Lake Geneva Foreclosure Update

Over these 17 years, I’ve spent a lot of time at this desk. Not this desk, necessarily, as this desk was only my desk after I bought it in Canada on the now long-forgotten strength of the US dollar. I bought it, strapped it to the top of a red Grand Cherokee, and drove it home, over 800 miles of mostly barren wasteland, or the upper plains, whichever you prefer. This desk wobbles now, so the desk I’m talking about is less the one my forearms are resting on now and more the figurative desk of my real estate career. Over that time I’ve learned a lifetime bunch. I’ve learned about markets and psychology and about the tendency of a real estate transaction to bring out the absolute worst in many. I’ve learned that, and I’ve also learned that the broad context of real estate is a mix of smoke screens and slight of hand, a right hand waiving in the air to distract from what the left hand is doing. Real estate, on a national scale, is presented as a larger narrative, and the tone of that narrative is everything even when it isn’t.

That’s confusing. But it’s true. Over the weekend, two headlines caught my attention. One, in the Chicago Tribune, likely an AP reproduction, touted the incredible, many hundreds of percents increase in price in the Orlando, Florida area. I find this to be troublesome, not because Orlando isn’t worthy of some pricing rebound after it was decimated when everyone realized that central Florida is an absolutely horrible, God-forsaken place, but because even now, after the rebound, central Florida is still an absolutely horrible God-forsaken place. Even so, the market there has recovered, based on the desire that people have to sit by swimming pools in the middle of the desolate landscape that is the interior of Florida. Have you ever seen their cows in Florida? They look like the ones that Wisconsin farmers routinely put down for being weak, scrawny, likely diseased.

If we subscribe to the theory of a real estate Illuminati, some larger forces that work in secret to craft our perception of the markets, then this story was aimed at bolstering the market with a, “See, everyone, even nasty central Florida is hot! Hot, hot, hot!!!” In this, there is excitement about the real estate markets, there is some reason to celebrate, reasons to abandon what’s left of our crisis-induced reason and rush into the arms of real estate. Then, the same weekend, in another article, Rockford was thrown under the bus. The Wall Street Journal told us, without tenderness, that Rockford is the Underwater Mortgage Capital of America, where, “even the mayor is underwater!” The tone was both ominous and glib at the same time.

So what are we to believe? That the market is fabulous, and that central Florida is indeed a swampy real estate utopia in the middle of the central Florida desert? That this real life animal park of massive snakes and sickly cows is not just literally, but also figuratively on fire? Or are we to believe that the Rockford’s of the world still exist, and that the recovery is painful and seemingly eternally delayed? Or should we ignore these stories as anything but snippets of fact from different markets, and instead only focus on the individual happenings in the market that we study? Exactly.

The foreclosure scene at Lake Geneva represents a bit of a paradox. On one hand, foreclosures are most definitely ebbing, and those foreclosures that do hit the market are listed at Fannie Mae prices that no longer represent any serious discount to the broader market. But on the other hand, these foreclosures still exist at an elevated level, and in a small market even a small handful of foreclosures can dash the best laid plans of a thorough and spotless recovery. With this information, it’s best to view the foreclosure scene one month, one property, one scenario at a time. Here’s what I see today as it relates to the Lake Geneva vacation home market, and the foreclosures that at times nip at the edges.

The good news is that I don’t see anything out there right now brewing in the lake access associations. There are probably a few that I can’t see from scanning the sheriff’s sale schedule and the lis pendens filings from the past 30 days, but the broader trend is a good one. Additionally, the Abbey Villas appear to be firming up and Abbey Springs continues to scoff at the idea of a foreclosure. Geneva National looks as it should, with perhaps three or four foreclosures in the works. This is unfortunate, but as that market continues its slow slog towards redemption, it should be expected that these foreclosures will continue to trickle onto the market. The lakefront condo market remains resilient, even in the face of low volume and stagnant prices, which continues to shock me as the combined burden of elevated dues, taxes, and peak sales prices should have weakened a few more owners than it has. Overall, a nice testament to the strength of the lakefront condo owner.

There are at least two foreclosures on the lake to watch. I see one percolating in the South Shore Club, and at the current list price of the home I cannot imagine a way that the home sells before the sellers’ succumb to the foreclosure process. Perhaps this property will sell before it is lost, but that seems unlikely to me at this late hour. The ramifications for the SSC are little, so long as the home sells later as REO for a reasonable price, which it will. Anything over $2MM for that home won’t negatively impact the SSC, and if anything, a sale here bolsters the Club through increasingly strong ownership.

There is another foreclosure in the works on the lakefront, and I don’t know whether or not the property will actually transfer via that foreclosure. The owner has time to wriggle off of that sharp hook, but if the property does come back to market as REO there’s a good chance it’ll represent sound value. This is a $2MM type foreclosure, and while it doesn’t pose any threat to the lakefront market and the incredible amount of activity in that market at present, it does hurt. It doesn’t hurt because of what it does to prices, because it won’t do much. It hurts because a buyer who buys a discounted REO property is a buyer who doesn’t end up buying existing inventory. Existing inventory needs to sell in order to move a market forward, and losing a buyer or two a year to distressed properties isn’t a benefit to a low volume market.

Also, I don’t like Orlando.