Lotsa Lake

Chalk it up to the warm weather the last couple of weeks (forgetting about the last couple of days!) There's an outbreak of lake fever in the city and 'burbs. Over the last week, I've fielded a lot of new inquiries about lake properties here in Sullivan. The big problem, though, is that when I ask about price range, what buyers are saying they're looking to spend is way under the prices of available inventory. I feel like a matchmaker, with a stable of eager brides and no eligible bachelors. I dutifully email out the pictures and descriptions of the bachelors I do have, but the brides-to-be don't call back.

The kind of price ranges I'm hearing from buyers are around $200,000 to $250,000 for a small, cozier two bedroom lake cottage, $350,000 to maybe $400,000 for a 3 or 4 bedroom 'family sized' lake house. Edging above $400,000, buyers have an expectation they're going to find something with acreage and privacy, rather than just a lake house on a traditional-sized 70' wide, 1/4 acre lake parcel.

It's going to be interesting to see how the next few months plays out in this popular category. Good lake houses within a couple of hours of NYC are in pretty short supply. The supply of lake houses within a couple of hours of the Minneapolis Metro area (population about 3 million) is probably about the same as within a couple of hours of the NY Metro area (population 18 million.) If just 1/10th of 1% of New Yorkers dream about buying a lake house in any given year, that's a potential shopping market of 18,000. If 10% of that group are really serious, that leaves 1,800 really motivated buyers. Sullivan County is likely  one of the two densest lake counties within two hours of NYC (the other is probably Pike County, PA), and in any given year we have maybe 100 or 150 lakefront houses come to market.

While the pure demographics point to demand outstripping supply, that doesn't mean buyers will pay any price. In fact, buyers are just saying "No". They're giving pretty clear signals about how they value a lake house, and those signals, in many cases, are about 40% lower than where sellers are right now. Arguably, in the current economic conditions buyers may have overshot to the low side. But even if buyers bounce up a bit, it's going to be tough to make any marriages.

A note to buyers: the gap isn't universal. There are a handful of lake houses on the market that I consider interesting opportunities or good deals. Not a lot, but some.

Comments

[henry]

The demographics thesis above is analogous to the "not making more land" and "manhattan is an island" real estate pitches. While true that supply is constrained (as has been true for a long time), these supply-side-only arguments ignore the role that price plays in rationing demand. In particular, they ignore the factors (income/assets, credit, all-in cost vs. substitutes, etc.) driving the demand at a given price level. Further, the comparison of the NY metro area to Minneapolis ignores such factors as the summer recreation opportunities afforded by the long adjacent coast line and the airport advantage (capacity and proximity to caribbean).

In general, I think that a 30-40% drop from peak (giving back only some of the leverage-fueled gains from recent years) seems reasonable when one considers affordability (for instance, limited pool that can afford and would pay the all-in costs of a 400k+ vacation property) and the changes in wealth and credit. A 30-40% drop is attractive versus other assets (especially noting the run-up). Consequently, I do not expect a large bounce from these levels, and it could get worse if the economy weakens and/or inventory builds.

Unfortunately for Dave, until ask prices adjust, I also expect that most buyers will go elsewhere upon finding that much of SC lake front is priced near pre-Lehman levels and find better opportunities. Looks like a long slog...

[David Knudsen]

I agree that seller asking prices for most lakefront properties have to come down, to get closer to buyer expectations. I've been out with a number of lake buyers in the last month or two, and they're just not seeing the value. Given the pricing moves and attitudes I'm sensing among lakefront sellers, I think it's going to take longer to reconcile in this property category. The attitude "I don't have to sell and I'm not going to give my house away" seems to have a firmer footing among these sellers.

[eileen fitzpatrick]

Have to say , Great Blog.

We bought our cabin , small 4 bedroom, on Lake Muskoday in 2003 for $120, 000. Great Lake, although no motor boats. Are we too far away for NYC dwellers here in Roscoe.

I do see 1 or 2 properties for sale, they don't seem too high, but they are still out there.

eileen