Interest Rates are Getting Interesting
It has been another big year for real estate sales on the North Shore of Lake Tahoe. Prices and unit sales have increased overall especially in Incline Village and Crystal Bay. However, the interest rate on a 30 year mortgage crossed above 5% recently. While this is not high by long-term historical standards it could have a ripple effect in the next year or two especially if rates continue higher.
Interest rates have been artificially low for a long time after coming out of the Great Recession. During the past couple of years the Fed has slowly raised interest rates in an effort to move towards normalization. But with home prices having increased significantly since 2012 any interest rate increase can drive the price of a home out of the range of affordability for a certain percentage of buyers. At some point price increases and interest rate increases will either reach equilibrium or a tumble in sales and / or prices will occur until a new equilibrium is found.
One of the unique attributes about real estate purchases in our community is that a significant percentage of them are all cash. When you eliminate financing from the purchase agreement you can make a lot of other terms come together more easily. Without financing contingencies or appraisals to be concerned with, buyers and sellers can negotiate freely on price and don't have to worry about the value of furnishings, boats, California kitchens and other things that might throw an appraiser into a tizzy.
The Fed has the market believing there will be one more interest rate hike in 2018 and has signaled the possibility of 3 interest rate moves in 2019. Whether all of these interest rate increases take place remains to be seen. Fortunately, the rate increases of the past several years have been in ¼ point increments thereby avoiding any shock to the marketplace.
Anyone who is considering making a purchase using financing will want to keep a close eye on the Lake Tahoe real estate market and try to strike a deal between now and late winter. Many sellers tend to reduce prices this time of year especially if the property has been sitting on the market for a while. You can potentially get the benefit of purchasing a property well below the asking price and locking in a good interest rate before the next uptick in both property prices and interest rates occurs.