The value of water: pricing of waterfront amenities during a real estate bubble in the US

The period of study, from 2000 to 2010, was a decade of turbulence in the American residential real estate market. The time period witnessed a sharp increase in property prices from 2000 to 2006 followed by a sharp decline after the 2007 sub-prime crisis in most markets in the US. The objective of this study is to estimate the value attributed to waterfront and golf course view amenities as they are revealed in the market through transactions over this time period. A related question that is examined is how the value of these amenities have shifted (implying buyers and sellers preferences) during different phases of the real estate cycle. A spatial hedonic price model estimates prices for 589 vacant lots that were sold in a lakefront community of Lake Keowee, South Carolina. In addition, a geographic information system (GIS) is used to construct a number of spatial variables for the model. Results indicate that some economic relationships break down in the post-bubble frame suggesting that buyers become more discriminating in a post-bubble market. Specifically, two key measures break down: out of state buyers no longer pay a higher premium than in-state buyers and prices (and sales) for non-premium properties are negatively affected to a proportionately greater extent. This study illustrates the need for both spatial and temporal granularity in hedonic modeling, particularly if the study includes periods of speculative booms or crashes.