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What Would You Pay to Live by the Water? The Premium Is Falling

Jeremy Hill
A pelican flies by the gallery room of a 15,000 square-foot custom built home on Belvedere Island in Marin County, California, U.S., on Wednesday, Dec. 19, 2012. The builder couldn't find a buyer for the brand-new waterfront mansion he listed in January for $45 million. He hopes one will turn up at a Dec. 30 auction, where the starting bid will be $25 million. Photographer: David Paul Morris

Waterfront living doesn’t hold the allure it once did. Or is it just that living everywhere else has gotten so expensive?

Homes with access to a body of water commanded a 36 percent premium in the first quarter of 2018, down from a peak of 54 percent in the second quarter of 2012 and below the average of 41 percent since 1996, according to a report released Tuesday by Zillow.

Why the decline? Zillow blames “catastrophic hurricanes, climate change, people’s changing tastes -- or the tremendous bounceback in non-waterfront homes since the housing bust.” Prices for waterfront homes mostly held up during the bust but haven’t returned to their pre-recession highs as the rest of the market has.

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So that house on the roaring Pacific will still enjoy a premium, though a muted one because “the rest of the housing market is really, really strong and rising quickly,” Zillow economist Sarah Mikhitarian said in an interview.

It isn’t just real estate on the ocean that people are willing to pay more for. The latest report lists metros by average waterfront premium since 1996. Of the top 10, ranging from Jacksonville, Florida, with a premium of 72 percent, to Dallas, at 41 percent, only three are by the sea: Jacksonville, Baltimore and Seattle. The rest, besides Dallas, are Cleveland; Denver; Milwaukee; Sacramento, California; Austin, Texas; and Indianapolis.

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Hot tip for buyers: In eight of those 10 high-premium markets, either prices in general have been low or the waterfront homes are on smaller bodies of water, such as rivers or lakes.

The shrinking waterfront premium might have something to do with the threat of rising sea levels. A June report from the Union of Concerned Scientists estimates that homes across the country with a total value of $117.5 billion are at risk of increased flooding over the next 30 years. The group also estimated shorter-term risks.

“Some buyers might be more cautious about which homes they consider purchasing,” Mikhitarian said. “We could see this trickle-down effect of people worried about rising sea levels and storm surges.”

Scarcity might help support prices. Of all the real estate transactions in a given year, Zillow reports, only about 0.4 to 0.6 percent are for houses on the water.

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