151 single family sales closed here for the 3 months ending Dec. 31, 2007, off 22% from the same period a year earlier, slightly worse performance than November's count, which was down 17% from Nov. 2006. On the price front, the median sales price of $165,000 showed a slight improvement over November's number, but was down 13% from a year earlier and off 17% from its peak of $198,000 in May/June of this year. The average sales price, though, slid to $199,487, the first time the average sales price has dipped below $200,000 since March, 2006. The average sales price is down 4.9% from the same period a year earlier, and 20% below its peak of June 2007.
Believe it or not, there's some very good news among all this sturm and drang. If you look closely at the chart at the left, you'll notice that the median sales price has started leveling out. In looking at single month data for November and December, as well as properties in contract but not yet closed, there may even be a slight uptick in the median next month, to around $170,000. I was concerned that this month we would see a continued slide below $160,000 towards $150,000, indicating that the real estate market was still searching for its support level. But that didn't happen. Instead, we moved up slightly to $165,000.
On the other hand, the average sales price continues to move downward. With the median stabilizing and even trending slightly upward, the drop in the average indicates that a declining percentage of sales are higher priced, upper end homes. This confirms my belief over the past few months that buyers have been shifting to more moderate price points. If I look just at December (with 38 sales, too small a sample size to draw any definitive conclusions, but still interesting), the median sales price of $176,675 came within $10,000 of the average sales price of $186,621 — with no sales above $500,000 and only 1 sale above $400,000!
It appears we may be entering a welcome period of stability over the short and possibly mid term, at least in the affordable to moderate ends of the market — with 40 to 50 sales per month at a median sales price around $170,000 and an average sales price around $200,000.
The Current Market
Its difficult to gauge much from December, in terms of buyer interest and activity due to the holidays. The real test of whether we'll have a good midwinter season will come during the first few weeks of January. (In the second home market, mid-January to mid-March is traditionally a second strong selling season, with city buyers shopping to be in a house for the summer.) So far, preliminary indications are reasonably good, with a rise in inquiries and web site visits since Christmas.
The vast majority of property inquiries I'm getting recently are at the low to moderate end, with very little upmarket interest. The most common price request I've gotten recently is "$250,000, and up to $300,000 if we find something really special." I know this isn't scientific, but that "sweet spot" target price is down about $50,000 from early 2007. I consider that "most requested category" price range a kind of barometric fulcrum, since the type of home those mid-range buyers are requesting remains remarkably stable. Just the price they're willing to pay for it has changed.
While the affordable to moderate end of the market is still quite active, the upper end is just the opposite — lackluster. For example, a year ago I would typically get 1 or 2 inquiries a week about lakefront property in the $1M+ range. Now I get about 1 or 2 a month. I've experienced a similar decline in inquiries about "trophy" farm, river or view homes. These upper end buyers don't seem to be downshifting but rather, disappearing. The reason, I believe, is Wall Street. I would venture that in the last 5 years, 4 out of 5 buyers I've worked with in the $500,000+ market range have been involved in some aspect of financial trading, with bonuses comprising a significant part of their income. This year, a lot of Wall Streeters are nervous about bonuses and job security. (Read a good Reuters article: Weak Wall Street Bonuses May Crimp Luxury Spending.) Not quite the environment to foster high end discretionary purchases.
In contrast, in the affordable to moderate range (which appears to be the most vibrant sector of the market), the buyers I see are not Wall Street, but rather in the arts, publishing, advertising, health care, research, education or any of the dozens of other businesses that make the wheels of New York City turn.
Buyers in the affordable-to-moderate range of the second home market are also often first time home buyers, are using mortgage financing, will continue renting (rather than buying) their primary residence in the city, and are on a budget. Those are all very important factors. These potential buyers, like most first time home buyers, are very concerned with value — and have external constraints, like needing a house to appraise for financing in order to buy it.
I sense Sullivan County is getting back to its knitting — as an affordable, accessible getaway for middle class New Yorkers, stripped of the "Catskills as the New Hamptons" hype. We just haven't transitioned into the full-service, upper end vacation wonderland, with new resorts, restaurants and services, envisioned by boosters five years ago. (We also haven't succeeded, in the southeastern parts of Sullivan, as a more affordable suburban bedroom community extension of Orange County — but that's its whole own story.)
I believe that the middle-class second home market is going to be the core of activity here over the next 6 to 9 months. Demand is definitely there. I see it in emails, web visits, phone calls and every time I go out with people to look at houses. What isn't there right now is buyer confidence in value, and that's making it tough to go from shopping to buying. Buyers are demanding solid value, and if there's any indication that the value isn't there (like a short appraisal), they'll pull the plug. Lastly, most buyers I'm seeing lately have very firm price ranges and ceilings. In negotiations, when a buyer has reached their limit, that's it. Lately, I've heard about a number of negotiations that have stalemated with relatively small gaps when the buyers have reached their limit. Contributing to this dynamic is that buyers are under no pressure whatsoever to buy now, so if they don't think they're getting a good value at the price they think is fair, they'll just wait for another house.
Sellers, Asking Prices and the Inventory Picture
In a slowing real estate market, inventory should be rising. But it isn't here. Inventory, in fact, has been falling. At the beginning of January, 2008, there were 997 single family home on the market in the Sullivan MLS, the first time that inventory has fallen below 1,000 since March 2006 and marks about a 5% drop in inventory from January, 2007. One factor contributing to the inventory drop is a larger number of sellers taking their houses off the market for the winter — possibly in hopes for a better spring market, and to avoid the expense of keeping them plowed out and heated if they're not being used. But I doubt that's more than 50 or 100 houses, and adjusting for that, inventory is flat and not rising. Inventory in some categories is actually tight, particularly well priced 'vacation style' homes on 5 or so acres with privacy around $275,000, and modest houses on a couple of acres under $200,000.
On the seller side, there continues to be a problem with price expectations. A lot of sellers have set their asking prices based on a seller's market that no longer exists, and their expectations are often out of line with current reality. That's just going to take some time to work through the system. Words of wisdom from real estate colleagues who have gone through previous slowdowns are that it can take 6 to 12 months for sellers to readjust their expectations. There is some indication, though, that is starting to happen. The median asking price, stubbornly stuck at $239,000 for the past 4 months, slipped this month to $229,900. The average asking price also moved down, to $290,776, 7.8% off its $315,000 summer peak.
I'm finding right now that sellers are falling into 2 groups — those that are motivated to sell, and those that aren't. A feature of the second home market is that sellers, for the most part, don't have to sell. Just like its a discetionary purchase for buyers (they don't have a deadine to get the house in time to get the kids into school, for example), its a discretionary sale for most sellers. They typically don't have to sell — its more a matter of evaluating the trade off between use, cash flow, profit and hassle. I've found lately that its difficult, if not impossible, to do a deal with that second "don't have to sell" group. Their price expectations just aren't in line with buyers. One striking statistic is that, of the 403 houses that have been on the market longer than 6 months, more than half of those have had no price reductions or only nominal price reductions of less than 5%.
Listing agents often encourage me to show their listings that are clearly overpriced, with the caveat "Bring an offer and I think the seller will be reasonable." Unfortunately, based on my experience over the last few months, that's more wishful thinking on the part of listing agents than actual reality. I'm finding that to make a successful deal, there has to be tangible indication from the seller that they're motivated to do the deal, beyond a plea from their agent to "bring an offer." I would venture, from my experience as well as casual chats with colleagues, that less than half of serious, initial offers from buyers are resulting in closed sales — because either the parties are not able to come to terms or, in a growing number of cases, the home doesn't appraise for financing at the agreed-upon sale price.
Over the next six months, I anticipate their will be a settling of prices, as sellers and buyers realign. Already we're seeing "bands" of price expectations stabilize among buyers and it will take some time for sellers to adjust to that. For example, I see a 1,000 sq. ft., 2BR cabin or chalet style on 2 acres settling around $200,000, below current seller price expectations of $250K to $275K. A 3BR on 5 wooded acres will probably settle around $250,000. Smaller lakefront 2BR cottages will likely settle into a $300,000 to $350,000 range, below current seller price expectations around $400,000. These aren't fire sale ranges I'm talking about, but actually a move to 2005/2006 pricing. The upper end is harder, in my opinion, to forecast, because of the thinness of buyers and wide variations in property. but I think we're going to see some significant adjustments in asking prices for houses over $500,000.
What Does This Mean for You as a Buyer?
Probably the most difficult thing for buyers to get their hands around here is that we actually have limited inventory, particularly in the affordable to moderate range (from $150,000 to $300,000.) News reports indicate that inventory is skyrocketing, and in many parts of the country, it is. A lot of buyers believe that there is a huge and growing candy store of delectible real estate tidbits to be swept up for a song. But that's just not the case here.
Be reasonable in your price expectations. A lot of buyers who are brand new to second home shopping often have expectations that are, well, not quite within the ballpark. Yes, you can find a cozy getaway on a few acres in a quiet setting for $250,000 here, but not a grand farmhouse with a view and a pond. That type of property starts at about $400,000 here.
Keep an open mind, particularly if you've just been internet shopping or looking at online listings. Its very difficult to judge relative value and form an opinion about whether a house is well priced or overpriced without actually seeing it. For example, a couple of new potential clients I've spoken with recently have formed the opinion that the price for a 3BR farmhouse on 5 to 10 acres should be about $250,000, and everything over that is 'overpriced.' I know which listings they're looking at, because we talk about them. Yes, there are some $250,000 farmhouses that look great online, but in reality they have significant drawbacks — like a location right on a busy road, not particularly appealing neighboring houses, or claustrophobically low ceiling heights. Just because a house is low priced, it isn't necessarily well priced. Many low priced houses are low priced for a reason. In a skittish market, I encourage buyers to look for quality — even if it costs a bit more, or gets you less house — and avoid properties with significant drawbacks, even if they're cheap.
If you make an offer, don't make it a single "take it or leave it" one. Sellers hate ultimatums. But some buyers recently have the belief that sellers are over a barrel, and they're going to give them one shot to accept their offer. If there's a price you want to arrive at, start a bit below to give you some room to move up after you evaluate the seller's counter-offer. Remember the point is to get a house, not to "win" a negotiation.
Base your price expectations on real data, not emotion. There's enough data to mark out a fairly narrow market value range for most houses (although for some unique houses, it can be more art than science.) That's one of the benefits of using buyer agents — helping our clients understand market value for a house based on other sales as well as other competing houses on the market. If you believe a house is overpriced and you're dealing with a "less than motivated" seller, you need to support your position. In fairness, some houses do have special features that may justify a slight premium over supportable market value — but those are the exception rather than the rule.
Even though the market has slowed, my tried-and-true 70% rule still applies. In Sullivan County, we don't have a lot of perfect, ready-to-go houses that, out of the box, fit most buyers' country home dreams. Most houses here involve some compromises. You may find the perfect house, but without the pond or view you've been dreaming about. Or you find a house in a great setting that isn't quite large enough, has an older kitchen or lacks a master bath. I've always counseled my clients that if you can get 70% of what you're looking for, you should seriously consider a house. Because if you wait for a house that's going to hit 90% of what you're looking for, you may wait for a long, long time.
If you're considering buying a home here in Sullivan County,
please give me a call or drop me an email. I'd be happy to talk
with you
about finding and buying a home here.
