The third quarter of 2019 made clear what various indicators had alluded to throughout the year; that the regional market is in slight decline. While various market segments have continued to thrive, the overall market is showing regression compared the historic highs of the past year.
When viewing the Tahoe – Truckee market as a whole, sales units have suffered to the tune of 9% while median price has held steady. Average price has fallen 10% from the first 3 quarters of 2018 due largely to reduced quantity (resulting from reduced availability) of premiere lakefront and Martis Camp transactions.
A more nuanced look shows significant variance in performance based upon vintage, neighborhood and price category. Primary neighborhoods and depreciated properties under $1,000,000 are performing admirably given relatively scarce supply showing improvements in price per square foot of 5.5% and 4% over the last two years.
In the luxury category (above $1,000,000), a major runup from 2017 to 2018 has moderated with 18% fewer transactions through the first three quarters. More notably, residential sales of $2,000,000 and greater are down 37%. Herein lies the most significant indicator of a changing market.
The first 9 months of 2017 saw 74 residential transactions close above $2,000,000. In 2018, this number spiked to 110 before regressing to 69 year-to-date in 2019. While consumer confidence does not seem to have eroded over this period, the tastes of the buying public have been dramatically altered. Since emerging from recession a decade ago, the luxury buyer has been almost entirely defined by Gen-X families from Northern California feeder markets who bring an overwhelming preference for contemporary design in highly amenitized communities. This explains the incredible trajectory of Martis Camp and the recent explosion of demand at Gray’s Crossing. Dated product, even that built to a premium quality in the years immediately preceding the market’s collapse in 2007 have languished.
More broadly, aside from true Tahoe lakefront property, lakeside properties that were built out in a previous era have faced a greater challenge in competing for the attention of premium buyers attracted to modern architecture and active homeowner amenities.
If the dividing line for contemporary design can be broadly defined at 2010, the trajectory of $2,000,000 real estate can be defined by eras. Thus far in 2019, just 23 homes built prior to 2010 have sold above this threshold. This compares to 35 over the same period in 2017 and 51 in 2018. By contrast, homes constructed in 2011 or more recently increased as a percentage of all $2m closings from 39% in 2017 to 51% in 2018 to 58% this year.
Of the 23 premiere closings of vintage product in 2019, all but 9 have been lakeside product or estate property for which the land represents far greater value than any improvements. Of the remaining properties, five were found in Lahontan on marquee homesites or double lots. The remaining five are distributed through Squaw Valley and Northstar, each on homesites with views that command a $1,000,000 premium.
Changing consumer tastes and subtle distinctions are difficult to for many sellers to accept when overall market conditions appear to be appreciating. 88 homes built before 2010 are currently listed for sale. At current rates of absorption, this equates to 16 months’ supply. This compares with 10 months for the overall market.
Comparisons to the last two years offer a difficult standard as these have generally been considered among the most productive ever for real estate in the Tahoe – Truckee region.
As such, we expect any downturn to be shallow and short lived in comparison to the market collapse a decade ago. Our feeder market continues to thrive driven by technology and finance and Lake Tahoe will forever be deeply engrained in the culture of Northern Californians as the most accessible venue for health, well-being and family.