INCLINE VILLAGE, Nev. — A statistical anomaly has recently occurred that could be a strong buy signal that the bottom has finally been reached for real estate prices in Incline Village and Crystal Bay. While price declines here were not as sharp as in almost all of the rest of the country, many buyers have been sitting on the sidelines and playing a guessing game as to when a market bottom will be achieved. The dramatic rise in the percentage of short sale houses in escrow in relation to the total number of homes in escrow during the past 3 months could be a sign that upward price pressure may occur for the more desirable properties in late 2012 or 2013.

The greatest number of properties to go into default or foreclosure occurred in 2010 and 2011. This was a function of many of the mortgages in 2005 and 2006 having some type of terms like an adjustable rate, balloon payment or other “exotic” feature that had a five-year term. To fully understand why a spike in the percentage of short sale houses in escrow in just the last few months from 25% to over 50% indicates a possible return to a healthier market in the near future requires an understanding of the typical demographic of our buyers and sellers.

Incline Village and Crystal Bay real estate purchases are mostly discretionary in our vacation resort community. Therefore, most of the sales are discretionary, too. Historically when you look at the properties for sale there are a small percentage of owners who truly need to sell and everyone else merely wishes to sell. When the initial reason for your purchase was discretionary and primarily the enjoyment of a vacation home, then it usually takes some type of extraordinary circumstance to dictate an immediate need to sell the property. Most sellers in a normal economy here can plan in advance and establish a time frame during which they would like to get their property sold.

With the collapse of the financial markets in late 2008 and early 2009, the subsequent fallout that hit all aspects of economic life eventually started to have an impact here on the North Shore of Lake Tahoe. The number of people who needed to sell or risk going into default on their mortgage rose dramatically during the last two years. This resulted in significant downward price pressure as everyone who either had to sell or wanted to sell was forced to reduce their prices to meet the decrease in demand and the big jump in supply.

There are many things that led to the equation getting out of whack in the last few years including buyers speculating on properties they really could not afford, an unfortunate economic event such as loss of job due to the recession or any other reason that could cause someone to not be able to make the mortgage payment. Historically, our market has very few foreclosures on an annual basis. So as we work through the existing inventory of distressed properties the ratio of “need to sell” vs. “wish to sell” will change significantly.

With the number of pending short sales (this means deals approved by the owner of the property but not yet approved by the lender) now over 50% of all single-family homes in escrow, it looks like we are reaching a crescendo. This means that during the first half of 2012 we will likely work through a significant percentage of the remaining distressed properties either through short sales or foreclosures. From a purely philosophical standpoint, if we have only a handful of properties in default or facing foreclosure and all of the other sellers are in the “wish to sell” category, prices will naturally start to ratchet upward. If someone does not have to sell and a buyer really wants the property, the seller is not simply going to give it away at last year's price.

I could go on forever about economic theory, but suffice it to say that as property prices drop to certain levels we are seeing multiple offers and short times on the market for the best values. During the winter months buyers can typically negotiate a better deal than when they have to compete with many times more buyers during the summer. That is why from now through June 2012 buyers could have their best opportunities to find good values in all price ranges and rarely deal with a multiple offer situation.

Eventually the economy will recover and the Lake Tahoe real estate market will return to a more normal situation where the “wish to sell” dwarf the number of “need to sell” and prices will once again continue their historical march upward. It looks like the first half of 2012 could provide many good opportunities for anyone looking to make a long-term investment in Incline Village or Crystal Bay real estate.

Don Kanare is a Realtor at RE/MAX Premier Properties. Read his blog and weekly stats on his website at www.InsideIncline.com.