Reno Real Estate: Where am I?

Who is John:  John D. Roussel is owner of ProStar Home Loans with eleven years of mortgage experience in single family lending in Northern Nevada.  He is a member of the Mortgage Bankers and Builder's Association of Northern Nevada.

About this post: John briefly tells us about refinancing issues he is experiencing with many of his clients.  Then John and I engage in a dialogue about the current state of the Reno real estate market.

Note: This 3-part article is not meant to encompass all the details regarding the topics mentioned.  Our hope is that through John's experiences we can all learn something new and hopefully aid us in our decision-making.

What's the most recurring question people ask you about loans?

They want to understand the re-financing option because property values have decreased significantly .

It is very important to understand what different loan programs you fit into.  There's just a lot of mis-education out there right now about what's available for the consumer whether you're buying or refinancing a home. The mis-education happens because information comes in so fast that it's taking twenty of us every day to keep up with the updates in the lending rules & regulations.  Education is where it's really lacking.

What have been the issues with refinancing?

A lot of people realize that they owe $320,000 and the house is worth $300,000.  And now they have adjustable rate mortgage that's going to adjust and people may think that there is no hope for that and so a lot people are throwing up their hands and walking away from their homes.

"There's also FHA secure, which as long as you do a 97.75% first loan here in Washoe County you can have an unlimited Loan to Value on a secondary mortgage."

There are so many other options aside from walking away from the house, which a lot of people don't want to do, but they're not being educated as to their choices that they have.  There's loan modification, where somebody negotiates on your behalf in order to take your adjustable rate  and make it to a longer term fixed rate.

There's also FHA secure, which as long as you do a 97.75% first loan here in Washoe County you can have an unlimited Loan to Value on a secondary mortgage.

So even though you're upside down they still have the opportunity to refinance your house to a long term fixed rate product.

What's your two cents on the present real estate market in Reno?

Historically, it has never been a better time to buy.

We're at the bottom of the trough.  A house that you're buying for $250,000 today, a year and a half ago would have cost you $350,000.

And with the Federal Reserve during their next meeting announcing a probable .5% discount rate cut (which they did), it looks like the rates on the long term fix are going to push towards 5%.

So if you look historically on the most ideal time to buy in the Reno-Sparks area, the answer is now or within the next two to three months.  People who were sitting on the fence should not be sitting on the fence anymore.

I can almost hear some of my readers saying, " ok Ian/John how is it a good time to buy when my friend moved in to her new home, and after two months the builders slash their prices by $25,000, how can that be a good time to buy now? Wouldn't it be wiser for me to just wait for the bottom of the market and then buy?"

A lot of people put too much emotion in the home buying process.  And it's a very emotional decision.  However, if you look at the data empirically, over a ten years span, real estate has not gone down in value, period.  Now, this is a history of the United States, including the Great Depression.

So if you're asking me why is it a good time to buy now, a better question is why aren't you investing? Because it is an investment.  You're investing in something that is going to go up in a long period of time.  So as long as you don't do anything that forces your hand in order to move you out of that house; example by taking adjustable rate mortgages or some type,or Heaven forbid, a negative amortization,which is the worst product in the planet.

If you take a long term fixed and you can afford the payment you are not going to lose money ever.  So what if you can get that house for $10,000 less.  What if that same house goes up by $10,000 the next month because we've hit the bottom of the trough and you're back up to appreciation.  Are you going to be kicking yourself?

I see your point John, but people are thinking, "Why don't I wait for another year? For the past two years the builders have been dropping their prices every quarter.  Why don't I just wait for another year or two and get a bigger discount? And by that time my feet will be firmly panted on the ground, rather than sinking $10,000 until who knows when"

Well, how much have they gone down this quarter?

You mentioned 1.6% 

We are towards the bottom end of the trough.  They are going to go up.  Period.  If you just look at the OFHEO index (Office of Federal Housing Enterprise) and you graph it, and I have graphed it over the last five-year period.   We are on the very bottom of that bell curve.

"Now, if you'd ask me six months ago if you should buy a house, I'd say 'yeah,wait' but our drop in property values right  is down to single digits."

So where is it going to stop? It's pretty darn soon actually.  It's probably going to end within the next couple of months.  If you just look at numbers.

So when is the best time to buy? Now.  Before it starts going back up.  Five percent appreciation does not seem like much.  But if you look at it that means a $300,000 investment is going to cost you $15,000 more the next year.  So next year it's going to cost you $315,000.

And it's compounded because now it's five percent of $315,000.  So when is the best time to get in? Again, We're near the bottom of that trough right now.

Now, If you'd ask me six months ago if you should buy a house, I'd say 'yeah,wait' but our drop in property values right  is down to single digits.

But isn't it too early to call the market bottom basing it from last quarter's single digit  decrease when multiple quarters before that have been going down?

Not if you graph it over time. Real estate, it always cycles.  It's beautiful and you can count on it.   It's very very easy to make money in real estate.  You can just look at the empirical data and how everything cycles.

We're at the bottom end of the mortgage market meltdown.  There are obviously dropping the rates through the floor in order to stimulate the home buying market.

Here's another way to look at it. Let's say you can get the house for $10,000 less.

However, because the rates are going to hit bottom about five percent on the long term loans.  Then the rates will start to go up, and rates react much more quickly than do home prices.  Obviously, banks have their finger on the pulse with Wall Street.  And they raise rates much quickly than they drop them.

So if we hit that five percent level, and you can save $10,000 by waiting another quarter but the rates go up from 5% to  5.75% you've actually lost money.  If it's only a $10,000 decrease and your rates go up .75% you will lose money within two and a half years.

That doesn't make any sense.  Rates are historically low right now, it's one of the best time to get in the market here in Reno-Sparks.  And I'm not just saying that because I'm in the mortgage business.  You can look up the numbers and if anybody wants to know more you can send me an email and I will give you the websites where I  pull out the numbers, this is empirical data.

And again, if you would've asked me six months ago, "should I buy a home?" My answer would be, "Wait".