Enjoy your 4th of July weekend!
As we celebrate our great nation’s 246th birthday, I would like to mention another memorable day that passed just last month. June 4th through 7th, 2022, marked the seventy-sixth anniversary of the Battle of Midway in World War II.
Most Americans know that our devastating defeat at Pearl Harbor, Hawaii, spurred our country to declare war against Japan. The Battle of Midway was a sea battle waged between the navies of Japan and the U.S., and it occurred about six months after Pearl Harbor.
The Battle of Midway was waged at the Midway Atoll, which is about 1,300 miles northwest of Honolulu. Historians consider it important because it was a huge turning point in the Pacific theater in World War II. The Americans won the battle, handing defeat to Japan by sinking or crippling many boats, aircraft, and pilots. Perhaps more importantly, it proved to our nation that we could win. The victory sent American morale soaring.
It was the beginning of the end for Japan. American forces started planning for an eventual conquest of Japan. Japanese admirals began playing defense. The war with Japan lasted another three years, and the U.S. lost some other battles and paid dearly for other victories. But, most people could look back and say that the Battle of Midway was the turning point.
I will take this article back around to Lake Martin by asking, What do March of 2006 and July of 2008 have in common?
These months were, in my studied opinion, pivotal months in the Lake Martin waterfront real estate market.
By pivotal, I mean that those months were the ones when the market changed course and started going in another direction. They also have in common that it took us professionals and consumers alike many more months to realize that the change of direction had happened.
The year of 2005 was the previous record year for waterfront home sales on Lake Martin. In that year, 247 homes were sold which was only about half the homes we sold in 2020. But, back then, 2005 was a huge year. So big, in fact, that we did not notice until later that 2006 was not quite as good. Even though numbers of home sales were down, prices continued to go up. Prices also increased in the first half of 2007, until the drought, low water levels, and the national real estate crisis all came home to roost.
The point here is that we could only realize that the sellers’ market was over in the middle of 2007, even though we started the downward slide in March of 2006, when we started to lose versus the prior year’s sales. In a small market like ours, it’s tough to judge market direction month to month. That is compounded by the fact that we are seasonal, with most of our sales coming March through October. These forces often combine to obscure large trends until the dust settles at the end of the year. By the end of 2007, though, we, along with the rest of the nation, knew that the market had shifted and the buyers had the upper hand.
Sales got a lot worse in 2008. Even fewer homes sold that year when compared to 2007. Inventory soared. Home values dropped. People started saying that number of sales and values would “never again” reach 2005 levels. We should have never said never.
The turning point was July of 2008. That was the month that the number of home sales started consistently beating the prior year. That month was the bottom – and the market started gaining steam again. But, just like values rose while sales dropped in 2006 and 2007, it took us a while to catch on that the market had shifted again. Values continued to drop in 2008 and (in my opinion) 2009 even though the number of home sales was increasing – signaling a strengthening on the sellers’ side of the equation.
In both market shifts, it took us professionals at least 18 months to feel comfortable enough to say that the tide had changed. Again, the seasonality of our market usually masks trends. But still, you would think we could have called it faster than that.
I think that the evidence is mounting that March of 2022 will be another pivot point in the waterfront market at Lake Martin. We have seen that March, April and May of this year have not sold the same number of homes as it did last year. That might not be too newsworthy if you consider that 2020 was the top year ever, so 2021 lost to it as well.
The difference has been that we have had less than half of our normal inventory. When 2021 posted monthly losses to 2020, we said, “well of course we aren’t selling as many homes, we only have half the inventory. Plus, the COVID-19 effect in 2020 made everything wacky.” Both are true statements and are why I have been hesitant to call a market shift until now.
If we look at how many homes were sold for the year through the end May of 2022, we see that 113 homes have been sold through the Lake Martin MLS. The comparable time frame in 2021 is 156, or a decrease of about 27%. Is a lack of inventory to blame?
No. If we compare the numbers of waterfront homes that were for sale on average in May of 2022, we find that it was within 3% of the number for sale in 2021. Granted, the inventory levels are still less than half of where they normally are this time of year. But still …. if we don’t sell as many as we did last year, and can’t blame it on a lack of inventory, is that a trend?
How has the slide in sales affected prices? In short, it has not. Because of the small sample size, I don’t want to hazard a guess at an exact amount. I can tell you, however, that my gut tells me prices have increased in 2022 over 2021. Why do I say that? I base that on the price level that I see individual home selling this year which are above the prices that comparable homes sold last year. Other agents agree with me that values have increased so far in 2022.
I think evidence is mounting that history is repeating itself.
I think waterfront home values on Lake Martin are increasing this year, even though the market peaked back in March.
But hey, I could be totally wrong. I have made more than my share of errors when trying to figure out how a post-pandemic financial world will react to things. If I am wrong, I think it will be because of the factor I mentioned earlier – that is – that we still have a historically low number of homes for sale, and demand is just out pacing it.
When will we know for sure? It will be until the end of the year, at least.
Until then, if you are a property owner, you may be in the unique position of having your property value increase even though sales are dropping. If you are considering buying, I would not hesitate to buy this year. Go ahead. However, you should not expect to be able to flip it in three months and make money. Personally, I think that a lake property purchase should be a long term one, anyway. As long as your investment horizon is longer than two or three years, I think you will be fine.