Updated 10/18/2011.

Posted by Tim Lampe, written by Steve Kegal.

The third quarter of 2011 was a roller coaster of dramatic events, ranging in scope from the global economy to our backyard -- all of which had, or will have, a dramatic impact on real estate values in the Tahoe Truckee region.  On the whole, our market continues to be split with very high-end, luxury properties seeing some traction with little erosion in value; while the bottom end of the market continues to be impacted by distress sales, lender challenges and declining values.

On a global level, the game of brinksmanship over the debt ceiling, as well as worries over the solvency of European countries have undermined the confidence of our buyers necessary to make the type of lifestyle purchases embodied in mountain real estate. Of the 412 properties closed in the Tahoe Sierra MLS during Q3, 99 can be classified as “distressed”; either short sale or bank owned (REO). At 24% of all sales, this represents a decline from the 38%-40% seen in the first half of 2011 and throughout 2010. As one would expect, these sales were dramatically skewed towards the bottom end of the market and those consumers requiring debt to make such a purchase. Median price for distress sales during the quarter was $285,000 versus $372,000 for all sales. Just five distress sales were recorded above $1,000,000; 13% of all sales above that threshold.

 While the weight of sales in the lower end will bring down the averages for the region as a whole, there are some very positive trends emerging at the high end.  As such, it is necessary to evaluate certain micro-markets on their own to gain an accurate snapshot of the market. Sales at Martis Camp continue to surge with more than 70 homesites sold by the developer in 2011 plus a healthy 10 re-sale transactions. Perhaps most significantly, with more than 100 homes between design review and completion, Martis Camp has created construction activity seldom seen anywhere in recent times. With one home sale cresting $1000 / square foot and several others at a figure not far below, a market for the highest-end properties is clearly evident.

 Further bolstering this case are several very high-profile investments in the region demonstrating equal belief in the existence of a premium market from knowledgeable institutions. Vail Resorts, having acquired Northstar-at-Tahoe a year ago, is investing $30 million in improvements for the coming season, including a new express quad chairlift and restaurant.  KSL Resorts, having purchased Squaw Valley around the same time last year, recently announced a merger with Alpine Meadows creating the potential for a mega-resort in our region. The presence of these two well-capitalized resort operators should have an unlimited upside for consumers in the long-term as each resort is likely to meet its greatest potential.  In the near term, each player, anxious to broadcast their enhancements, is likely to put forward significant marketing and public relations campaigns in a manner far greater than what we’ve seen in recent years to draw maximum attention to the entire region with a fresh perspective.

 Continuing on with the theme of bold and optimistic actions, East West Partners launched construction during the last quarter on two ambitious development projects mountainside at Northstar delivering ski-in, ski-out properties in a fashion not previously seen in the Tahoe region. With 16 townhomes (Home Run) and 25 custom homesites (The Glades) all within immediate proximity to skiing and lift access, the developer is creating a type of real estate more often associated with premium destination resorts including Beaver Creek and Deer Valley.

 Overall, residential sales for Q3 were exactly even with the same period in 2010 while total dollar volume fell by 8%.

 Looking into specific communities, Northstar embodied this bifurcated market as well as any. 22 sales transacted during the third quarter throughout the resort with a median price of $402,000 and an average price of $709,727.  This wide gap between median and average indicates a stronger volume of sales at the bottom end, and a few very strong sales at the high end. This is proven out with 17 sales between $125,000 - $537,000 and 5 sales between $1,300,000 - $3,200,000 with literally nothing in-between.  It is interesting to note the same trend in  Q3, 2010 with 12 total sales at $525,000 median and $850,000 average contrasted with Q2, 2011 with a more “normal” $550,000 median, $611,000 average (over 17 sales).

 Tahoe Donner, the regional bell weather, experienced trends similar to the market at large with a 10% increase in sales units and a 3% decline in both median and average prices.

 Overall, inventory loads remain moderate at about a one-year supply. Areas where inventory is more scarce, and that have either not seen many distressed sales or have worked through the majority of it, stand to see upside in the months to come as the overall tide rises. Currently, the Village at Northstar has but 17 residences on the market; just 7.4% of all available properties. Martis Camp has just 30, or about 8.3% of all released inventory for sale.  Gray’s Crossing and Old Greenwood continue to work through available inventory  at a strong clip with just 5 and 7 homes plus 9 and 14 homesites available respectively.

 As for the months to come, history tells us that we should continue to see quite a few closings through October and into November before declining into the holidays.  

 The California Association of Realtors released their 2012 forecast with the following prediction:

California home sales and median price are predicted to improve only slightly in 2012, as the continuation of the tepid economic recovery, uncertainty about the future, and funding challenges for residential mortgages are expected to keep the market moving sideways, with little foreseeable momentum in either direction, according to C.A.R.’s “2012 California Housing Market Forecast” released Tuesday.  The forecast, which was presented today by C.A.R. Chief Economist Leslie Appleton-Young during her luncheon at CALIFORNIA REALTOR® EXPO 2011, says that California home sales next year is for a slight 1 percent increase to 496,200 units, following essentially flat sales of 491,100 homes this year compared to the 491,500 homes sold in 2010.  The California median home price will increase 1.7 percent in 2012 to $296,000 in 2012, according to the forecast….  “2012 will be another transition year for the California housing market, as the continued uncertainty about the U.S. financial system, job growth, and the stability of the overall economy remain in the forefront for all market participants,” said Appleton-Young.  “An improvement in job growth, consumer spending, and corresponding gains in housing are essential to a broader recovery in the economy, but would-be buyers will remain cautious as they weigh these myriad uncertainties against the clear opportunities presented by today’s very affordable housing market.”

 While this is a less than ringing endorsement, I believe it bodes well for our region. Demand for second homes in the Tahoe Region is generally an emotional, experiential purchase made with disposable income. With demand having pent up over the past several years as values regressed, I believe any stability in pricing will move some buyers off the fence.  In other words, as long as the consumer believes that the property will not immediately lose value, a level market may be reason enough to make this purchase and enjoy all of the intangible benefits of ownership in this region.

 I look forward to keeping you posted as we learn how all of  this plays out in real time. Regardless, the months to come will be fascinating for us all as change is all around.