When Covid-19 dramatically shut down the economy in March of 2020, Coldwell Banker agent Tom Mills thought “we were going to get our asses kicked” in the Tahoe real estate market.
“Historically, when there has been a major business downturn, people bailed on vacation homes,” said Mills, who has been selling property in the North Tahoe region for more than 30 years. Instead, “within a month, it did a 180-degree pivot and we saw a surge of value that we have never, ever seen before.”
For the following two years the market shot up rapidly, reaching median and average prices that would have seemed like a fantasy just a few years prior — or a nightmare depending on whether you are a buyer or seller. It now appears, however, that the market is finally slowing down. But does that mean homes will drop in price enough for families to be able to find a home that is affordable? Probably not, say the experts.
“Within the last few months, I’m seeing the market changing from a seller’s market,” said Mills. “I can’t demonstrate with stats for sales because if we look back a few months it is not indicative. But multiple offers are no longer the norm. Properties are sitting on the market longer. It used to be ‘no contingencies and quick close;’ Now we are seeing buyers negotiate repairs. We are seeing a correction.”
Some might say it’s about time. It’s quite surprising that it has taken this long for the local real estate market to cool off since all the factors pushing against increasing prices is quite formidable: prices already so high that it is nearly impossible for most families to buy a home in the region; dramatically rising interest rates; two summers in a row of choking smoke and evacuations; a steep rise in fire insurance premiums; high inflation including historically high gas prices (a big impact on all those folks driving from the Bay Area to Tahoe); steep declines in the stock market reducing net worth of many buyers; a volatile political situation; threat of recession and a major war between Russia and Ukraine that is impacting much of the world.
And yet, the experts believe the market will continue climbing, just much less rapidly. A newsletter prepared by Alex Min from Christie’s International several months ago stated: “According to the latest forecast put out by Fannie Mae, between the fourth quarter of 2021 and fourth quarter of 2022, prices are expected to rise 7.9%. Compared to the growth we’ve experienced to date, this would be a definite slowing in market activity. Since 1987, home prices traditionally rise only 4.1% each year.”
While it is easy to think of Tahoe as its own bubble, it turns out prices throughout the state have been going up rapidly the past few years. The California Association of Realtors says the median* sales price of a home in California reached $845,000 in 2021 — more than the average Californian can afford and even less affordable than it used to be with the recent increase in interest rates. And meanwhile, many businesses are leaving the state for two reasons: to find a more business-friendly environment to operate and because their employees can’t find affordable housing in California.
“What we saw in the last three years we have never seen before, that activity and desperation,” said Anna Grahn-Nilsson, Tahoe Sierra Board of Realtors president. “All of a sudden now things are going back to normal.” She said that while there is a drop in sales in 2022 compared to 2020/21, the market is now similar to what it was before Covid in 2019 and 2018. “Maybe a few buyers with interest rates climbing are waiting, but it is not scaring a lot of people.”
To illustrate Grahn-Nilsson’s point, the Tahoe Sierra MLS shows the following sales information for all sales during the first six months of 2022, 2021, and 2018.
2022: 630 properties sold, with a median price of $1,155,500
2021: 877 properties sold, with a median price of $925,000
2018: 670 properties sold, with a median price of $632,000
“We are seeing that the market has become more balanced, the market is leveling due to interest rates,” said John Falk, Government Affairs Director for the Tahoe Sierra Board of Realtors. “Another factor is that a number of Bay Area employers have decided that the remote working model is not working for some people, and are going back to a full-time or hybrid model back in the office.”
But Falk doesn’t anticipate seeing a major drop in prices, and instead sees that the current inventory of homes will remain well “beyond the reach of middle-income families.” he said. “With a large percentage of Tahoe homes being second-home or investment properties there is not a lot of pressure to make prices decline.”
Many second-home owners don’t have to sell. They can wait it out until the market goes up again or rent out their property — although renting may be less viable for those who recently purchased their homes, considering that the price they paid for the home would require charging a rent that is not affordable for most renters.
“For the buyers, it is bad,” Falk said. “It is still too expensive. The supply is outstripped by demand. Unless we up the supply we will never be able to fully house the people we want to house. We are going to need to do things with zoning and regulations to encourage smaller housing structure types. We can’t have working people living here without changing our planning or zoning. We need to find a reliable local source of revenue so we can get people into houses.”