Waterfront Homes Seen Weathering Housing Market Storm
By Marilyn Alva
Investor's Business Daily, April 12, 2007
When it comes to selling a home, real estate agents like nothing
better than the sound of a simple word: waterfront.
In a business that's all about location, the waterfront has long been
considered the most desirable real estate. But have fiercer
hurricanes, floods, rising insurance costs and the softening housing
market battered the value of waterfront homes?
While conditions vary from market to market, real estate experts
agree that values still do generally hold up better on the water
whether the water is an ocean, bay, river or lake.
"They appreciate faster in good times and decline in value at a
slower rate in bad times," said Alan Hummel, past president of the
Appraisal Institute and chief appraiser of Forsythe Appraisals.
Buoyant Market
The reasons are simple. A growing number of people still want to live
on the water for the views, recreation and sense of privacy. Yet the
supply of waterfront homes continues to shrink, exacerbated by local
efforts to limit development on the shoreline.
That has muted the housing slowdown's effect on waterfront
properties, says Kenneth Lusht, a real estate professor at Florida
Gulf Coast University in Fort Myers.
"In general, shore properties have been less adversely affected than
nonshore properties," he said. "For example, in Southwest Florida the
impact on shore properties is one-fourth that of other properties."
But there is a downside. Homeowners in flood zones in Florida and
other hurricane-belt coastal areas such as the Gulf Coast have seen
their insurance premiums skyrocket. That puts a damper on
the "marketability" of such homes, says real estate adviser Lewis
Goodkin, president of Goodkin Consulting.
It might take a while longer to sell, he says, but buyers will cough
up the higher insurance premiums for such homes "when there's not a
whole lot to choose from."
"There are more people with wealth and big incomes than any time in
our history, yet the opportunities (to buy on the waterfront) are
less," Goodkin said.
Surge Despite Storms
Storms won't keep the coastal market down, experts say. Robert
Hartwig, president and chief economist with the Insurance Information
Institute, told a U.S. Senate committee on Wednesday that the value
of insured coastal property "will double" within the next decade.
Hartwig cited a growing number of people who want to live in coastal
areas, including hurricane belts.
For now, the supply-demand imbalance is especially pronounced in the
market for single-family homes on the water. These homes and
townhomes on the water have shown the greatest resistance to price
depreciation, real estate sources say.
Such waterfront homes generally command prices 7% to 9% more than
those off the water, Hummel says. But homes with stunning water views
can go for twice as much as similar homes with no water views, he
says.
In San Diego, the coastline is dotted with single-family homes.
Little land is left to develop. Waterfront homes are selling at
prices about the same as eight months ago, says Sara Schwarzentraub,
an appraiser with Interstate Appraisal Service. But homes east of
Interstate 5 those farther inland are down 3% to 5% from the
first quarter of 2005, she says.
"Sales activity has picked up this quarter vs. the same time last
year," Schwarzentraub said of beachfront homes. Only high-end homes
priced at $10 million or more are taking longer to sell, she says.
Schwarzentraub adds that she considers single-family coastal homes in
San Diego to be "housing recession-proof." She says that foreign
buyers of such waterfront homes are helping to bolster the market.
That's not the case in overbuilt waterfront condo markets in downtown
San Diego, the Miami area and other parts of Florida, where
speculators and other investors bid up prices on tens of thousands of
new units to unsustainable levels.
"It was artificial demand," Goodkin said, adding that condos in those
overbuilt locales are "a long way from seeing a recovery."
In Miami, one of the most overbuilt markets, about 30,000 condos are
under construction, both on the waterfront and near it. Many of the
buyers of these units signed on at peak prices. The question being
asked now: How many will show up at the closing table?
"Water is the single most desirable asset, but when you have high
levels of speculation you're going to have significant adjustments as
the buildings are completed," Goodkin said. "There's nothing magic
about water when you have more supply than demand."
The greatest resistance to price declines in a slowing housing market
is in popular areas with limited supply and where buyers are users,
not simply investors, Goodkin says. He cites such places as Palm
Beach, Fla., Fisher Island in the city of Miami Beach and the
Southern California coastal locales of Santa Monica, Newport Beach
and Laguna Beach.
Values decline steeply the farther you move away from the waterfront.
"Even a block away there's a huge difference in land values," Lusht
said. Since building and labor costs are typically the same whether
along or away from the water, land values reflect location, he says.
Real estate professionals put oceanfront properties at the top of the
valuation list, followed by the Intracoastal Waterway, bays, lakes
and rivers. A lot also depends on the view itself and access to the
water. "Open access to the bay will garner more money. It's the same
with direct access to the ocean," said Art Napolitano, a broker-
manager with Coldwell Banker in Spring Lake, N.J., on the Jersey
Shore. "The depth of a river makes a difference. How big a boat can
you put in the water? A deep-water dock is a lot more valuable than
one where you have to wait for the rain."
Mainstays
In tight times, primary residences typically hold their value better
than properties in second-home markets. But the economy has not
slowed to a point where the second-home market is seriously
contracting, says Hummel.
"It takes a really significant change in the economy for people with
the ability to have second homes to be drastically affected," he
said.
The second-home market in coastal areas within driving distance of
New York City has held up well, thanks in part to the city's strong
financial services economy.
"The Wall Street bonuses were very good this year," said
Napolitano. "Whenever Wall Street has a good year, the Jersey Shore
has a good year."
Take the upscale Jersey Shore town of Spring Lake, where entry-level
homes start at around $800,000. Some are selling within two to three
months, compared with up to six months last year, Napolitano says.
Amid fears that prices were getting too high, buying slowed last year
and prices stabilized. Napolitano says Spring Lake homes are now
selling at prices 5% above last year's level.
"Because there is only so much water to go around, the waterfront
properties will always be somewhat in demand," Napolitano said.
Copyright 2007 Investor's Business Daily
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