Geneva National looked so primed a year ago today. Prices looked cheap, interest rates looked low, inventory looked plentiful, and for what felt like the first time in a long time there were buyers milling about. The mood in GN during the first quarter of 2012 was a good one, a positive one, a mood that reflected a general sentiment shared by many, including me, that Geneva National was on its way back. And at least for a while, that was the case.
Spring at Geneva National was good and the market was strong. I personally sold two condominiums and one home in GN last spring, and was confident then as I am now that I helped three buyers secure value. Then the summer came, and with it the heat, and with that heat came a sort of quiet and Geneva National stalled. Stalling is nothing new for GN, in fact, this might be the single maneuver that GN is most skilled at. The market slowed, inventory grew stagnant, and the somewhat torrid pace from the first few months of the year withered. Geneva National ended 2012 with 35 condo and house sales per the MLS. Not bad, not great.
2011 had 41 such sales, while 2010 had just 27. Of the 35 sales from 2012 four of them were over $400k compared with just three over $400k in 2011 and well short of the 10 sales in 2010 over that threshold. Even though Geneva National fell short of its 2011 pace, there is reason to think the 35 sales from 2012 are just fine, and that the market will continue to heal slowly, through default of some owners and value discoveries by new buyers. There are plenty of reasons to think this recovery in GN is both underway and still a long, long ways from complete.
While the built sales matter in GN, what might be most alarming to anyone with a vested interest in GN is the vacant land market. Just as the condo fortunes rose and fell and then rose again and then fell again, so too the vacant land market within those gates. When I bought in Geneva National and then built, I paid right around $100k for a lot in the Barclay Club. This lot was a nice lot, large enough and level, on a dead end street inside another tier of gates. That lot was the best I could do with $100k in 2005, or 2006, whenever it was, as the vacant lot market was on fire. Golf course lots were $130k to $160k, and many of the inferior lots were still in the $80k range. Geneva National back then was a hot commodity, and spec home builders of all sorts rushed to buy vacant lots in hopes of building ugly houses and thus securing their fortune.
During 2012, there were six vacant lot sales in GN. The number of sales don’t matter much, but the price of those sales does. While a lot sold for $175k in the Hunt Club enclave, and another on Waterview sold for $60k, the other four sold for $35k (Prestwick) or less. And by less, I mean super duper less. A lot on Masters that I had considered buying earlier last year ended up selling for $17k, and two others sold at $7500 and $10k. These prices depress me, and they depress the market at GN, and while many people don’t see the connection between the land prices and the home prices, the connection is obvious and unavoidable.
If a lot is worth $100k, and a house can be built for $400k, then there’s a $500k package. If that home is built and then offered for sale and then it sells for $450k, the buyer of that property purchased it for less than they could have built it for, given those valuations and expenses. If that same lot is now worth $15k, and the buyer buys for $450k, the buyer didn’t just overpay by a little, he overpaid by $35k. The value of the vacant lots matters, and if sellers are asking prices for their homes that factor in their original land acquisition cost then those sellers are simply not offering their properties at 2013 levels. The ultra low prices being paid for the vacant lots in GN will drag on the built housing there until such a time that the lot prices stabilize at a range that makes replacement cost on par, or greater than, the prices of the current built inventory.
2013 for GN looks to me to be a lot like 2012. Foreclosures will continue at some pace, and will likely not subside this year. Lot sales will stay depressed, and there’s no way that drag doesn’t hold back the values of the built properties there. The condo market will mend, if slowly, and expect to see similar volume and closed prices as we saw in 2012. Geneva National should benefit from the low interest rate environment, and stable stock market returns can’t hurt either. GN is a most rare commodity in this market, and with championship quality golf and an impeccable outward presentation it simply can’t stay down forever. Unfortunately, I don’t think 2013 is the year it pulls itself off the mat.