While the national real estate market is seeing a significant slow down, it’s important to remember that deceleration does not always mean depreciation, especially in Lake Tahoe and other highly sought-after resort towns. More than ever, the move toward lifestyle investment has become a top priority for homeowners. While nationwide, transactions and dollar volume dropped, most property values in the Lake Tahoe Basin have held steady. Many indicators would suggest we are still in a “Seller’s Market,” with historically low inventory and pent-up buyer demand.
Quick snapshot of last month’s market activity in our neck of the woods:
On the other side of the coin, interest rates have jumped to 20 year highs to combat inflation, which has spooked many buyers. This is when working with an experienced real estate broker is crucial to both finding your dream home, and determining how to finance it. Since so many of our clients come from the San Francisco Bay Area, we make it a point to track the activity of that region as well to familiarize ourselves with the economic background that can affect our sales cycle in Lake Tahoe. For a comprehensive review of Bay Area housing market cycles, take a look at this hot-off-the-press flipbook published by Patrick Carlisle:
Click to read ‘SF Bay Area Home Price Appreciation & Market Cycles since 1990‘.
Will History Repeat Itself?
After an historic record-breaking run in 2021-2022, the real estate market has approached an inevitable slow down. Doomsday headlines dredge up fears that history will repeat itself, leading to a post-pandemic version of the 2008 recession. So far, that is not the case, and there are no strong indicators that it will be. Buyers are taking some power back, and sellers are having to concede on pricing, but successful deals continue to come together.
Four key differences in today’s market
Inventory. Current supply is well below where it was in 2008 so inventory will remain in demand. New housing starts were nearly double in 2008 and construction was booming. While new construction has been on fire in 2021 and 2022, it has not been able to catch up to the current demand and so the market is not saturated like it was in 2008. According to research, there is a nearly 6 million home deficit, which will take a huge effort and several years to break even.
Lending Standards. Mortgage standards and requirements are significantly more rigorous today and this has created a strong, credit-worthy homeowner versus the extremely risky and careless lending practices leading up to 2008.
Qualified Buyers. In 2008, there were many buyers who overextended themselves and their lenders were happy to oblige. Today, over 50% of homeowners have more than $250,000 in equity in their home and over 30% own their home outright.
Long Term Investment. Stock market volatility should drive investors into safer investments. Real estate is a great place to put money when the stock market is jumping around. Home equity grew to over $10 trillion since 2021, so there is a lot of excess value and cash available to continue to invest in real estate and other less volatile investments.
Six Reasons to Invest in Real Estate for Long-Term Growth
When considering future market shifts, it’s important to also look at broader national market trends and indicators. Taking a long-term view, here are six reasons why buyers can remain confident that Lake Tahoe real estate is a wise long-term investment:
- Low Inventory. With housing inventory already at an all time low, builders are lowering production due to increased rates. Competition for existing inventory will increase.
- New Buyers. Over the next few years, one hundred thirty million Millennials and Gen-Z-ers are just entering or have already entered prime household formation age. That’s alot of potential new buyers coming to the market!
- Wealth Transfer. In the next decade, over $10 trillion of wealth will be transferred in the U.S. Much of that will be to the new buyer generations.
- Inflation. Even with inflation at 2%, building new homes keeps getting more expensive.
- More second home buyers. Wealthier Baby-boomers are buying two and three homes. Private equity is buying up homes traditionally bought by individuals.
- Replacement costs. Repairing and replacing existing homes due to extreme weather and an aging housing stock are bound to use up lots of resources for building new homes.