If a condo sells because a buyer wasn’t particularly well informed, does this mean every condo should be priced based on the cemented reality of that one sale? If a buyer buys something, do we now use that sale as the benchmark from which all future listings will be based? How much does one sale, or perhaps two sales, mean to any individual housing segment at the lake? These are the questions being asked by agents, owners, buyers, and casual onlookers. What sort of activity matters if we’re looking for market trends?
Well, the answer was right there in the question. Trends. Comparable sales must stack in line if we’re going to consider those to be trends. When Covid-19 fear gripped Lake Geneva and other elite markets, the initial reaction was to freeze. Like a lost child in a shopping mall, if you’re uncertain as to where you’re going then you should just stay in place. Along those lines, I have a well recited response to those who post silly memes on the internet that say “the road is full of dead squirrels who couldn’t make up their minds”. My reply is, “perhaps the squirrels should have just stayed put and they wouldn’t have ever been run over”. Consistency versus risk, that’s the question. And when Covid instilled fear in the market, the first reaction was to stay put.
But then the equity markets roared back and rates dropped and people looked around and didn’t want to be stuck in cities anymore. If you’re favorite restaurant was closed and your sports team wasn’t allowing fans, and your office wasn’t asking for your presence, then it made good sense to travel somewhere else. Lots of folks traveled to Lake Geneva and bought vacation homes, even while the less smart people flew West to buy vacation homes that they’re on the cusp of hardly using again. At the beginning of this Covid flight, price discovery was rather difficult, until it wasn’t. The set up was quick and the trend appeared rapidly. Prices were on the rise. One lakefront sale at $2.5M meant the next comparable sale would be at $2.8M and the next at $3.25M. It went this way for quite a while, largely because buyers couldn’t deny the trend.
Today, where’s the trend? Is it higher still? Is every next listing supposed to be pricier than the last? Does one anomaly make a market? This is what the market is trying to figure out today, and while most buyers recognize that things have changed a bit, there are still buyers running around setting all-time highs and wondering why everyone else isn’t following them. But back to the concept of markets and of pricing at the lake. If a condo sells for a price that doesn’t make sense, does that set a market? Or should it require two or three such sales before we trust the trend? I know the answer, and you do, too. Not every property that sells is an accurate reflection of the market. This is a hard concept to embrace, but in times like these when a market is looking for direction, an outlier of a comp is best approached with a healthy dose of skepticism.