INCLINE VILLAGE, Nev. — The Incline Village real estate market is off to a good start in 2012 with sales occurring in every price range up to $6 million during the first quarter. One sector of the market seeing a disproportionate amount of activity is the lower-priced condos in Incline Village and Crystal Bay. During the last decade, this segment of the market has generally been defined as condos selling for less than $500,000. So, while in most parts of the country you can buy a really nice single-family home on a good-sized lot for that price, the desirability of owning property on the Nevada side of North Lake Tahoe pushes prices quite a bit higher.
Based on statistics gathered from the Incline Village MLS on April 8, 2012, we have seen 19 condos close escrow in 2012 and only three of those properties sold for more than $450,000. The only condo sale above $530,000 so far this year was #23 Third Creek which changed hands just a sliver under $840K. At the present time there are 30 condos in escrow and only one has an asking price greater than $500,000.
So, while sales of condos in total units are very strong this year, prices are skewed towards the lower end of the range in our market. While buyers may see the median price of a condo appear to decline in the first half of 2012, this does not reflect overall property values declining in the condo market. Rather, it simply reflects the disproportionately high level of activity among lower-priced properties. Why is there so much interest in lower-priced condos especially those with asking prices under $350,000?
During the dotcom boom and the following real estate bubble that carried all the way through 2007, investors purchasing property for rental purposes were hoping to make money on appreciation because the cash flow numbers rarely penciled out. It was almost laughable that cap rates had fallen below 2% for investment residential property for all cash purchases. Buyers had to put down somewhere between 60% and 75% of the purchase price just to get breakeven cash flow on a rental property.
With the retreat in real estate prices during the past few years, many investment rental properties have become much more attractive. This is especially true for lower elevation, high-density condos where the prices ran all the way up to the 400s and 500s during the real estate boom and in many cases have retreated between 50% and 70%. As a result, you can actually purchase some two, three and four bedroom condos in Incline Village and get a decent rate of return on a rental property.
Many buyers who were previously priced out of the market are now finding themselves able to afford an entry-level property in Incline Village or Crystal Bay. Even with the stock market having returned to levels near the pre-crash peak, there is still an element of caution among buyers. One lesson that a lot of people learned after the last boom and bust cycle was to be a bit more conservative in their approach to investments of all types. The risk of purchasing a $300,000 condo that you can easily afford instead of stretching for the $500,000 property that you might get a loan on has shifted the psyche of many buyers towards the lower-priced condos.
Another important factor is that prices have retreated to below $350,000 in a number of Incline Village condo complexes that are within walking distance of the beach. Since proximity to the beach is very often an important factor in the decision-making process of buyers, having a much larger supply of lower priced condos at low elevation helps to increase total sales.
As inventory levels slowly decline on a year-over-year basis and the economy stabilizes, we are starting to see properties in the better locations sell more quickly. There are still enough properties for sale that buyers can be somewhat choosy. However, quality properties in good locations at reasonable prices are occasionally seeing multiple offers. This is a precursor to market equilibrium and the eventual return of upward price pressure as long term demand will eventually outstrip supply. It is only a matter of time before Incline Village and Crystal Bay properties of all types regain their historical upward momentum. Savvy buyers will take advantage of opportunities in the coming year to position themselves for the long term and for many that will mean purchasing an affordable condo in the lower to moderate price range.
— Don Kanare is a Realtor at RE/MAX Premier Properties. Read his blog and weekly stats on his website at www.InsideIncline.com.