Waterfront Home Premium Shrinking, Highest in Lower-Priced Markets

Real Estate
  • The total estimated value of waterfront homes in June 2018 is $134 billion.
  • The sale price premium of waterfront homes is 36 percent, down from 54 percent in 2012 and 41 percent on average over the past 22 years.
  • The biggest premiums since 1996 have been in Jacksonville, Fla., Cleveland, Ohio, Denver and Baltimore.

The sale prices of waterfront property aren’t what they used to be.

Blame catastrophic hurricanes, climate change, people’s changing tastes – or the tremendous bounceback in non-waterfront homes since the housing bust. While waterfront homes nationally are worth a total $134 billion, the price premium for single-family homes on the water has fallen to 36 percent in April 2018, down from 54 percent in 2012 and an average of 41 percent over the past 22 years.

During the housing boom, prices for waterfront homes grew faster than those of non-waterfront homes, and the hit they took during the bust was not as dramatic. As a result, the 53 percent premium they held in 2008 stayed roughly the same through the early years of the housing bust as non-waterfront homes took a tremendous hit while waterfront home prices declined only slightly.

However, as the housing market has bounced back, the prices for non-waterfront homes have returned to their pre-recession peaks, while waterfront homes have not. The trend is similar to home values in vacation home markets, which have yet to rebound from the housing bust.

In the decade since 2006, waterfront homes in the popular beach metro of Miami have almost recovered their average pre-recession premium of 40 percent. However, the premium during that decade has averaged 21 percent in Portland, Ore., well below its 32 percent premium prior to 2006.

Zillow ResearchZillow

The characteristics of single-family homes on the water have changed little since 1996. The median-priced waterfront home sold in 1996 had two bathrooms, three bedrooms, was 40 years old and measured about 1,700 square feet. While getting slightly bigger, until 2018, the other characteristics for this median home did not change. The same is true for the median-priced non-waterfront home. However, while the median home on the water appreciated during those two decades by 160 percent on average, the landlocked home appreciated by an average of 100 percent.

In eight of the 10 large markets with the highest average sales premiums since 1996, home prices have been either low in general, lending a particularly large boost to homes on the waterfront and the areas where they’re located, or houses on the water have been particularly scarce because they’re located on smaller bodies of water such as lakes or rivers rather than on long stretches of beach.

Zillow ResearchZillow

In Jacksonville, Fla., Cleveland, Ohio, Baltimore, and Milwaukee, Wis., for example, waterfront homes are located in areas where home prices in general are roughly double the rest of those metro areas – and waterfront homes are among the most valuable properties within their pricey ZIP codes.

In the more expensive metros of Denver, Sacramento, Calif., and Austin, waterfront homes are located along rivers and lakes, and are so scarce that they command particularly high prices even for their metros.

At the lower end of the premium spectrum, San Francisco presents a special case: Its sale prices are among the highest in the country, so that its 8 percent premium is relatively small as a percentage but quite high in terms of dollars. Similarly, the premium in Los Angeles is just 14 percent but represents a large dollar amount.

Other low-premium markets include Cincinnati, Ohio, and Memphis, Tenn., metros, where most waterfront homes are located outside the city and therefore require owners to commute for more than 45 minutes, hence putting downward pressure on premiums.

The only large metro with a negative waterfront premium is Pittsburgh, which has some expensive neighborhoods on Herrs Island, but has a fair number of waterfront homes that sit along railroad tracks.

Check out Zillow Research for a closer look at the economy through the lens of the housing market.

Methodology

We think about a home being on the water when the resident can go to a body of water (e.g. lake, river, ocean) while staying on her property. This is a rare kind of home. In a given year, about 0.4 percent to 0.6 percent of all property-transactions are for houses on the water.

To assess the sales premium, we use sales prices from recorded transactions for single-family residences and condominiums. For the estimated value of waterfront homes nationally, we use median home value. We evaluated the 35 most populous metro areas that have more than 100 properties identified as being on the waterfront.

Estimates of the sales premium over time stem from an Ordinary Least Squares (OLS) model controlling for yearly and quarterly fluctuation in the general trend and waterfront property trend as well as number of bed- and bathrooms, square footage, property age, and ZIP code median home value. Estimates are consistent when using propensity score matching’s average treatment effect for the treated (ATT) instead.

Premiums on metro level are estimated using Propensity Score Matching including a logit model and k-nearest neighbor to find matches. Average matched characteristics of houses are generally similar across time and metros, except the over-time increasing ZIP code median home value.

Products You May Like

Articles You May Like

These economists say artificial intelligence can narrow U.S. deficits by improving health care
Renters struggle to build wealth, report finds. Here’s how they can boost financial well-being
CleanSpark Executives to Discuss Fiscal Full Year 2024 Financial Results Via Webcast
Bybit Card Accepts Pre-Registration for Physical Cards in Brazil, Simplifying Global Spending with Crypto
This factor can get your mortgage application denied — even if you’re a high earner

Leave a Reply

Your email address will not be published. Required fields are marked *