Losing the Inflation Fight

Lake values rise in spite of FED rates increases

By Steve Arnberg, Vice President of Real Estate Sales

If the Federal Reserve wants to fight higher real estate prices on Lake Martin, they are going to need more weapons than higher interest rates. Their current approach is having marginal impact to lake property values. According to data derived from the Lake Martin Area Association of Realtors^® Multiple Listing Service, property values are now higher than those from the same period last year.

When looking at market data, I prefer to look at the most recent 12-month period and compare it to the same period last year. At the time of this writing, the 12-month period ending April 30, 2023, was the most recent data. Included in this article are a number of charts looking at one-year periods for each of the last 10 years ending on April 30.

According to the data, all lake property categories were higher than those from the same period last year. The Average Sales Price chart below is for single-family waterfront homes. The recent data indicates average sales prices were higher (17.7%) than those from the same period last year. Charts for other categories are not included, but our data shows that average sales prices for condos/townhomes were 10.8% higher, water-access homes were 16.2% higher, and waterfront lots were 56.6% higher than last year.

 

 

What is driving values

One might wonder what effect higher rates have had, if any, on the market. One thing is that inventory has been restrained due to drastically higher interest rates (see Current Active Listings chart below.). I do not mean that developers and builders are building fewer homes due to higher rates. Their problem is that they can’t build homes fast enough due to labor and material shortages.

 

 

Higher interest rates, instead of increasing inventory and lowering prices, have instead restrained inventory in a very surprising way. People have golden handcuffs holding them to their lake homes. Up until January of 2022, most buyers were able to finance a lake purchase with 3% fixed mortgage rates. They can easily maintain their debt service and get to keep a lake place.

And for many owners, if they did sell, they would have to use the current higher-rate (6.5%+) financing to acquire their replacement lake home. Unless they were willing to make a higher payment, they would actually be downgrading their property in order to take a profit. That is a golden handcuff.

Less for sale equals less sold

The persistent low inventory has had a detrimental effect on overall sales. Unit sales (see Units Sold chart) are off significantly. A key driver in most markets is for property owners to sell their current property and either leave the market, get something larger/smaller, or get a better location.

 

 

Agents are reporting that potential sellers cannot find a replacement home, so they are staying in place. Or, as noted above, the new higher rates have eroded their buying power. As the old salesman said, “You can’t sell what you don’t have.” No wonder agents are also reporting multiple offers on newly listed properties.

Value of the market is still impressive

The last chart provided is the Sales Volume chart. This indicates that the total value of the market is the third highest over the last 10-year period. While sales are fewer, the average price is at an all-time high. That equates to a very valuable market, the third best in the history of Lake Martin.

 

 

What to look for

If rates do decrease in the next year or so, it stands to reason that more people will be able to afford a lake place. Also, people will again be able to trade up or down without the “golden handcuffs,” freeing up some additional inventory. My guess, and I could be wrong, is that better rates along with pent-up demand will give support to property value increases. The market for Lake Martin, as well as many other parts of the country, appears to be in good shape for the foreseeable future.

Our agents at Lake Martin Realty have access to the most recent market data and the best selection of available properties on Lake Martin. If you have market questions or want to see available property, reach out to one of our team.  View agents >