Buying with Today's Interest Rate Makes Sense

house puzzle

Many people wonder if it is a good time to buy a home. While interest rates may be higher, home prices are no longer escalating beyond affordability. Buying today makes more sense than you might realize.

Lake Tahoe Market Information

In first quarter of 2020, the median price for a Tahoe/Truckee home was at $630,000.  Because of the pandemic and increased demand for quality of life, by first quarter of 2021, the median price shot up to $925,000. We began the first quarter of 2022 with a median price at a whopping $1.1 million.

The median price rose as high as $1.2 million in the second quarter of 2022. However, the median price for the 3rd quarter adjusted down to $1 million. This is the first time in several years that median prices have come down.

In 2022, the listing inventory began to shoot up around May. By August 2022, inventory, although higher, was back near normal levels. Closed transactions held steady to historical averages for Lake Tahoe.

However, in the 3rd quarter, we are seeing inventory adjust down slightly. This shows how demand is still active in the Lake Tahoe and Truckee market.

Is the Market Good?

While news around the US portrays a huge correction, even comparing today to the 2008 bubble, this is not the case at Lake Tahoe. First of all, the extreme downturn of 2008 was created by too many homeowners qualifying for houses they couldn’t afford.

When they defaulted on their loans, a large amount of inventory came onto the market at the same time.

Today, mortgage lending is more regulated and the underwriting processes is more stringent. In California, we still have a huge shortage of available housing compared to the demand for housing.

Demand for Homes in Lake Tahoe

Lake Tahoe has the entire Bay Area as a feeder market and there are only a limited amount of homes. Unlike other areas, there is not much new development bringing additional units onto the market.

Many buyers are waiting out interest rates because they are comparing today’s rate to the last two years. During the pandemic, the FED reduced rates to almost zero – so this is unrealistic.

Historically, and over the last 50 years, the average interest rate has been at 7.7%.

Because the demand for homes is not as crazy as it was last year, we are seeing price reductions. We are no longer in a market of multiple offers. In the last two years, even while interest rates were lower, a buyer may have paid a higher purchase price for a home. Additionally, they were often buying homes without inspection contingencies, which is never a good idea.

The interest rate is the cost of borrowing money and it is true that rates are higher as we close out 2022. However, home prices have adjusted down toward more realistic prices – not driven by huge demand. This means that while the cost of borrowing has increased – the overall cost of owning a home can be the same.

The escalation of home values over the last 2 years was not sustainable and a lack of affordability will always bring the market back into balance.

Yes, it is a Good Time to Buy

Because so many would-be buyers are renting instead, rental prices have gone through the roof. Looking beyond the interest rate to determine whether to buy, a buyer may find that the cost of owning a similar home can often be lower than what they are paying for rent.

The many neighborhoods north of Lake Tahoe offer entry level pricing that is much more affordable, while still providing a similar quality of life.

As a realtor representing the entire Sierra Nevada region, I can help you find the perfect retreat for your budget. Contact me today for more information about the real estate market in Lake Tahoe and the Lost Sierra.