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The Ebbing Appeal of Waterfront Homes

waterfront homesAsk a real estate agent where the demand always seems to be strongest and you'll probably hear the same response all around—the waterfront.

But according to a new Zillow [1] analysis, the premium for living on the water isn't as high it used to be. Nationally, the gap between the traditionally more expensive waterfront home and non-waterfront home has shrunk over the past several years. And while the typical U.S. home has “more than recovered from the recession,” Zillow reported, waterfront homes have not.

According to the report [2], homes along the water sold for a 36 percent premium in the first quarter of 2018. In Q2 that number was 54 percent. All told, "the extra cost for waterfront living is at its lowest level since the second quarter of 2002,” the report found. It's also been below the average premium of 41 percent since 1996.

The highest premiums for waterfront properties since 1996 have been in Jacksonville, according to Zillow. Here, where a quarter of homes are waterfront, the median waterfront homes is about $634,000. The average sale premium for these homes is 72 percent.

Meanwhile, in Cleveland where 12 percent of homes are on the water, the median price is $463,000, with a 68 percent premium.

The lowest waterfront premiums have been in nearby Cincinnati, where homes makeup very little of the market and sell for a median $166,000. The premium there is 5 percent. In Memphis, these homes have had a 6 percent premium, while those in San Francisco have had 8 percent premiums.

"Buyers are willing to pay extra for features that add a unique benefit to a home, and being right on the water's edge is one of them," said Aaron Terrazas, a senior economist at Zillow. "These homes are relatively rare, making up only a small portion of the housing market, and that scarcity keeps prices high.”

With inventory as low as it is, Terrazas said, buyers are spending more just to get into the market, which has narrowed the gap somewhat between waterfront homes and inland homes. But he doesn't believe waterfront will lose its appeal.

“Still, having waterfront access is incredibly appealing for many buyers,” he said. “Even as environmental risk factors like rising sea levels and storm surges gain more attention and make some buyers more cautious in the homes they consider, the premium for waterfront homes is likely to endure."