That’s a long title, but if I don’t really spell things out my search engine friends won’t respect my content. The national real estate market today feels top heavy to me, just as it has for the past year or more. Did you know that every nice house in Florida now costs at least $10M? Did you know that if you live in Winnetka and your AGI is $3M per year you could move to AnyDecentTown, Florida and buy your $5M Winnetka house for $10M? But don’t worry, you’ll be saving $150k per year in income taxes, so you should absolutely uproot your family to sAvE mOnEy. You can use some of that $150k to pay for snake control.
What was I talking about? Right, the markets. I refuse to believe that a 700 square foot condo in Aspen that looks like a crappier Motel 8 is always going to cost $2.5M. It just isn’t. We had the perfect storm of real estate mania over recent years, and these markets that saw valuations literally double over the past 18 months are not going to hold onto all of those gains. Carve that in stone. Just as the stock market is now saying “Maybe 20% Annual Gains Forever” (MTAGF) isn’t sustainable, real estate markets in uniquely overheated regions will also follow suit. Yes, people left cities for far flung or otherwise attractive other cities, but at some point you run out of people hurriedly moving from one city to another.
The Lake Geneva real estate market has benefitted from this froth, but not nearly to the degree that other places have. I’m selling a lakefront home today that I sold a year ago. That lakefront home is selling for a 20% premium over its prior sale. Is that a big move? Yes. Did you also know that Aspen YoY gains are 60%? Now you do. Did you know there are now summer rentals in the Hamptons that will run you $1,000,000 per month? Market froth is not applied evenly, and so while Lake Geneva has had a very nice run, we haven’t been out of our minds like almost every other elite destination in these United States. The Midwest might boast the most miserable Aprils, but we still have some economic sensibilities.
It isn’t the size of our frothy dollop that might save us from a significant downturn. If we avoid a painful landing, it’ll be owed to the thing that has historically made Lake Geneva as popular as it is. This might surprise you, but it’s not the amazing water quality or our beautiful shoreline. It isn’t our coffee or ice cream shops. It isn’t even the way an A-Scow race looks on a Tuesday evening and that beautiful grass that connects your lakeside patio to your private pier. It’s our geography. Torch Lake in Michigan is a nice lake. I dare you to drive up on a Friday night and return home Sunday morning because Junior has an 11 am soccer tournament. Aspen is a cool place, but unless your jet has your name on the tail, you’re not going to run there on Saturday because the weather forecast was wrong and it turned out to be 80 and sunny. Even if you do go to Aspen in July on that 80 degree sunny day, do you really feel like going for a hike? I guess if you don’t feel like going for a hike you could always GO FOR TWO HIKES.
I have two lakefront deals pending this morning, both off-market transactions. Do you know who hates off market transactions? People who don’t have buyers and sellers to connect in off market transactions. I put two more deals under contract last week, both of those are also off market. Why do buyers and sellers like off market deals? Because they’re easy and simple. If you want to list your home on the open market, that’s wonderful and still very useful, but as a buyer you’re aware that by the time a property hits the open market it has already been considered by lots of other buyers, right? Maybe you don’t know that. Maybe you think that automated listing feed is your inside track.
The market at Lake Geneva this morning is somewhat mixed. Interest rates are rising fast, and that increase is causing some people to rush to purchase something because rates are likely going to be even higher next month. Is this a continuation of our trend or a blow off top? Your interpretation of the movement is anecdotal, for now. The equity markets are faltering, or at least all of the equities I own are, and we cannot pretend that a disrupted stock market has no bearing on the vacation home market. It does. Yet every time I think the market is beginning to pause, buyers materialize and snap up inventory. I was working to list a home in the $1M+ range last week when the home sold before I could even tell them that they should let me sell it off market. That sort of market movement is still present, and as long as motivated buyers crash headfirst into an absence of inventory, a market cannot see meaningful valuation declines.
The lakefront market today is testing the motivation of the would-be lakefront buyer. Will buyers pay enormous prices for properties that shouldn’t command them? I say the answer is no, or at least it’s a no from buyers who seek my counsel, but I do not have the ear of every buyer in this market, which is something I continue to work on. My best advice for buyers in this market remains as it has been for the past two years. You’re going to pay a market premium to purchase a lakefront home in 2022. That premium is going to be in the neighborhood of 10-20% over valuations from last summer. If you can abide that increase, which is modest when compared to other premier vacation home markets that lack our meaningful geographic advantage, then you should be hunting down blue chip properties. Don’t buy the garbage just because it might be available or feel otherwise “cheap”. Buy quality locations and quality homes, and if you do that, you’ll have positioned yourself to endure a sideways or otherwise choppy market.