The market for lakefront and riverfront homes is in uncharted waters—and they're rough, real estate specialists here say.

Bill Fanning, broker at Century 21 Beutler-Waterfront, in Spokane, says lake home prices are spiraling downward, and prospective buyers have disappeared following a strong market surge that crested here two years ago.

"From an agent and brokerage standpoint, the market is reinventing itself," Fanning says. Prospective buyers are likely to look to smaller waters rather than pay a premium price for a home on a large lake, he says.

"People are still going to want lake places, but sales will be based on need, not want," Fanning says.

Mark Johnson, sales manager at Coldwell Banker Schneidmiller Realty, of Coeur d'Alene, says listed lake properties aren't getting many looks today.

"Even people with great wealth are sitting on the sidelines," Johnson says.

As the values of their primary residences in other regions across the country fall, even the affluent have less equity to borrow against for a second home, he says. Added to that, it's simply more difficult to obtain what's known as a jumbo loan to finance high-priced waterfront property, he says.

Leo Green, owner of Green Appraisal, of Spokane, says that waterfront property, like most other sectors of the real estate market, has suffered an overall decline in value. The lake-home sector of the real estate market, which had the biggest run-up in sales prices, has been hit hardest, he says.

Unit sales have sunk to new depths at North Idaho's Lake Coeur d'Alene, where listed prices start at $1 million and range upwards of $8 million. Only three sales of waterfront real estate have been completed this year, and only one of those was a lake home; the other two were commercial properties, Fanning says. Last year, a total of 19 homes and residential lots were sold on Lake Coeur d'Alene, and that was down 60 percent from sales in 2007, he says.

Sales on Lake Pend Oreille aren't much better, he says. "Prices are down, and sales are nonexistent."

Kathy Robinson, an agent with Evergreen Realty, in Sandpoint, Idaho, says waterfront sales there slowed so much that it was difficult for her to find any completed real estate transactions on Lake Pend Oreille and the upper Pend Oreille River earlier this year to include in her spring newsletter.

Waterfront lots in Dover Bay, on the Pend Oreille River west of Sandpoint, are listed at $5,500 a front foot on lots 100 feet deep, and they're barely moving, Robinson says.

Just two years ago, during the height of sales activity there, comparable lots there sold for $7,200 a front foot. Closer to Sandpoint, comparable lots sold for about $8,000 a front foot, she says.

She says she recently sold a waterfront lot between Dover and Sandpoint to two families who bought it together. Such a two-family purchase is unusual, but the buyers are checking into building a duplex there, she says.

Robinson, who's specialized in waterfront sales since 1989, says she hasn't seen such a deep down cycle before, and she's never seen distressed waterfront properties on sale until this recession.

Fanning adds, "I've seen more than my share of people selling their lake places because they lost wealth in the stock market and they need to sell the lake place to protect their retirement. There's fabulous properties available out there that you wouldn't see any other time."

Mike McDowell, the Kootenai County assessor, also says there have been so few waterfront property sales that he can't determine yet whether values also are declining.

He says he'll have to look at sale prices for the whole year to determine whether lake-home prices are trending downward.

"We're required to look at the calendar year," he says. "At the end of the year, we'll look at all of the data and see if we can make sense of it."

There's no question, though, that property values have plunged in other sectors of the real estate market in Kootenai County, McDowell says. Even in a slow market, it would be unusual for waterfront property values to decline, he says.

"I've seen two other cycles with reductions in other real estate sectors, and a flattening of waterfront values," he says.

McDowell says any changes in property values wouldn't show up immediately on property-tax assessments.

"We set values as of Jan. 1 each year looking at the previous year's value," he says. "What's occurring now would be reflected in the 2010 assessment."

Similarly, David Loomer, of the Spokane County Assessor's Office, says he hasn't seen conclusive evidence that waterfront property values are falling here.

"The general consensus here is the number of sales is dropping, but people aren't lowering their sales prices," Loomer says.

He says 34 homes and lots were sold on Spokane County rivers and lakes in the 12-month period ended June 30, down from 47 such sales in the year-earlier period, and 55 sales in the 12-month period ended June 30, 2007.

Fanning says that with such a low number of sales, one or two transactions can skew the statistics.

"Those statistics aren't telling the whole story," he says. "There are not enough sales. The properties that are selling are unique trophy pieces."

Traditionally, the market for waterfront property here was driven by local and regional residents. "They got shot out of the market this last cycle," he says.

As affluent buyers across the country discovered Inland Northwest waterfront property and started buying it up for second homes, prices rose steeply, drawing real estate speculators to the waterfront-market sector.

"Now out-of-towners aren't coming because they've lost wealth," he says. "The speculative nature of waterfront acquisition is gone. It's headed back to the local or regional market, but prices have to come more in line."

Green, the appraiser, says some sellers of lake homes are willing to accept offers below the amount it would cost to replace them. For instance, a home on Long Lake that originally was listed for $895,000 was reduced recently to $625,000, which is less than it would cost to build it, he says.

As the market reaches a balancing point, it will spark construction of new waterfront homes, Green says.

"As the inventory comes down, there's not anything behind it to replace it," he says.

Green says he's seeing some movement toward stabilization, although it will take another year or two for the market to come into balance.

"We're not in balance," he says. "There's an oversupply of inventory, and there's not enough sales activity, but things are going to get better—not worse."

Even then, though, waterfront prices probably won't return to the levels of a year or two ago, he says.