During the dark days of 2009, when sulfur hung like stale sheets in the air and the incessant gnashing of teeth left my ears longing for the pain of finger nails on Mr. Loyd’s 1988 chalkboard, there were lakefront sales, to be sure, but sadly only 11 of our utopic lakefront properties changed hands that year. You’d think, if you weren’t paying attention, or if you were erroneously working with someone else, that 2008 was the bad year. The reality is that 2008 registered at least 14 lakefront sales (per MLS, as all of these stats are), and 2009 was able to muster only 11. If misery loves company, the lakefront market must have had a lot of guests during 2009. Fast forward to the year now past, and the lakefront market enjoyed a resurgence of epic proportions. In fact, the 19 lakefront sales (South Shore Club, you’re out for today… the link will only show 18 sales, one was a sheriff’s sale, not in the MLS) only fell 2 sales short of the torrid pace set in 2007, the year that was likely the peak of our lakefront market here both in terms of volume and sales price.
The statistical resurgence is impressive, indeed, but the reason you’re reading this today is to find out the reason behind the resurgence, not just to read the reciting of facts. If you must know why the market rebounded in such a glorious fashion, the truth you’re looking for is found only in the price column. Prices softened during 2010 in a way that they didn’t in 2009, and that simple confluence of increased consumer confidence and appealing prices led our market to a full volume recovery. I say volume recovery because, while the numbers might not entirely tell this tale, the trend during 2010, as it was during 2009, is a continuance of price declines, be them ever so modest.
While the volume recovery, on a percentage basis, was massive, the pricing trend shows a 13% decline in average sales price from 2009 to 2010. Thus leading me to the stern Blitzer-esque prediction that the Lake Geneva lakefront market has dropped 13%. If I were only an economist living in a cushy Washington row house, I may believe such a simplistic explanation of value. But I’m sitting at a cold desk in Williams Bay, my keyboard melting with the ferociously fluid movement of my fat fingers, and I know better. I know that prices on average are probably down somewhere in the 10% range, but the statistics only prove that figure because of a massive sales increase in the entry level lakefront market. Throw out my $5.885MM sale and Blitzer and friends would lick their thin lips at the swell of the apparent decline. For all the sales during 2010, the real story was the recovery of the entry level market- a recovery only made possible by a loosening of the list price, and a seller’s willingness to negotiate that had been largely absent for the previous decade.
10 lakefront homes sold for $1.61MM or less during 2010. The influx of activity in this market led the averages sales price down, just as they led the volume up. This increase in volume in the face of declining prices is something that I’ve been saying would happen, and it finally did. The large number of entry level closings is a positive, but the sales could have an unwanted side effect. See, the entry level inventory on Geneva is shrinking, and not only when it comes to on-market properties, but when it comes to properties that exist in this price range. Aside from single family lakefront areas I dislike (Walworth Avenue in Williams Bay for starters), entry level lakefront homes, those priced less than $1.5MM, are growing increasingly hard to come by. When a buyer purchases a home for $1.25MM on Geneva, and tears it down to build new, that’s effectively one entry level opportunity wiped from the books. If the same owner buys and completes a significant remodel, as many are prone to do, that also moves the ultimate value out of that entry level range. More entry level sales are great, but if you’re a buyer who’s watching the ship leave the pier, you shouldn’t be happily waving. You should be crying. Balling your eyes out, actually.
Unlike other agents, I don’t think you should be crying because prices are going to float out of reach. I think you should be weeping because the available inventory grows that much smaller with each sale. Remember, even in a soft pricing environment, Geneva is still exclusive, and properties rare. If you’re looking for an entry level home that you can buy for sub $1.25MM, you just made an exclusive market look downright elusive.
So what’s on tap for 2011? More than likely a continued pace of lakefront sales. The lakefront market benefited from pent up demand left over from 2008 and 2009, just as the broader market did, but what remains to be seen is how many buyers didn’t pull the trigger during 2010. I think there are plenty of motivated buyers still out there, and there should be enough to register between 15 and 19 lakefront sales during 2011. Anything in that range would represent a continuation of the recovery, anything less would be a disappointment. The lakefront market will depend very heavily on inventory, and if we can build to a nice level by March 1st, we should have a strong spring selling season. The key will be to find a way to replace much of the sold entry level inventory, a task that I fear may be somewhat difficult to do.