Because it is the focal point of my enterprise, this discussion is centered on the recreational and waterfront real estate market segment that I refer to as “lakefront” . I define “lakefront” as property that touches or offers unobstructed access to a body of water, a “lake” (except for the Great Lakes. To be a lake for our purposes it must have sufficient surface area (typicallly 150+acres) and be deep enough to comfortably host two or more power boats towing water skiers at the same time at 25 mph. It also has one continuous shoreline, broken only by small rivers or streams.  Real estate located on such a body of water typically carries a most significant sale price (value)premium relative to sale prices of properties with similar character (features, improvements, etc.) that are not associated with a lake.

Some “Lakefront” property also typically sells at a greater premium than does other waterfront property with lesser coveted water features, such as farm pond, river, or stream-front parcels.  Like many other things in our culture, the bigger-the better and, “location” is critical.

Several factors determine the respective degree (or angle) of the line (or curve) expressing lakefront sale prices over time. It is important to note that the demand for any waterfront parcel being purchased as a “primary residence” will differ from one that is (will be)used solely for recreational purposes such as a “second home” or as an “investment” (income property).  Primary residences with lake frontage command higher prices and are typically more elaborate than those purchased for other purposes. The degree of the related demand for any lake property varies with its relative size, water quality and shoreline features. Its general popularity is typically dictated by its relative distance to/from major metropolitan areas.  

The axiom that seller’s seek the highest, while buyer’s seek the lowest price is highly evident when  “lakefront” property is involved. The difference accounts for a portion of the lake premium one might have to pay for such a property. It also correlates directly with the spread between the value of lake property and other types of residential real estate that are not associated with a lake in the given geographic area. 

The above factors combine with the fact that its ownership is discretionary to prompt sale/list price ratios that are notably lower than ratios experienced with other real estate market segments. Based on (reported) averages in Southwest Michigan (our trade area), residential lakefront property sale prices/list prices typically average about 5% less than other market segments.

Our experience further suggests that because of their similar affluence, most would-be Sellers of lakefront property are typically not as highly motivated as are would-be Buyers. The simple fact that buying a lakefront property is a matter of choice prompts buyers to also be more “sensitivity” to economic ups and downs than are buyers of property that has no cause for the lake premium. Nonetheless, based on recent inquiries received by my office, I note that a few scattered price reductions late in the current season (by truly motivated sellers) aroused apparent latent demand for lakefront opportunities in the $500-$lM price range. Sales experience for lesser valued lakefront tracks quite closely with the non-lake sales experience.  Lakefront sales price tags over $1 million are all but non-existent, mainly because of reluctance to reduce asking prices. 

 

National and Local economic conditions and trends have a significant impact on recreational and waterfront real estate values. When times are viewed as good, values are strong (high). Conversely, when times are thought to be bad, values (and prices) become depressed (weaken). These swings tend to be more extreme for lakefront than other property types.

 

Forecast:  As the current economic downturn protracts we expect continued devaluation of recreational property compared with a lesser significant reduction in the values of other residential local real estate alternatives. The overall percentage decline from peak sale price levels (2004--2006)will likely eclipse the decline in the general real estate market. The longer the downturn the deeper will be the discount for this  “recreational” market segment. Because of an observed continuing latent demand for “lakefront” property however, I expect our recreational segment to rebound much more quickly than the general market.  There are currently many good lakefront buys, a genre that is enlarging as indigenous lake-lover ego’s soften.  

 

Coming Soon: Next Article will summarize 2008 Southwest Michigan Lakefront property market results.// by: Lakeman aka Terry Carpenter, Broker   http://www.GullLakeRealty.com