Lake Geneva Market Prediction

Lake Geneva Market Prediction

I get asked lots of things. For instance, people say, why haven’t you updated your photo on your website? In response I tell them that I don’t feel like it. There’s currently a competition amongst all Realtors, the world over, to see who can use the oldest photograph on their website and/or business cards. To be fair, the business card photo is in a separate category of the competition. I’m currently in the competition, but in terms of using super old photographs on marketing materials, I’m not even on the local leader board. Besides, I know that when people ask about my old photo they’re basically just saying that I look super old and beardy and fat. That doesn’t bother me.

I also get asked about properties, a lot. People email or call, and then I tell them what I think. They ask more questions, and then I answer those and interject some more juicy tidbits that they didn’t ask about. Then, I ask them if they’d like to see the house they asked about. This is when they go dark, and then I find out later that they bought the house I talked them into. The South Shore Club has one such example currently, and while the buyer did end her declaratory sentence wherein she told me she bought the house direct with a smiley face emoticon, my bank still says they cannot accept smiley face emoticons as a form of payment on my mortgage. I argue that Bitcoin is just another type of smiley face emoticon, mined by computers in Norway, but they don’t agree.

Once the questions about my photo and the questions about properties that people plan to buy from other agents have subsided, people like to ask about the market. How’s it doing? I tell them it’s doing fine. they ask how I’m fairing, if I’m hanging in there. This is when I play along and tell them I’m okay. If I answered the question with bravado and told them that I’m indeed the #1 AGENT in Walworth County, it wouldn’t be perceived as humility. Plus, they’d look at my generally casual appearance and assume that I am lying to them. I’m not, but I just play along. Then, once they’re done with all of that, they ask where the market is headed. They want to know what it’s going to do. I tell them I don’t know, and then I answer the question anyway.

Where is this market heading? What will the next one, two, three or five years look like? That all depends on a lot of factors that I cannot control, but I can certainly tell you what I think will happen. I can certainly identify the obvious factors that will influence our market, which shouldn’t be a big deal but is, in fact, somewhat rare in this market. Some agents just like to tell you about pretty curtains and others prefer to regurgitate national housing statistics that are fed to agents in NAR emails. I’ll take a stab at telling you where the market is going, but as is my angle, we have to first remember where we’ve just been.

If the peak was early 2008 and the trough was fall of 2011, and the swing between those two points was around 35%, then our benchmarks are established. Today, I think we’ve added about 20% back to our valuations, so we’re somewhere around 15% off the peak, but 20% above the trough. Since the trough was almost exactly three years ago, we’ve been adding 7% (rounding up, as Realtors tend to do) annually to our valuations. For those who think this number to be unimportant, please understand that this is a huge amount of appreciation in a very short period of time. The market has been rewarding blue chip properties, particularly in the $2-$3.5MM range. Adding 7% annually is very nice, but is it possible to continue that growth moving forward? Nope.

That’s why I see the market appreciation slowing. These gains must be digested, and we must test them for a bit before we can move forward, onward and upward, and always twirling. Consider a hypothetical property in this recent trend. The house sold for $2.5MM at the peak. Sweet! Then the house sold for $1.5MM at the bottom. Crap! Today, that house is likely valued around $1.8MM, reflecting a 20% gain from the trough of 2011. Is that house worth $2.2MM in three more years? I’m going to suggest that it won’t be, but it might be worth $2MM. That valuation would depend on a 3% annual gain, which should be a reasonable expectation, depending on a few factors.

It’s no secret I’m not concerned about interest rates as much as I’m concerned about stock market returns. While the growth of the stock market has been a huge driver of purchases over the last several years, we don’t need the growth to continue at this pace to continue our momentum. Now that we’ve added back the losses of 2009, most of those in the lakefront market are feeling fairly confident in their personal economy. Remember, broad economies are important, but personal economies drive real estate markets. If everyone in some small town in North Carolina works at a plant that closes down, that town will suffer no matter how robust the national housing market. In the same way, if the stock markets stagnate and fewer people experience the joy of life changing market returns, this doesn’t especially matter to many lakefront buyers.

If the markets are flat, or they trade within a 10% range from where they are now, Lake Geneva should continue to thrive. If interest rates go up, as they badly want to, that won’t matter much. Will it potentially stall some growth in our off-water association markets? Possibly, but this is a lakefront post. Geopolitical events matter, but if you look to the lakefront market performance this year, and you consider the incredible instability in the Middle East and the Ukraine, and you remember that one plane went missing and another was blown up in mid-flight, and then consider that Ebola is sort of annoying, then perhaps our market has some blinders on. If Ebola strikes Lake Geneva, I think our market is in trouble, but the Grand Geneva airport has very few Liberian Airlines arrivals.

My take on the next few years is simple. The markets continue to perform nicely, but I’m not expecting 7% annual gains. There should be some pricing resistance somewhere around this level, and I’m asking customers to buy lakefront homes because they want to, not because they plan on banking a fat annual return on them. Over time, the markets will continue to gain, all be it much more methodically.

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