When considering a home purchase, it’s apparent to everyone, everywhere, that you have choices. Choices about location, bedroom count, bath count, garage spaces. Choices about roof lines, home styles, countertops and appliances. You have a choice as it relates to geography, indeed this is the most serious of the choices. But you have additional choices that aren’t so obvious. Choices that you can’t touch and feel, choices that don’t involve a particular living room and whether or not it could be perfect if it just had two more feet of depth. These are the choices that involve the market, and your aim, and how in tune your aim is with that market. These are the choices that buyers overlook.
When times are bad, these choices are everything. Should I buy a home in this neighborhood, considering 25% of the neighborhood is for sale? Should I buy a home on this street even though 7 of the 28 homes are in some varying state of foreclosure? In 2012, we thought about these things. I thought about them in Lake Geneva, and you thought about them in Hinsdale. Somewhere in Tennessee, where ownership in town involves the painful, yet mandatory, pulling of two or more teeth, they thought about them, too (This sentence is a joke, FYI). But that was then and now it’s 2020 and no one has time for such thoughts. To entertain thoughtful contemplation of greater market context is to be left behind. Or so states the prevailing “wisdom” of the day.
At Lake Geneva, the choices in 2020 are at once specific and yet not so obvious. When this market is soft, buyers seek out value by comparing specific shorelines, or at least specific pedigrees of a group of shorelines. If Basswood is good, then Snake Road is, too. That’s the sort of comparison that takes place when buyers are paying attention. But when markets heat up and buyers find themselves in a market like the one this morning, the tendency isn’t just to blur the line between good and bad or better and best, it’s to downright remove the line altogether. In this, buyers make decisions based on the immediacy of inventory rather than on the lasting tendencies of specific areas of the lake. If there is one key mistake being made over the past 24 months, this is it.
If we’re trying to be objective in our review of the market and our understanding of its inventory, then there’s no way we can arbitrarily decide what sections of shoreline are ready for gentrification. The way to decide that is to look to that specific shore and understand the historical comparable sales. If a specific road has a history of selling for $2.5M or less, does a $2MM tear down on that street make sense? In 2020, specific buyers may answer that question differently, but if they look to understand the street itself and the historical concerns about the subject street, then the answer isn’t subjective or vague. It’s right or wrong. Understanding the example I just gave you, the answer would be no. And if a specific buyer answers the question with a yes, then we can objectively review the situation and their chosen answer and understand that they are wrong.
Increasingly, this is our Lake Geneva problem. Buyers are looking at the lake as one homogenous body of water, with varying streets that all provide immediate and direct access to it. In this, they are correct. But the market is failing to understand the unique price points that accompany these specific streets. Because of this, we’re seeing $5MM builds in $2.5MM neighborhoods. We’re seeing $2MM tear downs in $2.5MM neighborhoods. What we’re seeing today makes some sense in the context of today, but if we expand our knowledge of the lake and this unique market, then we’ll see that these projects will prove to be errors during any but the hottest of markets.
The side benefit of this misguided understanding of our market is that through the mistakes of others we all end up with a greatly improved shoreline. This is to our collective benefit, and for this, I suppose we should be thankful. But for the buyers who are making their purchase decisions based on the immediacy of 2020, I urge you to consider context. Without this context, the sort created by understanding long established themes of specific roads and sections of shoreline, every purchase decision looks good and wise. Unfortunately, those of us who understand this market and its cycles know this just isn’t the case.