Each successive month is yielding new information as to the condition of the Tahoe – Truckee real estate market. While the temperature has come down meaningfully from the froth of the last several years, velocity remains typically strong for the season.
August was the strongest closing month of 2022 for residential closings. In a typical year, this news would elicit a shrug given the seasonal rhythms of a resort market in which summer window shopping coincides with pre-winter purchases culminating in peak sales from August through October.
Given the headwinds in the news regarding rising interest rates, inflation and other challenges that might otherwise compromise demand, it is reassuring to know that interest remains high in making an investment in lifestyle.
In August, 135 residential properties transacted throughout the Tahoe Truckee region. For comparison, this almost exactly matches the historical average for the month and lags 2021 by (only) 25%. That the same period in 2020 transacted 222% more deals is more a commentary on the insanity of that time than any challenges in the current market.
As evidence, the median price of $950,000 over the last 30 days is identical to this period a year ago and 16% higher than in 2020.
For those that have owned for more than a year, we are seeing general stability, particularly in comparison to the last major downturn, based upon:
- Utility: The latest wave of Tahoe purchasers, even pre-dating the pandemic rush, have nearly all purchased with the intent to use the property. Most continue to get high usage, potentially much more than was originally contemplated, based upon the cultural acceptance of remote work. Conversely, in the period before the ’08 crash, purchasers were motivated by appreciation and were rampantly speculating as to future appreciation with very little value placed in the use and enjoyment of the property.
- Distress: For the reasons above as well as general tightening of lending practices, there has been very little over-leveraging (or leveraging at all) by consumers stretching to acquire a property. Most have acquired within their means; it just so happens that their means are considerable. As a result, very few consumers are drowning under the weight of mortgage payments and other carry costs in a way that motivates quick price cutting to find liquidity. Previously, the leverage was so obscene that a relatively small downturn in property values had a considerable number of borrowers upside down motivating many to simply walk away from ownership positions.
- Supply: While we saw a predictable rise in inventory through spring and then leveling through summer, the current supply remains very paltry when viewed against the quantity of homes for sale in the depths of the last recession or relative to absorption. At current levels, we have about 4 months of inventory. Previously, the supply was measured in years as sellers panicked, walked away, or gave the keys back to the lender.
In summary, well-qualified consumers are continuing to enjoy value from the use of homes that they can afford and are therefore not rushing to sell. The normal quantity of homes that are on the market are unlikely to cut pricing dramatically because they are not distressed and have sufficient equity built into their properties to incentivize patience.
This is likely to translate into modest pricing volatility wherein certain communities that have not seen much new inventory continue to appreciate (Northstar Mountainside for example) while those with more ample supply see some pricing erosion as compared to peak values. During this period, the quantity of transactions is likely to suffer as individual buyers and sellers calibrate to a level that creates satisfies expectations of value for all parties.