Once in a while, I look at something other than the Lake Geneva lakefront and lake access market. I look at the market on Other Lakes, Wisconsin. I look at the market where the primary residents live and work. I look at the market as a whole, not just at the specific segment that I serve so dutifully. I read the real estate descriptions written by the agents that work those other segments. Close to Lake Geneva, they say when they write about a lake by East Troy. Enjoy All Of The Geneva Lakes Area, they say about a house in Pell Lake. All of these other markets want to be us. They want to be here. They want our action and our pricing. Want to see a visible chip on an actual shoulder? Tour a home on Any Lake, Wisconsin and you won’t be able to avoid noticing this awkward affliction.
But I look beyond those other lakes, and I look at the other markets. The markets where the primary residents live. The markets on the other side of town where the market doesn’t fluctuate with the stock market. Speaking of, there should be no surprise that the Lake Geneva lakefront market performed so well during 2019. The stock market made it that way. The economy made it that way. Seems like a bad time to throw it all away with an experiment in socialism, but this isn’t a political blog, at least not on the surface. The lakefront market is humming along, as is the lake access market. The only part of the lakefront scene that isn’t enjoying such an incredible 2019 is the lakefront condo market, which continues to baffle me. Have you seen these two condos? What must I do to make you buy one?
Alas, when I look at this broad market there is just one segment that surprises me. One market trend that I can’t quite make out. One segment that feels like it might be overheated. Some buyers think that’s the lakefront market, but they’re wrong. I spoke with a buyer this week and suggested she buy a lakefront home that I sold four years ago. The new price is 20% higher than the price four years ago, which caused the buyer to pause. She thought that seemed like an unearned level of appreciation. Welcome to the Midwest, folks, where we think 5% a year in asset appreciation is unwieldy… But again, I’ve gone off on a tangent that I didn’t intend to follow. The oddity isn’t in the lakefront. It isn’t in the condo market. It isn’t in the market on Any Lake, WI. The only oddity I see in 2019 is in the value of a Corn Field Spec Home.
I’ve been shocked at the values in these new developments. And, if you look at the pace of the building, so have the developers. I came of age in this business during the mid 1990s. At that time, a new Williams Bay development was just scraping away the last of the corn stalks and planting foundations in that previously tilled ground. The price points then were mostly in the low to mid $200k range, but by the time the early 2000s rolled around we were seeing priced in the low to mid $300s. This made sense, and it wasn’t a surprise. A $340k house could be bought by a normal family making a nice, healthy wage. By 2006, Williams Bay subdivisions were consistently printing sales of new homes in the $340-380k range, but nothing that year touched $400k. Then the market crumbled and foreclosures popped. The dust settled and the developers waited. What were they waiting for? 2019.
In 2012, the year that we can look back on with spite and malice as being the market bottom of the last cycle, these new subdivisions printed plenty of sales. Most were in the mid to upper $200s, with only a couple over $300k. The market had cratered, and with it, the aspirations of appreciation that were once held by these owners. The slow slog from 2012 to 2019 claimed many casualties, but for those owners who stuck it out and stayed the course, they have been rewarded with the new trend that they see popping up on the empty lots around them: The enormously popular $500k spec home.
Sure, I’m rounding up, but the number of sales over $440k in these subdivisions is rather impressive. And it’s not just Williams Bay seeing this phenomenon. Lake Geneva is in on the action, as is Fontana, though Fontana is lucky because it’s mostly land locked and cannot, (and should not) continue to grow into the corn fields, uninterrupted, in the way that Williams Bay, Elkhorn, Walworth, and Lake Geneva can. In Williams Bay and Lake Geneva these new-home markets fall apart around $500k. Elkhorn, Delavan and Walworth see the wheels fall off closer to $300k. In fact, Elkhorn hasn’t had an in-town-newer-home sale for more than $330k this year.
My issue with these specific markets, and why they’re prone to wild market fluctuations, is based on one thing: Scarcity, or lack thereof. Corn fields and retiring farmers are common in Walworth County, and that will always allow a developer to find another piece of property to develop. When the market is hot, they’ll sell $450-500k homes. But when the market is slow, they’ll sell $319k homes, and you’ll be sitting next door in that shiny, once-new $500k home wondering why you can’t find a buyer. This concerns me.
But it isn’t all fire and brimstone, because there is a simple way that primary home buyers can attempt to insulate themselves from market fluctuations. Instead of being tempted by shiny, consider buying an older home in a lake access association. Country Club Estates, Cedar Point Park, Knollwood, et al, are terrific primary home options that are often overlooked. By buying in these associations a primary home owner will be opening up their value to the vacation home market, which will always be more liquid and more attractive than a similarly priced home that appeals only to a primary home buyer. Is this a fool proof way to preserve value in a declining market? Of course not. But if given a choice of hitching my wagon to the lake access market or to the corn field market, I can’t imagine choosing the latter.