On the waterfront : a 25 year study of the relative risk & return of Florida single-family waterfront and inland homes (1977-2002)

Abstract

This study applies the classic capital markets risk/return relationship-the riskier the investment, the greater the expected return-to the single-family home market. Treating coastal waterfront property as a unique asset class, its investment performance is measured and compared with that of inland property to determine the potential existence of a "mispricing" in the home market. Using single-family home transaction data from four coastal Florida counties, this thesis uses a repeat-sales regression technique to estimate annual home price changes and to construct home price indices for the period 1977-2002. The resulting price indices show a higher average annual appreciation rate for waterfront homes relative to inland homes; the highest waterfront price appreciation occurred over the period 1997-2002. The results also indicate that waterfront homes in two of the four study counties experienced higher average price appreciation at lower levels of risk than the inland homes. This finding indicates a potential "mispricing" of waterfront homes.