There's no way to sucarcoat it. December 2008 sales were the pits, with only 33 single family homes closed during the month, down 21% from the 42 home sales reported in the Sullivan County MLS a year earlier in December 2007. For the 3 month period ending Dec. 31, 2008, there were 129 single family sales reported in the Sullivan MLS, off 19% from the same period a year earlier. (As regular visitors to this site know, I prefer looking at 3 month data blocks due to Sullivan County's small sales volume. However, given that December is the first month where the closed sales were primarily generated after the mid-September economic crisis, it can be instructive to also look at December's single month data.)
On the price front, the average sales price for the 3 months ending Dec. 31st was $171,791, down 14% from the $200,647 average a year earlier, while the median sales price of $150,000 was off 11% from the $168,500 median for the 4th quarter of 2007. For the single month of December alone, the average fell to $155,460 while the median skidded down to $140,000.
While foreclosure sales accounted for only 12% of the total sales for the 3 months ending Dec. 31, the average sales price of $68,175 on foreclosures is clearly pulling down the average.
Sales volume (for the 4th quarter) peaked in 2005, with 228 single family sales reported in the Sullivan MLS. The 129 sales during the 4th quarter of 2008 was down 44% from that peak. On the price front, the average sales price is now down 32% from its peak in June 2007, while median has fallen 25% from the same June '07 peak. Single family home sales are running at a rate of about 450 to 500 annually, down 30 to 35% from the approximately 700 annual sales rate we saw in 2005 and 2006.
How Far Have We Rolled Back?
I was able to compare 2008's 4th quarter sales with 4th quarter sales for the prior six years. The 129 sales during 4Q08 were off 38% from the average of 180 sales during Q4 for each of the prior 6 years, and was the lowest sales volume for a 4th quarter since I've started tracking data in 2002. However, the 129 sales during the 4th quarter were better than the overall worst sales quarter in the past 6 years. During the 1st quarter of 2008, only 93 single family home sales were reported in the Sullivan MLS.
The median and average sales prices during the 4th quarter have pulled back to just about where they were during the 4th quarter of 2004 — around $150,000 for the median and in the $170's for the average.
Asking prices have also been pulling back, with the average and median asking prices falling about 5% during December. (The median asking price was $212,500 at the beginning of December '08 and $199,500 at the beginning of January '09.) This is the first time the median asking price has been below $200,000 since Oct. 2004.
All in all, the real estate time machine seems to have reset to around late 2004.
The Current Market
October and November were pretty dismal. It seemed about the only folks house shopping were bargain hunters trolling for foreclosures and distress sales. The economic uncertainty along with the huge swings in the financial markets tempered much enthusiasm for major big ticket purchases like real estate.
The chilling real estate freeze of October and Novermber seemed to start thawing a bit in mid to late December. I've gotten quite a few phone calls and emails asking about properties, and have had multiple appointments every weekend since Christmas. A number of buyers I worked with last summer have gotten back in touch to say that they're still interested in finding something here. I've even put together a couple of deals. A number of other agents I've spoken with have also said they're busier showing property.
While a pick up in interest is a necessary first step to a pick up in sales, there is significant hesitancy and caution among buyers. More people are looking, but few, it seems, are pulling the trigger. A common response among buyers I'm working with is some version of "We're going to wait a few months to see how things play out. But if you see a great value come along, please keep us in mind."
The universe of interested buyers may be smaller than a year or two ago, but it hasn't evaporated. It's just much more cautious, finicky and fragile. This economic downturn hasn't slammed everyone against the wall. The folks I've talked with recently about buying a second home haven't been hugely impacted. Many are young professionals in their 30's who don't work in financial services and have what they perceive to be secure jobs. They're not close to retirement, so the status of their retirement accounts is less crucial. While the economic landscape may have changed, their lifestyle objectives haven't. These city dwellers still want a place to watch their kids grow up, make their art or retreat with friends. The romantic pull of "On Golden Pond", "Pollock" and "Love, Valour, Compassion" is alive and well.
While the desire and ability to buy a second home is still there for many people, the motivation and urgency varies widely. There is a subset of this group ready to move on a house that they perceive as a good value. They generally share a belief that the market may be nearing its bottom, but even if it's not, they're not paralyzed by fear of a further decline. Their lifestyle goals take precedence.
The other subset of buyers with desire and ability are those who's fear of further price drops trumps the lifestyle upside. This group of buyers are very active at looking, but are delaying any purchase until they have more confidence that the market may have bottomed. (Of course, timing the bottom in any market is very difficult.)
The common element among both of these buyers — those that are ready to buy something now, and those laying thr groundwork for buying something later — is an absolute focus on "great value." Great value at every price point is key. Most buyers have accepted that a home purchase may not enjoy much appreciation over the next few years — and are looking more for lifestyle return than investment return. However, they are keen to minimize their downside risk, and tend to only be interested in houses that are particularly good values. I hear over and over, "We really like this house, but its just too much money, especially in this market."
The combination of risk moderation and a value focus has led to a sharp pull back in buyer price expectations. A year ago, the mid range second home buyer in Sullivan County was typically looking in the $300,000 to $325,000 range. Today, that range has dropped by about a quarter, to $225,000 to $250,000. I think there have been similar pull backs in other ranges as well. Small cabin buyers looking for something modest on a couple of acres seemed to have dropped to about $125,000 to $150,000 from $200,000 a year ago. Buyers looking for a 3 bedroom lakefront house on a more traditional lake are looking for values in the low $400's rather than the low $500's.
While there are buyers looking and deals being made, which is some improvement over a few months ago, every upticket seems fragile and tentative. Even buyers who are secure financially aren't immune from broader economic news. Frankly, I don't think we'll see much of a real improvement in real estate until consumer confidence stabilizes.
Sellers, Asking Prices and the Inventory Picture
The inventory of single family homes on the market fell in December, to 921 homes listed for sale in the Sullivan MLS, about 8% less than a year ago. This is in sharp contrast to the rising inventory in many other markets in the country. Some of the inventory drop off is due to seasonal variations. Inventory traditionally hits a low in mid-winter. But the discretionary nature of the second home market is also a factor. Sellers who don't have to sell now are choosing to hold on to their houses, or wait until spring to see if things improve. Others have decided to rent out their properties for the time being.
The inventory may be shrinking, but along the declining sales volume, it translates into more supply. In fact, there's about a 26 month supply of houses on the market at the moment. That doesn't mean there is a 26 month supply of attractive, appealing houses. One of Sullivan's problems is that there is this subset of seemingly unsellable houses. But even in some categories that have chronically low inventory, like modest farmhouses, there is more selection. And I expect as we move into the summer, there will be better availability in other traditionally high demand, low supply categories like lakefront homes.
Some sellers who are keeping their houses on the market seem to be getting more realistic. Average and median asking prices both fell by more than 5% in December, to an average of $271,274 and a median of $199,900 (the first time the median asking price has been under $200,000 since 2004.). More sellers seem to be shifting their attitude as well, and if there is an interested and capable buyer, they're willing to do anything (within reason) to make the deal.
An attention grabbing price is absolutely necessary to attract any buyers. Some sellers in the past few months have taken to fluffing their houses rather than reducing their prices, by painting, tiling bathrooms, adding upscale countertops, etc. These touches can certainly go a long way to helping a house stand out from their competition, but they don't get buyers to buy a house that's clearly overpriced. Real estate maven Barbara Corcoan has repeatedly advised sellers on her Today show appearances to price their home 10% to 15% below the competition — and then still make it sparkle and shine to stand out.
Another complicating factor on the seller side is that it seems more and more sellers are in short positions. Its impossible to tell from a listing if a seller is short, unless the seller is delinquent and the lender has agreed to a short sale (usually noted in the listing as "Third Party Approval Required".) I hear more and more from listing agents, though, that the owner of this or that house can't sell for much less than the asking price — which indicates they're overleveraged on the house. Sellers being upside down on their house is a new phenomenon here, and we're all going to have to become more experienced in dealing with it.
What Does This Mean for You as a Buyer?
It's definitely a buyers market, and that does present some good opportunities. There is a subset of homes here with motivated sellers or in distress situations. That's where buyers shopping for good values today should focus. Of course, the inventory of "motivated seller" properties is only a small subset of the total inventory, so the house you love, or the house with all the features on your checklist, may not be "on sale".
Even if you're value hunting, set realistic price ranges. A good target is probably about 20% below what a house may have sold for at the peak of the market (mid-2007). If a 2 bedroom lakefront cottage might have sold for $340,000 in June, 2007, a good target for it today might be $270,000 or $275,000. This is not an across-the-board formula, as some houses have very unique features or special settings that can help maintain value, while other houses could have features or be in market sectors where the price drop off could be greater than 20%. But 20% off peak seems to be a good beginning fulcrum to work with.
Keep in mind that a property "priced to move" is probably going to be priced about 15% to 20% below its competition, not 50%. Quite a few buyers I've spoken with lately have somewhat unrealistic price expectations, even for a buyer's market. Consider what I often conjure as my "benchmark", that elusive 3 bedroom, 2 bath house on 1/4 acre on Swinging Bridge Lake. In June, 2007, it might have sold around $550,000 to $570,000. In June 2008, a good example sold for $495,000. Today, the good value price for something similar is probably around $450,000. It's not, however, $325,000 to $350,000 — where some folks may expect the price to be in a "buyer's market".
Don't rely just on automated systems, like Multiple Listing automated searches, to keep you informed of deals. Reach out and make a connection with a Realtor. There's a lot of "back story" behind quite a few listings right now. There are a number of sellers who have indicated to their agent that they are "very motivated" and to put the word out that they are willing to deal, but don't want to reduce their asking price.
Be realistic about what's likely in your market segment. For example, lots of second home buyers ask me about foreclosure properties, but foreclosures are much less likely among the types of houses that have strong second home appeal. I have yet to see a lakefront or renovated farmhouse come through as a foreclosure sale, although that could certainly change. But someone looking for a more suburban style house on an acre within the commuting circle in the SE part of Sullivan may want to hold out for a foreclosure property or a builder's closeout.
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.
