As the repercussions of escalating interest rates seep into the real estate industry, the residential market in Reno-Sparks has been significantly affected, resulting in a substantial drop in median home prices. In fact, this decrease has driven the median home price to its lowest level in approximately 18 months.
Data from the Reno/Sparks Association of Realtors indicates that the area concluded the year 2022 with a median price of $519,950 in December, reflecting a nearly 5% decrease relative to the preceding month. This is the lowest median home price recorded in the area since May 2021 when the median home sale price in Reno-Sparks was set at $502,000.
A Sudden Market Reversal: From Record Highs to Current Lows
This downward trend represents a drastic shift from the scenario just a year ago, where the Reno-Sparks region was establishing new record highs in terms of median home prices. However, with the Federal Reserve initiating a series of federal funds rate hikes starting last March, in a bid to quell rampant inflation, the national residential real estate market cooled down, putting an end to Reno-Sparks’ hot streak. After reaching an all-time high of $615,000 last May, the combined Reno-Sparks median home price experienced a decrease for three consecutive months, despite a brief rally in October and November. Unfortunately, the median home sale price experienced another dip in December.
A Closer Look at Reno and Sparks
On a more granular level, Reno saw its median home price for December plummet by 6% from the previous month, hitting $533,532. This value represents the lowest median price witnessed in Reno since the median home price of $505,000 was reported in April 2021.
Similarly, Sparks experienced a decrease in its median home price by 3% to $495,000. This marks the first occasion where the median home sale price in Sparks dipped below the $500,000 threshold since a little over a year ago in October 2021.
Normalization or Downward Trend? Interpreting the Changes
The Reno/Sparks Association of Realtors has defined these changing trends as a market “normalization”, following an extended period of rapidly increasing home values. The peak last year, for instance, was more than twice the median home price of $304,000 recorded in Reno-Sparks in January 2017.
According to RSAR President Sara Sharkey, the transition towards a more stable market environment has created a more favorable landscape for homeownership for many families. She states, “Our return to normal market conditions is opening the door to homeownership for many families.”
The Dilemma: Falling Home Prices vs. Rising Mortgage Costs
The pressing question that arises, however, is whether the decrease in median home prices sufficiently compensates for the increased mortgage costs driven by higher interest rates. A year ago, the average for a 30-year, fixed-rate mortgage was a mere 2.65%, as per the Federal Reserve Economic Data database. Fast forward to the present, the average rate has soared to 6.48%, even peaking at 7.08% in October and November. The consequence is a surge in average mortgage payments for Reno-Sparks residents.
The Silver Lining: Reno’s Comparative Performance and a Buyer’s Market
Despite these conditions, there’s a silver lining for Reno as it has outperformed most other metropolitan areas in the U.S., where monthly mortgage payments have skyrocketed by an average of 66% due to heightened interest rates. The Miami-Fort Lauderdale-Pompano Beach area, for instance, has witnessed monthly mortgage payments spike by nearly 84%.
Furthermore, the shift in the market dynamics has meant that potential buyers who can afford a mortgage now have a wider range of options to choose from. Despite the fact that Reno-Sparks still remains predominantly a seller’s market based on the pace of sales, more homes are becoming available for sale. Active inventory for December, traditionally a slow month for home sales, was registered at 835 units.
This figure indicates a substantial 135% increase from December 2021, when only 355 units were available. Incentives that provide a temporary reduction in interest rates for a fixed period are also gaining traction in the market, offering some respite to potential homebuyers.
