It’s been quite a roller coaster ride the past 3 years for the Incline Village real estate market. After the market seized up briefly in early 2020, sales exploded to the highest level since the real estate boom 15 years earlier. The panic buying of 2020 and early 2021 eventually came to an end. As people got used to living in pandemic times sales returned to a more normal level during the 2nd half of 2021.
But all of that changed during the past year. It was remarkable to see total unit sales of houses, freestanding condos and condos decline precipitously in 2022. The chart below shows the historical sales for the past 5 years. You can see that sales had started to slow down in 2019 only to rocket once the pandemic hit. The last time we saw sales drop in excess of 40% year-to-year was when the real estate markets collapsed across America at the start of the Great Recession.
There are a few different factors that contributed to the dramatic drop in sales last year. For starters, the panic buying that started in the spring of 2020 receded since almost everyone who wanted to leave big cities for the hinterlands had already done so. Secondly, the dramatic rise in mortgage interest rates caused buyers who were considering purchasing a vacation home with a mortgage to remain on the sidelines. Economic uncertainty about a possible recession also kept many buyers in a holding pattern. And last but not least the widespread notion that real estate prices had peaked and would be coming down caused many buyers to defer purchase decisions.
Looking in the rearview mirror we see that prices for the latest Incline Village real estate cycle most likely peaked in March 2022. That was when we saw 3 of the 2-bedroom condos in McCloud sell for record high prices of $1,150,000. Since that time, prices for McCloud condos have retreated between 10% and 20%. We anticipate this price decline will continue before stabilizing sometime in the next 12 to 24 months.
Overall condo sales in 2022 for Incline Village and Crystal Bay were relatively good during the first 3 months of the year before rolling off significantly. The McCloud and Mountain Shadows complexes led the way with 11 units in each development changing hands to new owners. Third Creek and Forest Pines were next in line with 8 units sold followed by Bitterbrush and Forest Pines each having 7 closed escrows. One sale in particular that stands out is #64 Third Creek selling for nearly $3 million. This is far beyond anything we have seen in the past and is not likely to be approached any time in the near future.
After gobbling up single-family houses and freestanding condos with abandon during 2020 and 2021, buyers became much more cautious in 2022. There was only one Lakefront sale at a price of $11.4 million in contrast to the previous year when 5 parcels changed hands and the top price was $47.5 million. Historically, wealthy Lakefront buyers are the 1st to pull back when there is anticipation of an economic slowdown. Lakefront property purchases are almost always discretionary. So, when the most affluent among us see dark clouds on the economic horizon they generally tend to be cautious in their approach to purchasing real estate and other big-ticket items.
Inventory levels are still quite low by historical standards. However, that could change rather quickly in the spring especially if Mother Nature continues to pound the Sierras with copious quantities of snow. In previous real estate cycles large numbers of newcomers have decided that doing large amounts of snow removal on a regular basis is not for them. It takes particularly hardy individuals to want to make the Lake Tahoe basin their primary residence 12 months of the year. In just a few months we anticipate a significant number of people who purchased during the pandemic will put their properties up for sale.
Since real estate prices rose dramatically since early 2020, almost everyone who bought a property in 2020 or 2021 is ahead of the game. It’s a lot easier to sell and bailout of Tahoe when you are staring at a nice profit unlike during the Great Recession when many property owners were looking at significant losses. We won’t be having a big problem with foreclosures or short sales in our local market. But we do anticipate price pressures to be downward until such time as the economic uncertainty on the horizon is lifted.