The South Tahoe Realty Blog

There’s been a bit of a buzz in the South Lake Tahoe real estate community. Have we hit the bottom of the market? Possibly. Check out the median sale prices over the last seven months. It looks like we hit bottom in June and have been heading up in the following months. Additionally, the median list price of homes in escrow right now is $437,000. I’d expect that number to drop to about $412,000 because our sale-price-to-list-price ratio on the year is 94.23%. These numbers fall in line with the theory that we have hit the bottom of the market.

What do I think? I’m skeptical. I wish I remembered enough from my college stats class to back this up, but I don’t think enough homes have sold over a long enough period of time to claim that the market’s downward trend has come to a halt. I’ll be happy when we sell off some more of this oversupply of homes.

Speaking of, South Lake Tahoe’s supply of homes did dwindle some at the turn of the month when seventy listings expired. Only thirteen of those listings are back on the market. With less competition amongst listings, now isn’t a bad time to list.

Other notable activity in September occurred in the foreclosure market. Of the 28 single-family residences that sold in September, 7 of them were foreclosures (25%). At the turn of the month, there were 12 foreclosures in escrow and 15 short sales in escrow. We’re seeing a lot of distressed sales. It’s no wonder that banks are folding on a daily basis.

Only 3 condos sold in the last month. However, some buyers were thinking about the upcoming ski season. An unusually high 6 condos went into escrow.

Four lots went into escrow last month and only two sold. It’s been very slow in the dirt market.

I’d love to hear your comments on any of this. I will update a few numbers as some agents haven’t been able to input their September sales in the MLS yet.

* For the sake of statistical integrity, my absorption rates are no longer considering sales for the last year. They are now calculated using sales for the last 90 days. For more information on why I decided on the change, e-mail me at drew@southtahoehouses.com.

I love real estate statistics. I got a math degree from the University of Texas, so I could make a career of real estate stats. In this blog, I’ll keep things relatively simple.

In efforts to improve the statistics I present you, I am beginning to mine for and calculate absorption rates and months supplies of inventory for you. These stats are important because they reflect how a market is doing. They also help savvy buyers and sellers establish and meet their goals.

Absorption rate – the rate at which real estate is sold, or absorbed, in a specific area

I calculate absorption rates in terms of homes sold per month. Thus, for South Lake Tahoe the absorption rate is the number of homes sold in the last year, 341, divided by the months in a year, twelve. 28.4 homes are sold per month in South Lake Tahoe. This is the absorption rate. (Feel free to skip the rest of this paragraph.) Some people like to express absorption rates in relation to the amount of inventory. Our inventory in South Lake Tahoe is 476 homes. Thus, 28.4 homes is 5.97% of the inventory; so the absorption rate is 5.97% of the inventory per month.

Months supply of inventory (MSI) – an estimation of how long it will take for all the market’s homes to be sold, or absorbed, based on how many homes are currently on the market and the rate homes have sold in the past (absorption rate).

This is pretty simple. If 28.4 homes are sold per month in South Lake Tahoe, how long will it take to sell 476 homes? Divide homes by homes sold per month (476/28.4 = ???). It will take 16.76 months to sell all the houses. This is the months supply of inventory (MSI). You may now be asking, “Who cares? New homes are listed all the time. You’ll never sell the entire inventory in South Lake Tahoe.”

This is true. MSI is simply used to compare the size of an inventory to the rate of sale. This is very important. MSI is a great indicator of how balanced a market is.

MSI less than 5 months = seller’s market
MSI equals 5-7 months = balanced market
MSI greater than 7 months = buyer’s market

These guidelines are not fool-proof. Notice in the table below there is a 6.7 month supply of inventory in the sub-$300,000 price band in South Lake Tahoe. Any seller in this price band will tell you it’s not a balanced market. The buyers continue to call the shots. The MSI stat was skewed in this price band by desperate sellers, especially banks, who bent over backward in the last year for buyers. Thus, the absorption rate was increased, which decreased the MSI.

So how can these stats help you? I’ll preface the answer by saying that no mathematical model can be used to determine what will happen in real estate. There are way too many factors involved. That having been said …

For sellers, these stats will tell you how much competition you have. Let’s consider a seller with a $1,500,000 listing in South Lake Tahoe. With almost 33 months of inventory, he better think about some serious price reductions if he wants to sell soon. The seller with a sub-$500,000 listing (6.7-13.3 months of inventory) should also think about a price cut. However, there is a greater chance he’ll get lucky and find a buyer who loves his home and qualifies for a loan.

For buyers, MSI will tell you how negotiable sellers may be in different markets. If there are 3.5 months of inventory in Bangladesh and 10.2 months of inventory in Baghdad, the sellers in Baghdad will probably be more negotiable.

If you have questions about these statistics feel free to comment, e-mail me (dkondo@chaseinternational.com), or call me (530-545-1831).

South Lake Tahoe real estate statistics as of 7/1/2008