Short Sales, Shadow Inventory, and an Uptick in Sales Are On Tap for Truckee/Tahoe Real Estate

Published: January 17, 2011

by Maura Mack

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If you follow the news at all, it doesn’t take much to realize that we are not out of the woods yet in terms of the real estate market recovery. Many of your neighbors probably have “For Sale” signs in front of their homes, perhaps with the sign rider “Short Sale” or “Bank Owned.” These distressed sales are growing in numbers and continue to erode any immediate recovery.

That being said, it isn’t as bad as you think (and that is not just the realtor in me talking). Let’s take Truckee proper, for example. In 2009, there were 492 single family homes sold in Truckee. Of those, 127, or 26 percent, were distressed sales (short sales and foreclosures.) Of those 127 distressed sales, 12 percent were short sales. In 2010, 494 homes were sold in Truckee. Of those, 139 homes, or 28 percent, were distressed sales; 14 percent were short sales.

While the number of distressed sales climbed in 2010, it was only a 2 percent climb. And while it feels like half or more of all sold homes are distressed sales, in reality it is only 28 percent— less than a third of Truckee sales. One factor that is not reflected here is the number of listings that don’t close. According to a recent California Association of Realtors survey, more than two out of five short sales never close. So really there are a number of distressed homes on the market that we see for sale that never sell. And that, my friends, is a headache that needs about another 1,000 words to express.

What is driving local real estate trends now?
A good early winter never hurt real estate sales. Mid-November ski resort openings meant tourists came up earlier with their wallets in hand. This puts a good shine on Truckee, and makes people want to buy their own mountain home. But short sales continue to grow in number both statewide as well as locally, hindering the real estate recovery. This growing problem was recently addressed by CAR President Beth L. Peerce. “The housing market can’t fully recover until lenders streamline and improve the short sales process, which would help expedite transactions,” she said.

Homes on the market that are not distressed sales are still competing with them.

Appraisers don’t always take into consideration that the house that sold next door to you last month was missing counter tops, appliances, and flooring. Every distressed sale that closes hammers down the new standard for value in that neighborhood and negatively affects us all.

What about the future? What will real estate do and what will influence it?
Rising interest rates, which we are beginning to see (rates have recently climbed from the 4.5 percent range to near 5 percent), tend to get buyers off the fence as the prospect of purchasing may soon become unaffordable. Interest rates have nowhere to go but up.

Investors are pulling money out of bonds because of a growing concern about inflation, which is leading to a rise in interest rates that many economists believe will continue into 2011.

Another substantial factor hanging out there is the “shadow inventory.” Many people stopped paying their mortgage a while ago, and eventually the bank will get around to foreclosing on them. According to Realty Trac, the leading foreclosure reporting company, this massive “shadow inventory” will slow down the housing market recovery. There are currently 900,000 bank-owned homes in the U.S.: 600,000 not yet listed for sale, and 1.2 million homes currently in foreclosure. Five million loans are in some stage of delinquency. These homes will have an impact on inventory and sales throughout 2011 and probably for a few years to come.

Historically, investors tend to move money into hard assets such as real estate to help stave off inflation and protect their investments. While prices are expected to drop further in 2011, widely believed as the “true bottom” of the real estate trough, the number of sales should rise slightly.

Both Northstar-at-Tahoe and Squaw Valley announced that they had been purchased this past fall. Squaw Valley’s new owners, KSL Capital Partners, recently announced a $50 million injection into capital improvements. Northstar has already been seeing some high-end developments such as the Ritz- Carlton and the just-announced Home Run on-slope townhome development breaking ground this spring. Stay tuned to see how these two sales affect real estate sales.

There are a lot of factors influencing our local real estate market. Although the recovery will not be fast nor immediate, it’s beginning to look and feel like we are near the bottom, and the new year may bring an increase in sales and a step closer to a recovery.

~ Maura Mack is a Realtor with Coldwell Banker in Tahoe Donner. You can reach her at maura@mauramack.com.

Originally published in Moonshine Ink, January 17th, 2011, Moonshineink.com