In the most recent Home Value Forecast from Pro Teck Valuation Services, Reno, Nevada, ranked No. 1 as the hottest housing market in the nation. So just what separates Reno from say, Columbus, Ohio, which ranked No. 25? Foreclosure inventory.
Pro Teck used “Foreclosures as a Percent of Sales” as a tie-breaker for its most recent index, explaining that in a “healthy market” foreclosures make up 3 to 5 percent of sales. “Anything over 10 percent will have a marked effect on price appreciation,” according to Pro Teck.
"Think of foreclosure sales as an anchor that can slow down the recovery of a market," said Tom O'Grady, CEO of Pro Teck. "Because foreclosed properties sell for less, they can impact market sales if they become a large enough part of the housing inventory."
The share of home sales that are foreclosures in Reno is a scant 0.46 percent. In Columbus, the share is a substantially higher 8.97 percent.
Nevada has cleared through much of its foreclosure inventory due to the fact that it is a non-judicial foreclosure state, meaning foreclosures do not have to pass through the courts.
On the other hand, Ohio is a judicial foreclosure state, meaning each foreclosure must pass through a judicial review before becoming final. Judicial foreclosure states have generally taken much longer to clear their heightened foreclosure inventory stemming from the housing crisis.
A look at the difference in the two metros’ home price appreciation corroborates Pro Teck’s assertion that larger shares of foreclosure sales dampen home price appreciation.
Columbus has experienced price appreciation of 8.57 percent over the past year and 41 percent since its low point in 2010.
While Columbus is on the upswing, Reno’s home prices are rising at almost twice the speed over the past year. Reno’s home prices rose 16.13 percent over the past year, and its prices are now 96 percent above their lows reached in 2011.
Pro Teck still considers Columbus a “hot housing market,” and in fact, it has tighter inventory than Reno with 2.33 months remaining inventory compared to Reno’s 3.28 months remaining inventory. Columbus also has shorter active days on market rate at just 30 days compared to Reno’s 51.
Columbus also sold more homes with 3,425 sales in Pro Teck’s most recent report compared to Reno’s 1,108.
“As the impact of foreclosures continues to decrease, we see appreciation speeding up in Columbus,” according to Pro Teck.