available homes cost $285,000 or more (sometimes much, much more). According to Homeadvisor.com, homeowners report the average cost to build a new house comes in at $288,010, which would put a 2,000 square foot home costing about $144 per square foot excluding land. This will obviously increase greatly with all the costly variables (fixtures and finished) involved. In 2011, Reno-Sparks had about 2,600 affordable homes and today there are 200, most of which are in Lemmon Valley and Spanish Springs.
Similarly, median rental prices are at an all-time high of $946 per month, according to real estate website Zillow. A similar lack of multi-family inventory and land is causing a rental crisis in the region and raising prices, according to the Nevada Housing Division, Reno Housing Authority, U.S. Department of Housing and Urban Development.
Rents are also expected to increase this year despite new developments, according to Chris Fairchild, vice president of real estate company Colliers International.
"It's becoming a real chronic problem," economist Elliot Eisenberg said. Eisenberg is the president and chief economist at the national consulting firm GraphsandLaughs. He specializes in national housing economics. Eisenberg said, "The need for affordable housing is staggering."
As a result of low inventory, "The (economic problem) is not induced by people who can't afford buying houses," Eisenberg said. "It's people paying too much and raising the prices of other houses." This is especially true in Midtown Reno where houses will often receive multiple cash offers $20,000 above asking price within 24 hours.
Over the next five years, housing prices are expected to increase another 6 percent in Nevada, according to a Dec. 2015 report by CoreLogic, a financial services and real estate consulting firm. Similar percentages are also expected all over the country. A sudden increase of housing units, both single or multi-family would also change the supply in the region and affect price growth, but they are not declining.
Eisenberg said he would also like to see more creative land use help drive prices back down, such as smaller single-family houses with small yards, townhouses or even houses made of shipping containers to name a few. Anything to increase supply for first-time home buyers and drop prices.
The market demands low cost housing solutions. We need to think outside the box.