The Best Real Estate Markets in the U.S. - Incline Village at North Lake Tahoe

With all of the volatility in the stock market during 2008 and upheavals throughout the global financial community, the Incline Village real estate market remained about as close to an oasis of stability as one could hope for. With housing prices around America dropping from 30% to as much as 70% in the most distressed communities, the minor 7% decline in the median price of a single family residence in Incline is about as good as it gets for real estate investors.

It looks like overall unit sales will finish out the year with a decline of somewhere around 40% versus 2007, but with prices holding relatively firm it looks like Incline Village real estate is once again outperforming the stock market. If you are looking at the long-term horizon, the evidence is even more dramatic that owning Incline Village real estate is better than investing in equities. While the Dow Jones industrial average has slipped back to levels that we have not seen since 2002, property values here are at or above the levels that we saw in 2005 during the peak of the real estate frenzy.

The main reasons that property values in Incline Village and Crystal Bay have been relatively well insulated center around a finite housing supply, the superior quality of life and the fact that there is no relationship between local property values and local incomes. We are not heavily dependent on any particular industry or business so the layoffs affecting the financial sector and industries related to manufacturing or sales have virtually no impact on property values here.

The other important factor that helps to keep property values high in our community is that most owners have tremendous staying power. What I mean by this is, most of the purchases and sales that take place in Incline Village and Crystal Bay are discretionary and not the result of a job transfer or some other need to relocate. When sellers have the option of holding onto their property for their own personal enjoyment or they can rent it out to earn additional income it alleviates the pressure to sell at any price.

So, although we may be in a period of relatively low unit sales for another year or two, it does not look like there is any danger of a wholesale price collapse in the Incline Village real estate market. There are a few pockets of extreme price weakness such as some of the condo complexes along the Southwood Boulevard corridor and moving up Ski Way towards Diamond Peak, and high elevation homes without a good view. Due to the sectors that are a bit weak, the overall condo market has witnessed the median price decline from $585,000 to approximately $500,000 this year. However, this still puts us above the median price of $485,000 back in 2005 and way above the median in 2004 which was $405,000. And frankly, condo prices ran up too quickly between 2002 and 2005, so this slightly downward adjustment is actually healthy for the local market.

This has been a very interesting year in that only a handful of properties have sold close to the median price in both the single family residence and condo categories, while the vast majority of sales have taken place either significantly above or below the median. Consequently, just 2 sales of single-family residences above or below the median price can cause this number to fluctuate by as much as $40,000.

Analyzing condo sales, I have found a better way to view the fluctuations of property values for condos in Incline Village is to look at the median price for a two bedroom, two bath McCloud and track the year-to-year price changes. In 2007 the median price for this type of condo was $575,000 and in 2008 it had dropped down to $549,000 which is a decrease of only 5%. Why then has the median price for all condos appear to have declined by 15% in 2008?

I believe the reason for this, is due to the fact that an excessive number of lower-priced condos have gotten accepted offers as bargain hunters continue to scour the market. And in contrast, buyers looking to spend over $800,000 are purchasing homes at a rate of 4 to1 over condos. So, it will be very difficult for the median price of a condo to increase significantly during the next few years simply because once you cross the $800,000 price point buyers have lots of single family homes to choose from. If our condo market were taking a significant hit, then you would have seen the median price of a 2BR McCloud dropping by 15%, but that is not the case.

One of the slowest parts of our market has been the lack of sales in multi-unit properties also known as investment residential. Since January 1, 2006 we have had only four sales in this category and I think the reason is pretty straightforward. Investors can't purchase these types of properties and hope to get break-even cash flow unless they make a down payment that is generally somewhere between 40% and 70% of the price of the property. In most of America, you can get break-even cash flow with as little as 20% down and sometimes even less. For investors seeking a cash on cash return, multi-unit properties in Incline Village generally don't provide the best numbers (except in rare cases). And since appreciation rates have slowed down, investment residential properties have lost their luster in our market.

My prediction for the Incline Village real estate market in 2009 is that sales in units will be relatively close to the level we experienced in 2008, barring some type of extraordinary news (either good or bad) from the financial sector. I don't see prices making a major advance for at least 12 to 18 months based on current inventory levels and absorption rates. Some sectors will remain in a plateau, some sectors will continue to decline and their are a couple of areas that will continue to uptrend, albeit slowly.

The strongest parts of our market will likely continue to be quality condos at low elevation (generally within walking distance of the beach), lake view homes and lakefront properties of all types. The weakest sectors will probably be the high elevation homes that don't have any special characteristics or a great view and the high density condos (especially inside units) where demand has dropped off precipitously.

The recent decision by the Nevada Supreme Court to roll back our property taxes to the 2002 - 2003 tax year will benefit all property owners. This will make purchasing property in Incline Village and Crystal Bay even more attractive to prospective buyers. With our wonderful recreational facilities and fabulous location on the North Shore of Lake Tahoe where we get a least 300 days of sunshine each year, the long-term outlook for Incline Village property owners continues to be a positive one.