I’m thinking of buying a new boat today. Not some sort of normal, modest boat, but a brand new, super shiny, crazy-fast, prohibitively expensive one. Renters buy normal boats these days, homeowners go big, and we go loud, and if we aren’t bordering on obnoxiously garish, well, then we aren’t acting like homeowners. Case Schiller told me yesterday that my home appreciated 13% in the last year, and I didn’t even have to do anything! What a wonderful annual payment for my stewardship. The value of my home is debatable, but I’m guessing a 13% increase means I have approximately $80k more to spend today. Home ownership is an incredible amount of fun, and so is boat shopping. The two, during a year like the one just ended, walk tightly hand in hand.
If this is your first visit to this site, welcome. You may be confused by the tone up there, but if you’ve visited more than once, you know I’m spewing sarcasm. The media was rather infatuated with this new number. 13%. It might have been 12.9%, but 13% is a much cleaner, brighter number. The number offered some redemption for owners who were treading water, barely keeping that monthly rock over their heads. The number offered hype for the Realtors who regurgitate national numbers and apply them to their individual market. The number offered further proof to housing naysayers that the market is once again overheated, and will be plummeting to fresh depths in 5, 4, 3, 2…
Housing starts are down, which is horrible news, according to the world. I’d argue that housing starts being down is a bad thing for builders and a fantastic thing for homeowners. The last thing a recovery needs is more inventory, so if A) You own a home, or B) You aren’t a home builder, you should be happy that home starts are down. I’m happy about it, because of the A and B options. Housing starts are down, permits are down, and the actual housing markets are better for it. Builders have a nasty tendency to overreact to both corrections and booms. When things are bad, they turn off completely, starving the small segment of the market that might do well to see some new inventory. When things get even remotely better, they turn on and start building everything, everywhere. Moderation is what we need from home builders and developers, and slowing home starts and fewer permits is a positive for the market.
2014 prices should, in fact, look quite similar to 2004 prices. For a while, we were at 2003 price levels, but I’m bumping us up to 2004 prices, as I see that gain of around 10% from our recent lows for the broad vacation home market. If you bought a house here in 2004, there’s a strong chance that current value is similar to what you paid then.
It might be the height of blogging arrogance to quote oneself, but that’s what I just did. I wrote that on March 31st of this year, and Case Schiller just confirmed what I already knew. They peg national prices at mid-2004 levels. That target smooths out the outliers in Dallas and the like, and is truthfully the most important number to take from the new report. If we’re figuring out values today, we need to know where they were at the peak, and at every stage leading to that peak. In 2004 a home with 99′ of frontage in Geneva Bay Estates sold for $1.85MM. In late 2013 a home with 133′ of Geneva Bay Estates frontage sold for $1.765MM. The numbers aren’t perfect, but we’re awfully close to 2004 pricing at the moment, even if many lakefront homes are probably only 15% off their peak values.
There was an article in Crain’s this week that cited some Chicago housing statistics prepare by Corelogic. Their findings came as a surprise, as Lincoln Park and a few other select neighborhoods in Chicago were shown to be merely a couple of percentage points off their 2007 peaks. That’s fantastic news for you if you live in Lincoln Park, but the study was keen to point out that Chicago metro area was still off 27% from its peak. That’s interesting, because…
The idea that we’re off 40% from peak values is somewhat understood now, but there are times when current value is only 25% off peak value. Some lakefronts are off 40%, some lakefront condominiums are off just 20%, and some condos in Geneva National are off at least 50%. A fine average for these is 30% off peak.
I only do this so you can see that my forecasts have a nasty tendency to be accurate. So where does that leave us? What do these numbers mean for Lake Geneva? Well, they mean a few things, and most of those things are good. First, a rising market in Lincoln Park is a fabulous thing for Lake Geneva. I had a customer interested in a vacation home here a few years ago. He lived in Lincoln Park, and he was planning to tap a bit of equity in his Chicago home to pay for his Lake Geneva home. That idea died when he learned the deflated value of his Chicago residence. If we are to take that anecdotal episode and view it as a common consideration, then rising prices in Lincoln Park should fuel an increasing number of Lake Geneva purchases. Think most new vacation home buyers come from Lake Forest? You’d be wrong.
Increased housing confidence stems from market stability, which is what those numbers bear out. Markets are slowing, yes, but only because they were so active over the prior two years. We are pulling back a bit in terms of volume and price gains, and that’s fine by me. Markets are unique, each one rising at a different rate, but the trend is positive. Perhaps not positive enough to go buy a boat with your newly minted paper equity, but still, good.