2023 Lake Tahoe Lakefront Market Outlook
All market are connected, even while they behave differently. The Lake Tahoe lakefront market follows stock market activity, and behaves differently than other real estate sectors.
Additionally, the resort and second home markets are different from the primary real estate market. Rising interest rates will slow sales in both markets, but other economic factors will have an impact on the discretionary income used for second home purchases.
The pursuit of a better quality of life, especially during the pandemic, created higher demand for resort homes as people began working remotely. Limited supply in Lake Tahoe and Truckee drove home values up almost 60% since 2017. This happened in resort markets across the U.S.
The luxury market and lakefront sales at Lake Tahoe mirror stock market activity. Both the resort and lakefront markets stalled in sales activity for 2022. However, lakefront sales and their median prices took a larger hit because of the 2022 stock market downturn.
When looking at any real estate cycle, the main factor will always be supply and demand. In 2022, sales were down year over year in Lake Tahoe and Truckee. However, the median price still rose 5%.
Many markets in California saw slight price reductions because of rising interest rates. The shortage of supply to meet demand in Lake Tahoe kept values relatively stable. This is because the second home market in Lake Tahoe has a feeder market of 7.7 million potential Bay Area buyers.
2022/2023 Stock Market
The S&P closed 2022 with the worst performance since 2008. The benchmark index dropped 5% in December, bringing the close for 2022 down almost 20%.
According to an article in Axos, 2022 ranked with the worst years of the Great Depression, the 2008 financial crisis and the dot com bust. It was the 7th worst year for the stock market since 1929.
The stock market began to rally in January on news that the FED was not going forward with their aggressive 75-point hikes in 2023. This news was also good for non-luxury home buyers who have become more comfortable with 6% interest rates.
The FED has signaled that it will raise the rate only 25 points in February and March. With this news, mortgage applications rose 7% in January 2023. At the same time, lower inflation, strong job reports and easier access to money all seem to be bringing stock market investors back into play.
Lake Tahoe Lakefront Market
For the lakefront market at Lake Tahoe, we could expect to see more sales activity in 2023. Whether a thawing real estate market or higher stock earnings, more luxury buyer and sellers might come back together in 2023.
"When people have more wealth because of stock gains, they have more money to spend on luxury homes," said Daryl Fairweather, chief economist of Redfin. At the same time, buyers may hedge their portfolio during stock market downturns by investing in real estate.
The difference between the stock market of 2008 and 2022 is that the bear market called in late June of 2022 didn’t collapse financial institutions. Compared to 2008, job numbers were stronger in 2022. There was never the same sense that the stock market was crashing in a way that investors may have hedged their portfolio in real estate assets.
Silicon Valley employees are often paid in stock options, which affects their ability to own luxury second-homes. Recently, surging technology stocks are driving Wall Street gains. Many luxury and lakefront buyers at Lake Tahoe work in the Silicon Valley.
Market-leading stocks that were battered last year are now, a great opportunity for investors. In fact, the 50 worst-performing stocks of 2022 were up an average of 20.1% in January 2023.
February will kick off with another FED rate hike and lower earning reports. Whether the rally continues or not is yet to be seen.
Lake Tahoe Lakefront Buyers
Luxury buyers are different from normal buyers. "At the luxury end, buyers are a little more insulated," said Skylar Olsen, director of economic research and outreach at Zillow. "The idea there is that they’re not exactly cash strapped, and are making financial decisions for the benefit of their lifestyles."
While the luxury market can experience bubbles because supply and demand can change relatively quickly, this market also seems to rebound faster than other markets.
When sales slow and supply begins to grow in the luxury market, luxury homeowners are more likely to wait out the down market. Unlike other buyers, interest rates have no impact on high net-worth buyers.
Last year, the lakefront market definitely slowed, but not for the same reasons as other Lake Tahoe markets. Unaffected by rising interest rates, it was more likely the stock market that slowed sales.
The recent rally may be good news for the lakefront market at Lake Tahoe. Because of the limited supply of available lakefronts, when the lakefront market comes back, it will probably rebound faster than other markets.
I specialize in lakefront sales and currently have a stunning lakefront listing with panoramic views of the lake.
Contact me today for a free property analysis on your home or for more information on the lakefront market at Lake Tahoe.