How Will Reno’s Decline Affect Lake Tahoe’s Real Estate Market ?

by Joe Salcedo on 11:15 pm

Ireceived this article from the mail yesterday: 3 out of 5 mortgages in region (Reno-Sparks) underwater.

It talks about the declining market in neighboring cities Reno and Sparks:

“Lack of equity prevents homeowners from moving up to bigger homes — a key driver of activity for mid-range and higher-end properties. The inability of the mid-range and high-end sector to post the same strong sales numbers seen in the entry-level market is one reason being cited for the decline in median sales price and the sluggish recovery of the Northern Nevada housing market.”

After five years of following the Northern Nevada real estate  market, I’ve noticed a trend — local real estate pundits can be divided in two opposite worlds: blind optimism and stubborn pessimism.  The predictable upbeat real estate types (note: the author is a Realtor himself) will inevitably minimize news like this and turn lemons into lemonade while the pessimists will pat themselves at the back for predicting the kingdom’s downfall.

Gentle reader, the only thing that matters is what the market is telling us and not anybody’s opinion.  The great growth stock trader Bill O’Neil used to say:

“Since the market tends to go in the opposite direction of what the majority of people think, I would say 95% of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable.”

So is the Lake Tahoe Real Estate market affected by it’s struggling sister? Perhaps.  (But how many people do you know that sold their home in Reno and moved to Lake Tahoe, or Lake residents’ dependent on Reno for their livelihood? I’m just thinking out load here.)  But history has shown us what really affects the Tahoe market is not Reno or any neighboring Nevada city;  No,  It’s the general market’s direction.  ” The fruit does not fall far from the tree.”

When the general real estate market struggles, you can expect that even healthy real estate markets like Tahoe will be affected.  And that has been the case for the Lake Tahoe real estate market ever since the general market fell off the cliff in 2006.

Take for example back in 2007, I remember going to real estate group meetings and the general word on the street is Tahoe will not be affected as much as Reno-Sparks due to high median income for local residents.  The problem with statements like that is it’s always layered with some form of truth.  Yes, Tahoe, obviously has higher income, but if you really dig deep on the facts you can see that Lake Tahoe fell almost at the same time as Reno:

Lake Tahoe Real Estate Graph

Lake Tahoe Real Estate 2000-2011

(From Trulia)

Reno Median Sales Price 2006-2010

Reno Median Sales Price 2006-2010

(from RHB.com) The result of which was the steady increase of short sales in Lake Tahoe.

But in 2007 you’d hear a lot of people say, (and I quote..):

Feb 2008: “The second home market is a much stronger market. Other resort destination areas like Lake Tahoe will continue to be stronger than metropolitan areas.”

Jan 2007: “After a tumultuous year in the national real estate market, _____ is reporting higher median and average home prices in 2007 while the market continues to normalize.”

Follow the facts and always look at it from the lens of a inquisitive student.  And you’ll surely have higher chance of succeeding in our market.

Lack of equity prevents homeowners from moving up to bigger homes — a key driver of activity for mid-range and higher-end properties. The inability of the mid-range and high-end sector to post the same strong sales numbers seen in the entry-level market is one reason being cited for the decline in median sales price and the sluggish recovery of the Northern Nevada housing market.

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– Philip Duane Johncock


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