Reading the Fed's Tea Leaves
I read an interesting op-ed piece recently. An economist on a cross country flight from NY was sitting next to a homemaker (he didn't exactly call her that, but that's what he meant), and when she realized what he does for a living, she peppered him with questions about Jerome Powell and the direction of the Federal Reserve. He didn't mind talking about it; that's what he does for a living. But he marveled at the fact that an average American was so studied in the politics of the Federal Reserve; that spoke volumes.
Beyond knowing the names of the past Fed Chairs, I can't say that I gave it much thought before now either. But 2022 changed all that. Like a lot of Americans, I'm now hanging on Powell's every word because what he says -- and how he says it -- has the power to create a tsunami in the stock market. That's had a stinging effect on the savings and investments of millions of Americans, and it's taken a sledgehammer to the real estate market.
The Covid Effect
The past few years have been one huge roller coaster ride in real estate. In early 2020 we woke up one day to learn that real estate was not on the list of "essential" activities allowed under Covid lockdowns. That didn't last long (CA Gov. Gavin Newsom's executive order in March of that year gave us all written permission to work), but it sent a lot of realtors running to the bank for PPP loans.
What followed was one of the fastest accelerating real estate markets in recent history. Primary home markets saw significant gains. But in Tahoe, mostly a vacation home market, demand surged. From 2020 to 2021 home prices throughout the Tahoe Truckee region rose 40 percent, and there just wasn't enough to go around.
Tahoe offered an escape from Covid lockdown orders in place in most major cities, and everyone suddenly had to have a place in paradise. Unique properties at Lake Tahoe literally doubled in value overnight, redefining the concept of "flipping," with some that sold and re-sold in less than a year for multi-million-dollar gains. Thanks to the aggressive Fed rate hikes, all that has changed, seemingly overnight. If Powell wants proof that he's moving toward his Goldilocks economy, he should book a trip to Tahoe.
Tahoe is a Buyer's Market Right Now
The 4th quarter numbers will tell the story, but across the board we are seeing price reductions, (some major) along with more homes to choose from. On the East Shore, only two waterfront homes have sold since September, compared to 6 by this time last year. The median price is hovering around $8.2 million as Q4 nears a close, the same as Q4 in 2021. But the big change is standing inventory, with 10 waterfront homes to choose from, ranging in price from $8 million for a fixer upper with a beautiful white sand beach to $64.5 million for Crystal Point, a park-like lakefront compound on the shores of Crystal Bay, NV.
On the CA side, one beautiful old lakefront compound sold for $15 million cash (almost $3 million under ask). From the white sandy shores of Rubicon Bay to Carnelian Bay on the North Shore, there are another dozen lakefronts to choose from, many of them reduced in price, and some on the market for up to a year or more. (Read more ..)
Tahoe Lake Houses for Sale
Today's market offers terrific opportunities for waterfront buyers, especially in Winter, when demand tends to be higher at the ski areas. BUT few want to take advantage of this.
Interest rates have cooled demand across the board. Even though today's rates are reasonable compared to say the double-digit rates of the 1980s, it's not quite the free money we came to expect with rates under 2 percent.
Fed Policy Swings Stock Market
For many buyers, the holdout is the stock market, which has swung violently in reaction to Fed policy shifts. Some buyers have seen mountains of cash disappear as their investment holdings lose value. Stock options, in some cases, are worth half of what they were in 2021. These are not buyers who have moved on ... or who no longer consider Tahoe an attractive investment; they're just on the fence and trying to hedge on what will happen next year.
From where I'm sitting, I see a lot of pent up demand. I don't know how to call what will happen in 2023 (hey, if I did, I'd probably be a pundit and not a realtor). But my gut tells me that the market will continue to offer buyer opportunities through Spring of 2023. If the Fed allows some expansion of the economy, I'm betting the gates will open on the pent up demand in Q3 of 2023 (much like what we saw in Tahoe in 2018, when the Tahoe Truckee real estate market sort of leapt out of the last Recession).
With a lot of homes to choose from, and fewer buyers to compete with, this Winter is an excellent time to negotiate a deal on a Tahoe home. Or wait till next year, and run with the herd, which might mean more competition for exceptional properties or those discounted to sell fast.
Contact me at Jackie@TahoeisHome.coom or 775-391-9443 for a Micro-market Report on those neighborhoods of interest to you.
Posted by Jackie Ginley on
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