The Housing Market is Normalizing

Today’s headlines and news stories about home prices are confusing and make it tough to know what’s really happening. Some say home prices are heading for a correction, but what do the facts say? We’ll start by looking at what a correction means.

Danielle Hale, Chief Economist at Realtor.com, says:

 “In stock market terms, a correction is generally referred to as a 10 to 20% drop in prices . . . We don't have the same established definitions in the housing market.”

In the context of today’s housing market, it doesn’t mean home prices are going to fall dramatically. It means prices, which have been increasing rapidly over the last couple years, are normalizing. In other words, they’re still growing but at a slower pace. Prices vary a lot by local market, but a big drop-off isn’t what’s happening at a national level.

The Real Estate Market Is Normalizing

From 2020 to 2022, home prices skyrocketed. That rapid increase was due to high demand, low interest rates, and a shortage of homes for sale. But, that kind of aggressive growth couldn’t continue forever.

Today, price growth has started to slow down, which is a sign the market is beginning to normalize. The most recent data from Case-Shiller shows that after being basically flat for a couple of months last year, prices are going up nationally– just not as quickly as before (see graph below):

The big takeaway? So far this year, there’s been a much healthier pace of price growth compared to the pandemic.

Of course, that’s what’s happening now, but you may be wondering what’s next for prices. Marco Santarelli, the Founder of Norada Real Estate Investments, says:

“Expert forecasts lean towards a moderation in home price growth over the next five years. This translates to a slower and more sustainable pace of appreciation compared to the breakneck speed witnessed in recent years, rather than a freefall in prices.”

Again, it's about supply and demand. Increasing inventory plus limited buyer demand, due to relatively high mortgage rates, will continue to ease some of the upward pressure on prices.

Skyrocketing home prices during the pandemic left many would-be homebuyers waiting on the sidelines. Slowing price growth is welcome news for the market overall. Moderating interest rates and home prices are bringing buyers back into the market. We have already seen a significant pick-up here at the lake. It’s the ideal time to list as buyers that have been waiting are poised and ready to make a move. We’ve had several listings go under contract this week. If you are considering selling, let’s connect now while the inventory is still at an all-time low. 

Lake Tahoe Luxury Real Estate Update: A Rising Market

Nationally, in a striking turn of events, luxury real estate property values are now rising at an unprecedented rate (8.8% in tha past 3 months), outpacing the growth of typical homes . This comes from an extensive update by Zillow, highlighting significant shifts in the high-end housing market.

 Increased Competition in Luxury Listings

 The latest report from Zillow notes that listings for luxury homes are experiencing notably higher competition compared to midrange market homes. This surge in demand has driven luxury home values up by an impressive 3.9% year-over-year.

 Persisting Inventory Shortages 

The national inventory of luxury homes remains critically low, standing 46.9% below pre-pandemic levels. This shortage is more severe than the overall housing market, further driving up prices.

 Lake Tahoe Market Highlights 

Lake Tahoe, Nevada, has seen a robust increase in luxury home values, aligning with the national trend. The typical luxury home in this scenic region is now valued at approximately $2.5 million, reflecting the area's exclusive appeal.

Year-over-year growth  in Lake Tahoe luxury homes has reached 4.2%, slightly above the national average, showcasing the strong demand for high-end properties in this desirable location.

 National Trends

 Luxury home values, defined as the top 5% of homes in a given region, now average around $ locally. stats

Among the 50 largest U.S. metro areas, luxury home values range from just under $750,000 in Buffalo to over $5.3 million in San Jose. The 3.9% annual growth in luxury home values surpasses the 3.2% increase seen in typical U.S. homes.

 Economic Factors and Market Dynamics 

Anushna Prakash, an economic research scientist at Zillow, explains that the luxury market is less impacted by rising mortgage rates. Most luxury buyers, particularly repeat buyers with significant home equity, can afford to pay in cash, bypassing mortgage constraints.

Despite a slower recovery in luxury home inventory compared to the overall market, with a 15.7% increase year-over-year, it remains significantly below pre-pandemic levels. Total inventory, by contrast, is up 22.7% from last year and 32.6% below pre-pandemic averages.

 Price Adjustments and Market Behavior 

While the share of luxury listings with price cuts has increased to 20.8% (up from 19.4% last year), it remains below the 24.5% seen across all homes. 

 Local Market Spotlight: Lake Tahoe 

Lake Tahoe's luxury home market is exceptionally dynamic, with inventory down 13.2% year-over-year, one of the few markets with fewer homes for sale than last year. This scarcity fuels the substantial price growth.

As Lake Tahoe continues to attract discerning buyers, these trends highlight the shifting dynamics in luxury real estate. For those considering investment in high-end properties, understanding these market nuances is crucial for making informed decisions.

For further insights and detailed market analysis, stay tuned to our luxury real estate newsletter.