All things considered, December ended up reasonably well, just about on par with the volume and pricing we've seen since early fall. For the 3 month period ending Dec. 31st, there were 134 single family sales reported in the Sullivan MLS, with an average sales price of $161,904 and a median sales price of $134,250. The average sales price was off 4.2% from with a year earlier, with the median down 9%. For the single month of December., the median did drop to $120,000, but in November the single month median had climbed to $142,500.
As regular readers of this report know, I'm skeptical about single month data as a trend indicator because of the small sample size.
Particularly notable in December was the percentage of bank owned foreclosure sales — 9 of 39 sales in that month, or 23%. In comparison, only 8% of the November sales were bank owned foreclosures. That indicates to me that banks may have been pushing to close to get those properties off their books before year end, which may have depressed December's prices. To those who sometimes accuse me of wearing rose colored glasses and ignoring bad news, I'm not saying that prices may not be trending further down, bur rather there may be an anomaly that may be skewing short term numbers. We'll have to see how it plays out over the next few months. (For the 3 month period ending Dec. 31st, foreclosures accounted for 14.2% of sales.)
Now that 2009 has ended, we can also make a year-over-year comparison with 2008. I have to admit I was somewhat surprised when I pulled the numbers. In 2009, there were 437 single family homes sold through the Sullivan MLS, a drop of only 6.5% from the 467 sold in 2008. Year over year, the average sales price fell 12.4%, from $185,174 to $162,222, while the median declined 14.3% from $158,000 to $135,500.
The Current Market
Buyer activity seems down, at least from where I sit. December, which is usually a slow month anyway because of the holidays, seemed particularly slow. Typically, as soon as the holidays are over there is a mini-surge in house hunting among second home shoppers. The uptick in interest has been so predictable in years past that I stopped taking a long vacation in January.
So far, as I write this (Jan. 11th), I haven't seen it. I'm fielding a steady stream of inquiries and have some appointments on the book for this month, but it's much quieter than in past years. We may be seeing a pattern shift similar to what we saw in 2009, where second home buyers start searching much closer to summer. This is consistent with the widespread belief that if prices are going to change, the direction will more likely be down than up — so there is almost no downside from the buyer's perspective to waiting. Another factor that can't be ignored, though, is the miserably cold weather we've had steadily since Christmas.
I'm noticing, among buyers I am working with, that their focus on value is firming up again. I would venture that buyers are again as strident about considering only great value houses as they were a year ago. Over the past month, I've had two clients end negotiations when they were unable to arrive at a price they considered fair. Everyone I've worked with recently has asked about comps for houses that make their 'short list' and won't even consider offers above a solid documented value.
I would venture that the 'market' today is actually tougher than last winter and spring, during the dark days of the economic downturn. The universe of comps that buyers (and lenders) rely on to gauge value is heavily populated by "distress" properties that went into deals 6 to 12 months ago. Sellers today largely don't share the desperate pessimism that motivated some sellers last year to do deals. However, buyers today still want the same super deals that more courageous contrarians nabbed last spring. Adding to the conundrum is that the inventory of "super deal" property has shrunk, as buyers have grabbed up many properties that have been on the market for years at bargain prices.
I'm also sensing that buyer price expectations are continuing to drop. Modest farmhouse buyers are talking to me about finding something in the low $200's, not the mid $200's. Lakefront buyers are asking about 3 bedroom lakefront houses in the low to mid $300's, not the low $400's where I thought we were going to settle for that category. And those 'little cabin in the woods' buyers are usually saying $125,000 is their number, not $150,000 to $175,000.
It's getting harder to speak about the upper end of the market, because in my experience buyers at the upper end have been AWOL. For the 3 month period ending Dec. 31st, there were only 3 closed sales above $500,000 and just 2 between $400,000 and $500,000. That adds up to just 5% of total sales were above $400,000! To put that in perspective, 15% of the currently available inventory carries an asking price of $400,000 or higher.
Sellers, Asking Prices and the Inventory Picture
Inventory slid substantially from December to January, to 943 single family homes on the market (down from 1,071 in December.) The January slide is pretty typical, as many listings have a Dec. 31 expiration date, and often owners just decide to keep their house off the market in the winter and relist in the spring. Very surprisingly, the average asking price rose 4.2% from $271,223 to $282,720. This can't be chalked up to some anomaly like Chapin Realty joining the MLS (which largely accounted for the November rise in asking prices.) I continue to shake my head in disbelief at the magical thinking of sellers. (See my Jan. 6th blog post on this.) Just when I think sellers are getting with the program, and starting to adjust to current market realities, along comes this sharp rise in average asking price.
That's not to say that all asking prices are out of line or all sellers unrealistically stubborn. But I'm finding that I've become much more of a bear on prices (in lockstep with my clients) since the fall. Last summer and fall I was more likely to more generous about pricing, because it appeared prices had bottomed and were trending upwards. But with 4 months of flat prices, and the landscape littered with unsold inventory, I've become a hardliner. My 'target price' for many houses is way below what I thought 6 months ago. Consider lakefront houses on Swinging Bridge. Not one of the lakefront houses listed in 2009 there have sold so it's hard to what the 'right price' is for them.
One thing that's clear is that a lot of inventory was held off the market in 2009 by sellers waiting for the market to improve. Sellers may be willing to carry a house for a year or two, hoping prices pick up. After a while, though, those carrying costs start adding up, not to mention the hassle of maintaining a largely unused house. I expect in 2010 we're going to see quite a bit of that inventory flow to market, which culd further depress prices.
What Does This Mean for You as a Buyer?
The perfect house, with everything you dream of, that just came on the market last week is unlikely going to be a great deal. In my experience, the best deals have almost all been on the market for more than a year, enough time for the sellers to come to grips with the reality that they're not going to get their price. To find a motivated seller and a potential great deal, look for two things — a house that's been on the market for more than a year, with at least one or more significant price reductions in the past three months. A house may have been on the market for 2 years, but if the owner still is asking what he or she did back in 2008, it's unlikely they're very motivated.
If you're shopping for a great deal, be flexible in your expectations. Perfect houses are seldom the best deals. Houses that need updating, second bath or an addition to make them more liveable may have been overlooked by "perfect house" shoppers, and the seller may be getting just desperate enough to cut you a great deal. Remember, paneling is your friend — if you're looking for a great deal. Be cautious, though, about comprising on factors that aren't fixable and can have a long term impact on value, like low first floor ceiling heights in old farmhouses (you can often raise the roof on a second floor to get more second floor headroom) or location on a busy main road.
Be patient. Some of the best deals are "short sales" (where the owner owes more to the bank than the house is selling for, and the lender is asked to write off some of the amount owed.) But short sales can take 3 to 6 months to close, and even then, there is no assurance at the outset that the bank will approve the short sale deal.
Be realistic with offers, and be able to support them with solid market data. It's become fashionable this year among some buyers to throw out low ball offers on house after house in hopes that one will stick. On average, houses here sell for 89% of asking price. For the latest 3 month period, only 6% of sales were made for less than 75% of their asking price, and just 15% at 80% or less. Looking at houses that are overpriced and throwing down offers at 60% of that asking price doesn't really work. In my experience, you can generally only do a deal when the asking price is within 20% of your target price for the house.