Tiny Shadow Inventory in Incline Village
There seems to be a correlation in 2021 between upticks in the stock market and strong weeks for the Incline Village real estate market and the past week was no exception. With the Dow Jones industrial average closing above the 30,600 mark there is at least a temporary optimism among investors. This translated into 17 properties in Incline Village going into escrow ranging in price from $479,000 for a 1-bedroom unit Burgundy Hill up to $13,900,000 for a luxury home on Debra Lane.
But, while the local real estate economy is thriving, such is not the case in most of the country. With sporadic stay at home orders and evictions and foreclosure moratoriums on residential properties, you must wonder what the actual economic impacts of COVID-19 will be on our market and the national housing market. It makes sense the governments are doing this to help distressed property owners, furloughed tenants or to reduce the flood of inventory making its way onto the books of big banks all at once. The past two years we’ve seen and continue to see historically low interests’ rates and extreme housing affordability issues across the nation. That means should significant economic impacts of the yet to be determined housing crisis hit all at once, the Feds don’t really have the typical resources to stimulate the housing market as the given rates are already so low. As buyers flee the cities and make their way to more rural areas like Lake Tahoe, they are driving up housing prices by 10-20% year over year. If there economic impacts of COVID are severe, it could result in a tidal wave of underwater borrowers and unemployed homeowners unable to meet their mortgage payments in our local, second home, vacation market.
Nobody likes to talk about the shadow inventory, but that is a big component of the nationwide real estate mess. Since there have been so few foreclosures in Incline Village and Crystal Bay the banks are not holding a significant amount of shadow inventory in our community. However, this is a much bigger issue throughout the nation especially in metropolitan areas.
In a nutshell, banks can't just put every mortgage in forbearance in perpetuity and eventually the they will come knocking at the door for their owed monies. Should banks begin to foreclose of borrows who have been in forbearance for almost a year, they can’t put properties on the market as soon as they take possession because they risk creating too much inventory for sale and depressing prices and causing fear in the market place. So, they will need to carefully limit the release of the properties in their inventory. The properties that lenders continue to hold on their books prior to being listed for sale make up what is called the “shadow inventory”. It is likely that the shadow inventory in Nevada will continue to increase as the government continues with eviction moratoriums and a halt on foreclosures.
In Incline Village and Crystal Bay the shadow inventory consists primarily of properties that sellers have pulled off the market when they did not sell for a year or two and put them into the rental pool or it is an owner looking to trade up or trade down but has limited opportunity to do so in today’s marketplace. This additional rental inventory has helped to depress long-term lease rates in our community by approximately 25% during the past two years however, our market has drastically shifted over this time period and these leases will be up in the spring months where they will be adjusted to today’s rates.
Eventually these properties will find their way back onto the MLS as leases expire as sale prices have risen significantly since these were last listed. Most local property owners have the resources and patience to ride out any downturn and will capitalize on the recent jump in sales prices. So, collecting rent to offset expenses no longer makes sense when selling in today’s market has become a profitable option for many real estate investors and long term property owners in Incline Village.