Living at the beach is something that remains a dream for many and a reality for few. What keeps all of these dreamers from making the move to the waterfront? Usually, it's the money. Beach living is expensive, not just in terms of purchasing a home or land, but also for costs associated with insurance, maintenance and any homeowner's association (HOA) dues. Just like other markets, coastal prices experience fluctuations. And like the stock market, timing is everything. We'll take a look at some of the economics of buying by the water.

IN PICTURES: 10 Insurance Tips For Homeowners

Beauty at a Premium
Owning a beach-front property is undoubtedly desirable. Beautiful sunrises and sunsets, fresh coastal breezes and the biodiversity of the coast are just a few of the reasons why so many people dream of living at the beach. But all of this comes at a price. One of the reasons that beach-front property is so expensive is simply a function of its desirability. People are willing to pay a premium to live in a beautiful, inspirational location.

Beach-onomics 101
There is a finite supply of beach-front property available for development. This is an example of the basic economic law of supply and demand. High demand for beach-front real estate, coupled with its relatively low supply, adds up to higher prices.

While there is oceanfront land that is currently undeveloped, in places like Cape Hatteras National Seashore for example, unless something changes dramatically, such land will never be available for development. There is a relatively minute area of beach-front land on which to live when compared to inland and landlocked areas. The United States, for example, has roughly 12,500 miles of coastline, in contrast to approximately 3.5 million square miles of land. As a result, most of the land that can be developed on the shore has already be exploited.

Ebb and Flow
Beach prices experience an ebb and flow that is tied to the economy, of course, and also to other factors such as natural and environmental disasters. One estimate for the recent oil spill in the Gulf is that property owners will collectively lose $4.3 billion in property values. It's hard to market an oceanfront home that overlooks globs of oil rather than the white sandy beach that is supposed to be there. The Gulf-Coast's property values are expected to wane by 10% for at least the next three years. (To read more about the cost of the oil spill and other disasters, see The Real Cost Of Natural Disasters.)

Other areas hard-hit by natural disasters are finding their properties difficult, if not impossible, to insure. Insurance companies looking to reduce their catastrophic exposure have simply declined to renew existing policies in coastal areas, leaving property owners up a creek. And some of those who are insured are facing annual premiums that have quadrupled (or more) in addition to increased deductibles.

Not able to afford both the mortgage and rising insurance payments, many property owners have been forced to sell their dream homes, often well below the price they would have expected for their little piece of paradise. (For more, see Retirement Jobs You Can Do From The Beach.)

The Next Best Thing
If you really want to live at the beach, but you know you will never be able to afford coastal property prices, the next best thing might be to live near the beach. A short drive can save you hundreds of thousands of dollars in the cost of a home. Take the Charleston, S.C., market for example. One of Charleston's beaches, Isle of Palms, has a median sales price of $620,000. Even though this value is down a whopping 28.9% year over year, it is still a hefty price tag.

Drive 20 minutes inland and the median sales price drops to $190,000 (this figure is down only 6.3% year over year). Suddenly, beach living, or at least living close to the beach, becomes much more affordable if you are willing to make the commute.

To Beach or Not to Beach
Although many of us dream of living at the beach, especially in the summer, the premium price associated with beach-front living is often cost prohibitive. But if you're willing to compromise, you can turn your dreams of beach living into a reality. Whether you buy at the beach or nearby, all of the elements that draw people to the shore can be enjoyed - wind, waves, sun, nature and the inherently relaxing atmosphere. (For more, see Choosing The Right Retirement Destination.)

Catch up on the latest financial news; read Water Cooler Finance: Shocking Court Rulings, Sinking Markets.

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