Lower Prices Continue To Drive Home Sales for South Lake Tahoe

Lower prices may be better news for Buyers than for Sellers but there are also signs that the real estate market could be on the verge of turning a corner.  The first quarter statistics seem to support this when compared to last year.  Despite the encouraging signs, there is still trepidation that our market remains vulnerable.  The steady stream of foreclosures and the reduction in the government intervention are some of the major concerns.  However, if the trend continues as it is, then it’s possible that the road to market stabilization is nearing.

The data from the South Tahoe Association of Realtors shows that for Single Family Homes and Condos within the South Lake Tahoe city limits and county area (outside the city limits) for the first quarter of 2011 has some encouraging numbers.  The units sold for the 1^st quarter of this year is 11% higher than 1^st quarter of 2010 which represents approximately 12 more sales.  When you compare the first quarter data for 2010 and 2011, the number of units currently under contract (pending sales) is up by 15.6% which represents approximately 19 more units.  Overall this year, sales are off to a better start than last year. 

The driving force behind the increased sales is evident from the Median Sold Price data for the 1^st quarters of 2010 and 2011.  The Median is derived from a formula to show the middle price for all of the sales during those time periods.  When the Median Sold Price drops it indicates that there are more low priced homes selling.  When it goes up the opposite is true.  In the first quarter of 2011, the Median Price showed a 7.6% decrease from the previous year.  An explanation for this could be a shift in buyer activity towards the lower end of the market.  As we know, market value is determined by supply and demand.  If the increased sales at the bottom end of the market is not enough to create a decrease supply in that price bracket, then prices could continue to fall.  This does appear to be happening as the Median prices for homes and condos that are listed For Sale and Pending sales that are under contract have fallen by 16.1% and 13.1% respectively.  The Median Sold Price is at its lowest point since the peak of the market boom which is now at approximately at $291,000.

How far have homes values fallen in South Lake Tahoe?  Some recent sales can tell you that story.  A condo on Spruce Ave sold for $247,000 in 2006 and it recently sold for $119,400 on March 17^th.  A home on Tahoe Island Dr sold for $390,000 in 2005 and it sold recently on January 14^th for $230,000.  Another home on Marshall Tr sold in 2006 for $1,050,000 and it sold recently on February 17^th for $685,000.  If you do the math, you’ll find that loss of value for these properties ranged from 34% to 51%.

There may be a glimmer of hope for sellers!  You may not think so when there has been a steady stream of foreclosures that are feeding the market.  Foreclosureradar.com is showing 87 foreclosures since December 6, 2010 to date which is an average of 21.75 foreclosures per month.  Despite this, inventory of listed homes on the market has decreased from the from the 1^st Quarter periods of 2010 to 2011.  South Tahoe Association of Realtors data comparison is showing a 15.5% decrease in the amount of homes for sale.  Furthermore it’s taking less time to sell the inventory which is down 1.7% to approximately an average of 161.1 days.  It may not be enough to reverse the values in an upward direction but it could influence the rate at which values are falling especially if it becomes an enduring trend.

If the tightening of supply continues, this could lead to market stabilization.  Could this mean that the market has reached the bottom or is this a false prophecy?  As I alluded to earlier, our market is still volatile and influenced by unpredictable variables.  Last year the government had ended the first time home buyer tax credit and the Federal Reserve had discontinued its purchase of mortgage back securities which had allowed interest rates to seek market levels.  As a result sales had stalled out in June and July but it wasn’t enough to slow down overall sales for 2010.  We have experienced an increase in the number of units sold every year since the bust and this year it is off to its best start yet.  Historically low interest rates have supported the market by keeping monthly payments affordable for more buyers.  We all realize that interest rates have to go up at some point in the future but nobody can predict when that will happen and inflation could be the catalyst.  The Federal Reserve has also expressed its interest to phase out of the secondary mortgage market and once again privatize Fannie Mae and Freddie Mac.  The future of foreclosure inventory is still unknown yet it remains a heavy influence on the market prices.  As a skier can tell you, when the coverage is marginal, there are plenty of snakes in the snow to trip you up.

Given the unpredictability of the real estate market future, buyers are finding it hard to resist.   There is a sense that our market is close enough to the bottom and the buyers are in it for the long term.  Speculators of the boom are gone and home ownership is getting back to its roots.  At the bottom of the market you’ll find an abundance of buyers that are purchasing to put a roof over their head, raise a family or use it as a family get away home.  Doesn’t this seem like an old fashioned concept?  The dream is becoming real and affordable for families once again and that can’t be all bad!