Is Lake Tahoe's Hot Real Estate Market Sustainable?

Paper flower made up of paper bills

Third Quarter lakefront sales activity on the North and West shores of Lake Tahoe demonstrated a 72% sales volume increase. However, the year over year number of units sold remained flat. This reflects the enormous rise in median prices for lakefront homes, which rose from $4.4 million in 2020 to $7.8 million in 2021.

Additionally, by the 3rd Quarter of 2020 we had only 430 homes sold over $1 million. In 2021,  555 homes sold over $1 million year to date. Truckee, too, had a 36% increase year over year for home sales over $1 million. The Lake Tahoe luxury market in all areas had its best year yet in 2021.

The Beginning of a Slowing Trend

The 3rd Quarter is also showing a slowing trend, driven by a lack of inventory. This slowing trend may also be sustained by a lack of affordability. Forecasters predict that the possibility of rising interest rates combined with the lack of affordable homes for buyers might stall California's hot resort markets.

CAR predicts a 5% decrease in home sales for 2022.  Their report also forecasts a 5% increase in median home prices, at $834,400. This is quite a bit lower than their forecast for 2021, which expects to close with a 20% increase in median prices.

Interest Rate Predictions for 2022

In an effort to curb inflation, traders are expecting a more aggressive response from the Federal Reserve in 2022. Many expect three interest rate hikes in 2022, although Fed officials are committing to only one. Traders are predicting a rate hike for 2022 in June, another in September and a third in February of 2023, according to CME’s FedWatch tool. Goldman Sachs predicts interest rate hikes due to the rise in shelter pricing.

One-third of the inflation gauge is measured by increased rents. We've seen rents sky-rocket in all areas of California. According to Forbes, home prices were up a record of 19.8% across the US. We know this type of growth is not sustainable, and equities are currently growing faster than they did in the run-up to 2008.

Currently lawmakers and business executives have begun to pressure Biden to address inflation more aggressively. Consumer prices jumped 6.7% in the last year, the highest since 1990. Rising interest rates seem inevitable.

Staying Ahead of a Changing Market

According to the latest forecast put out by Fannie Mae, between the 4th Quarter of 2021 and 4th 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.

Compare this to median price rises we experienced this year in Lake Tahoe. North shore lakefront prices rose 56%, West shore lakefronts rose 59%, and Incline Village rose 179%. If history is an indicator, the price increases we experienced in Lake Tahoe for 2021 may face an adjustment in late 2022 and into 2023.

Fannie Mae Forecast 2022

Fannie Mae expects mortgage rates in 2022 to rise from an average 30-year fixed rate at 3.1% to 3.4%. Where interest rates may not be enough to slow the market – a lack of affordability usually removes able and willing buyers from the market.

According to Doug Duncan, chief economist at Fannie Mae, “Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022."

For lakefront sellers who have waited to list their property, the first Quarter of 2022 may be the time to get the best possible price. There is nothing worse than listing a property for sale among other homes that are experiencing price reductions.

Lake Tahoe is a market that has always experienced a steady and upward rise in equities. However, when home values are driven by low supply, the ensuing hot market can lose its value perspective, and usually leads to a correction.

Contact me today for a no-obligation price analysis of your lakefront property.


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