As we near the end of year three of our nationwide real estate meltdown, I believe I’ve finally figured out where the market bottom is. I couldn’t tell you on a national level, as no such thing exists outside of Case Schiller conference rooms and HGTV television shows. I can’t tell you regionally when it happened or will happen, nor can I uncover the date of the Walworth County bottom. I can’t tell you about Williams Bay or Fontana or Lake Geneva either. Market bottoms are like that. They’re specific and heavily segmented, and as such they’re impossible to identify in broad terms. Understanding that is the key to understanding a market bottom phenomenon, and in the case of the Lake Geneva real estate market, I’ve finally identified one specific market segment that has reached its collective bottom.
You may be shaking your head. You might even think I’m an idiot, like the commenter from the other day who left me a enigmatic message that may or may not have implied that I was an idiot. Yes, I’m the same guy who previously talked about market bottoms as though they exist only in theory, and only when identified at some point in the past, and as they relate to broader markets, that much remains true. Whether unicorns fly freely and uninhibited without fear of retribution at these market bottoms is still unclear. But what I failed to see previously is what is so crystal clear to me today. Market bottoms do happen, and there are times when you can see them forming and ultimately solidifying. In the case of the entry level lakefront market on Geneva Lake, the bottom has revealed itself to me and to others over the course of the past 10 months. It’s not difficult to decipher, but first you have to understand the earmarks of a true market bottom.
Market bottoms are easy to talk about, but most agents and pundits find them a bit difficult to explain. They might exist, but watching one set up and stabilize and identifying it at the time is an entirely different animal. If you’re looking to determine a market bottom, it’s actually a very easy thing to do. The first question to ask yourself is, at what price do nearly all of the properties in this market segment become liquid. In terms of stocks and commodities, it might be explained as at which point do the values find support. For all real estate, even the worst Michigan properties that inhabit and overwhelm my worst nightmares, there is a price where someone would buy them. Once the pattern has been established through a significant number of sales, and the price levels remain the same, it could be argued that a bottom has been installed.
The entry level lakefront market on Geneva Lake has had a storied run over the past 15 years. When I started selling real estate in 1996, entry level lakefront homes were priced between $500k and $600k. Those entry level lakefront homes peaked in 2006 or early 2007, when for a brief time, the most economical lakefront offering was priced between $1.8MM and $2MM. The descent of the last three years has been slow, but 2010 has made the entry level lakefront market very easy to figure out. Consider so far this year we’ve had six entry level lakefront sales closed between $1.145MM and $1.59MM. The cheapest sale was a very basic cottage on the bluff of Cedar Point, and the most expensive sale was in the same location (one door south) but boasted a four bedroom home with classic features that had been thoroughly and wonderfully remodeled. The newly established range for entry level lakefront lies between $1.1MM to $1.35MM. I’m here to make a very bold, possibly fatal proclamation: This entry level lakefront market has reached it’s particular market bottom for this market cycle. Sound the trumpets, and for heaven’s sake, would someone please release those darn unicorns!
The reasoning behind my proclamation is both simple and solid. At the point that entry level lakefront homes are reduced into this magic strike zone, they will all sell. It’s not sellers who dictate the market bottom, it’s buyers. And when buyers see lakefront homes on Geneva in this price range, they’ll buy them. Even the most reticent vacation home buyer can turn into an animated buying machine when the lakefront price reaches that low $1MM number. If an established price point finds buyers support, a market bottom will develop and prices won’t be able to drop through that support. I can say this with relative confidence as I personally have several buyers who would jump at lakefront homes in that $1.25MM range, and if I have buyers of that mind, chances are other brokers do as well. Please keep in mind, I’m only discussing the entry level lakefront market here. Those homes are usually older, small, and positioned on lakefront lots with no more than 75′ of frontage, though most lots will only have around 50′. The larger estates and newer homes are still valued up to $10MM, and the market conditions of those other price ranges have nothing to do with this entry level market bottom.
Ah, market bottoms. Perhaps they really do exist. Perhaps they can be identified as they’re happening, and not only in hindsight when even my nearly blind grandmother sports a 20/20. When they’re finally identified, they’re no longer something to be either feared or revered, they signal a buying opportunity that nearly every buyer in that individual market can sense. Don’t fear the market bottom. Don’t dream about it either. If you’re an entry level lakefront buyer, saddle up that unicorn and point it toward the lake.