The long time bread and butter portion of the Lake Geneva real estate market is suffering. The entry level lake access market, defined for the sake of this article as those lake access homes priced under $500k, is struggling due largely to an absence of buyers. Profound, no. In practice, every market that is struggling is struggling because of a lack of buyers. That much is obvious. But many times the market is struggling because of pricing or other issues, not because the market lacks buyers. It seems to me that the entry level market has been squeezed by the lack of available equity in the suburban homes of the typical buyer.
Times were, a city or suburb dweller could stand in their front lawn, look back at their house or condo, and extricate serious amounts of cash from the available equity in that property. This equity draw made it possible, and extremely convenient, for this buyer to march north, find an entry level lake access home in the $300k price range, and purchase it without having to endure the hassles of traditional financing. The equity in primary homes drove the purchase of secondary vacation homes, and to a degree, it still does. But with equity either diminished or made impossible to tap due to newer HVCC regulations and tightened lending standards, the equity that fueled a run on entry level lake access homes at Lake Geneva has lost all momentum.
Can you tell my allergies are bothering me and I’m in a bit of a foul mood? I thought so. I don’t mean to pick on the entry level lake access market today, but it’s obvious to me why the buyers are MIA. Since the buyers are either gone or unmotivated, the only thing that sellers can do in this price range is lower their prices to the point of market acceptance, and move on. If sellers are unwilling to reduce to attract those buyers, the inventory will stagnate, which is pretty much what it’s doing right now. Remember, today we’re only talking about lake access homes in the sub-$500k price range. The homes that are the cheapest entry point to a Lake Geneva vacation-loving lifestyle are now the homes that are most in need of buyers.
Lakefront buyers are still out there. Very few of them used equity in primary residences to fund purchases of vacation homes. The upper end of the lake access market is slow, but that’s slow because the prices are out of whack (as discussed earlier this week). There is a mid-market I haven’t yet talked about, those homes priced from $500k to $850k, and those homes are struggling for reasons that, in my mind, have a little bit to do with all of the other factors combined. High unemployment hasn’t really hurt the vacation home market here, as high unemployment tends to hurt the primary home market more than the vacation home market. When talking about high unemployment, it’s important to remember that affluent people tend to buy vacation homes, and the unemployment rate among the affluent is a mere 3%.
The lake access market priced to $500k, as of this morning, has 45 available properties. The most economical home with private access to Geneva is an overwhelmingly humble cottage in Glenwood Springs priced at $185k. There are three properties pending sale right now, and probably a couple more that have active offers that I’m not aware of. The market is rebounding a bit, as has the broader vacation home market, but in order for the market to continue making gains, we’ll either need to see a higher stock market (unlikely it seems for 2010), an increase in property values in the city and suburbs (equally as unlikely for 2010), or a decrease in list prices. Since the first two have more to do with the economy as a whole than the hyper-local market surrounding Geneva, the prices are the only thing that sellers can control. If sellers want to find these entry level buyers, they have to adjust their price accordingly. The fact that a home was potentially worth $425k at the height of the market means very little to me today when buyers are only interested at $300k. Something that is lost when discussing these numbers is that the same hypothetical property that may have been worth $425k in 2007, and might be worth only $300k today, was probably only worth $200k in 2000. That means that sellers are still up from 10 years ago, and they should rejoice in that fact.
For now, the entry level market will plod along. This particular market usually has a good late spring and summer, and with at least three contracts on the books right now, there’s reason to believe we’ll add several more during May as buyers try to capitalize on the first of many Lake Geneva summers. My Harvard Club listing probably sells in this price range, and is down from an original list price of $775k to a much more reasonable $549k. A dramatic price drop indeed, but a price drop that was necessary as we continue to search for capable, motivated, entry level lake home buyers.