As a homeowner in the Laguna Beach area, if you want to understand where your house stands as an investment and how to maximize its value, please keep reading.
This newsletter deep dives into variations in real estate prices over the last 20 years based on the age of homes. To this purpose, we broke down all yearly sales into four subsets: (1) New Construction, (2) 2-10 Years of Age, (3) 11-25 Years of Age, and (4) Over 25 years. We then found the Median prices for each subset and each year. We calculated the average price for each year. Finally, we computed the variation of each subset from the average.
We used MLS data for Single-Family, 2-to-4-bedroom homes within a 4-mile radius of Sunnyside Beach.
Key Conclusions/Take Out Points
- 2001-2005: Driven by speculative high prices, New Construction during this period was extremely high-end. This is reflected in the prices for new construction in 2005 being 66% higher than average.
- 2006-2007: New homes were overpriced in a market that could no longer afford this luxury; consequently, none sold. Home sales stalled and prices dropped across all age groups.
- 2008-2016: New Constructions were again built, but with less extravagant features. This is reflected in their prices: in 2009, they sold at an 8% premium over average, and in 2012 at a 20% premium.
- 2017-2022: During this period, New Homes underperformed in the market by a noticeable margin: -22% in 2018 and -26% in 2021. On the other hand, 11-25-year-old homes outperformed the rest with +31% in 2016 and +30% in 2022.
Note that this later subset includes all the houses built between 2002 and 2005 that were, by a strong margin, the most luxurious homes ever built in the area. With the market coming back to life, the warranted premium was paid for higher quality homes.
- 2023-2024: The high sales volume and price increases registered between 2020-2022 boosted (again) the demand for high-end products, as it had done between 2002 and 2005. This is reflected by (1) the increase in valuations of new upscale homes, +15 and +30%, and (2) the come-back of the 11-25-year-old luxurious homes, +5% and +35%. They have both been selling at deserved premium prices.
- Two Waves of Luxury Homes, 2001-2005 and 2023-2024: Better quality means higher market values, regardless of age. The driving force in the valuations of homes built between 2001 and 2005, and between 2023 and today, is their higher-than-average construction quality. Older homes that are well built maintain or or increase in value. This is clear from the graphs provided. In 2005, new homes sold at a 66% premium. These same homes became part of the “2-to-10 years of age” class between 2008 and 2015 when they traded between 50% and 20% above market average. We find these same homes built between 2002 and 2005 as “11 to 25 years of age” between 2016 and now; they still muster a premium ranging between 20 and 30%. This points to the reality that ‘Quality is a Safe Investment.”
- New Homes Trends Over Time: In 2005, new homes were in synch with a market demanding luxury; we saw in the previous paragraph that they were selling at a huge premium. From 2009 until 2015, new homes were selling for moderately more than the average prices (+20%) because they were generally more average with the “new” factor acting as the incentive factor. In this period of almost no activity, this was the new reality. Then, from 2016 until 2022, when the market began to recover, new homes built were generally cheaper (-25%) or at parity with the market, because the market was still shy after the excesses (bubble) of 2002-2005. The years 2023 and 2024 witnessed the come-back of new luxury homes, trading at +20% over the average – a sustainable margin.
- Older Homes >25 years of age: Note that, for the entire twenty years covered by our study, older homes always were the entry-level option, trading in most instances at a discount ranging between 20% and 30% when compared to the average prices. This is explained by the fact that they embody homes built in 1999 or earlier, before the Great Gatsby Era of 2002-2005!
- Good News: As a homeowner or investor on the West End of Panama City Beach, you can be confident in your ability to sell your property, regardless of its age – albeit at varying price levels. There is consistent demand for homes in this area from both owner-occupants and investors. Please contact me for a study and evaluation specific to your home.
In conclusion, if you are an investor, what do we recommend? We have seen that “older homes” consistently trade for cheaper than average and, in most cases, much cheaper than new quality homes. Therefore, here is the suggested 3-step dance; if you want to make money and build substantial equity: (1) you buy an older home for a cheap price, (2) you remodel the home to luxurious standards and (3) you are likely to generate a substantial profit – a profit much larger than the marginal cost to upgrade the older home. For more details and opportunities, please contact me!
