Home prices plummeted during the Great Recession after a housing bubble fueled by abusive lending practices burst, destabilizing the economy and leading to mass foreclosures.
But the current pandemic-induced recession is bucking that trend — instead, home prices are rising across the country. Now, market experts and affordable housing advocates say high housing costs are putting additional pressure on working Nevadans as their wealthier neighbors profit.
“I know the housing market’s complicated. It also just seems kinda disconnected from reality,” J.D. Klippenstein, State Director of progressive nonprofit Faith in Action, told CapRadio. “The housing market really isn’t designed for everyone.”
Reno’s median home sale price reached $500,000 for the first time ever last December, according to data from the Reno/Sparks Association of Realtors.
The record high comes after years of rising housing costs, which have affected the rental market and home sales as well as contributed to a homelessness crisis in the Biggest Little City. Meanwhile, the escalating property prices stand in sharp contrast to the declining fortunes of many working Nevadans who have lost work — and in many cases, their homes — thanks to the COVID-19 pandemic.
Despite the inflation in home prices, people are still buying. Don Layton, a Senior Industry Fellow at Harvard's Joint Center for Housing Studies and the former CEO of Freddie Mac, said that’s partially thanks to the Federal Reserve, which is responsible for setting interest rates.
“Interest rates are at record lows for mortgages — under 2.7% by the government index,” he told KNPR’s State of Nevada. “So actually the typical monthly payment is well down, despite the home prices being up.”
But Klippenstein says the low interest rates that make home ownership so enticing for people who can afford to buy don’t mean much for middle and low-income families in the region.
“It assumes a certain level of, I think, financial stability,” he said. “It’s great for some people. But we often forget that this wealth is not trickling down by any means to other parts of our community or economy.”
And the rising prices aren’t just restricted to home sales. They also spill over into the rental market, where rising costs and declining vacancy rates have continued in spite of sharp economic decline.
All that translates to even greater pressure on Reno natives who were already struggling to make rent, according to Klippenstein. But he says the rising prices are a feature, not a flaw, of the financial system.
“I think this is absolutely what the housing market is designed to do,” he said. “A hot housing market is good for everyone in the housing market, except home buyers or renters.”
Part of a National Trend
In Northern Nevada, COVID-19 is also driving the price hike.
Brian Bonnenfant, with the Center for Regional Studies at the University of Nevada, Reno, says the region is seeing a wave of new residents: wealthier people whose jobs went fully remote to limit the spread of the virus.
“The pandemic, I think, created this reality check for many people in the west region that they don’t have to be in these big cities,” he said. “They could work from anywhere.”
Those new arrivals — many of whom are coming from California — reflect a national trend that has seen skyrocketing sales of bigger, more expensive houses.
It’s unclear how many people are moving to Nevada because of the pandemic, but in 2019, more than 47,300 people moved to the state from California, according to U.S. Census Bureau estimates.
Bonnenfant says home sellers who benefit from California’s sky-high housing prices are cashing in and moving across the state line, where their money goes a lot further — and drives up prices for other residents of the Reno-Sparks area.
“It’s kind of that perfect storm,” he said.
But Bonnenfant also says the record high prices don’t tell the whole story. For one thing, he believes focusing solely on Reno is cherry-picking.
“The city boundary is a very ambiguous line in the sand that takes in some neighborhoods and leaves out others,” he said.
In the greater Reno-Sparks market, the median home price for December was just under $450,000. And the pace of new housing construction has been accelerating in recent years as demand grows — especially in the multifamily market, which includes apartments, townhouses and condominiums. All that new construction should help stabilize housing prices, Bonnenfant argues.
Layton, with Harvard's Joint Center for Housing Studies, wrote about some of the causes of the unexpected spike in home prices, which he says have risen by around 10% nationally. He said part of the reason for such explosive growth is the slow pace of new housing development since the Great Recession, which gutted the building trades.
“After 2008 it collapsed and it never came back to a normal level, until just about now. Finally, home building is picking up,” he said. “They haven’t made up for all the shortfall years between 2008 and now, but they’re finally producing houses at a level that is more of a normal level.”
Nationally, home sellers currently enjoying record-high prices could become victims of their own success. Layton explained that land-use regulations and zoning rules that favor homeowners by artificially limiting supply are falling out of favor.
“There’s political pressure to relieve a focus on solely single-family homes,” he said. “You can’t accommodate the entire range of buyers with just single-family homes.”
Meanwhile, Klippenstein wants to see the government do more to regulate the housing market and keep people housed.
“If we really want to see a reduction in homelessness,” he said. “We need to make sure that all development includes affordable elements for low-income folks.”
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