January was basically a rout, and shattered any illusions that Sullivan County is somehow immune from more generalized real estate market factors. Closed sales of single family homes for the 3 months ending Jan. 31, 2008 numbered 131, down 15% from the same period a year earlier. More troubling, though, is that the closed sales figures were off 15% from the month earlier measure (for the 3 months ending Dec. 31, 2007.) Looking at January, 2008 alone, only 29 sales closed during that single month. I tend to avoid looking at single month data, because of the sample size here that can skew statistics, but the trend over the past 3 months has been to significantly lower sales volumes.
The news isn't much better on the price front. The median sales price, at $164,000, was down 16% from the same period a year earlier, but held about steady to the Dec. number. The average sales price ($191,394), however, continues to decline, with a 4.6% drop from December. In looking at single month data, I anticipate that the average sales price could drop further over the next couple of months.
The relative stability in the median sales price at the same time that the average is dropping confirms what I've been feeling for the past few months, that the upper end of the market is very soft, and buyers have been focusing on homes in more moderate price ranges. In fact, for December and January there have been no closed sales reported in the MLS above $500,000.
The Current Market
January is typically a bellweather month, in terms of buyer activity. For the past 5 or 6 years, the post-New Year period marked the start of the second major selling season here, particularly for second homes. After the holidays, second home buyers would become more serious about finding a house so they could be closed and settled in their new home by summer. This year is definitely not the same. "Let's buy a house before summer" has been replaced with "Let's wait and see what happens."
The month started out quite busy, with multiple appointments every weekend, but then slowed. There's definitely interest in Sullivan County, but its casual and non-commital. People are emailing about homes here, some are coming up to look, but far fewer are pushing the button and buying.
I sense that many buyers believe — rightly or wrongly — that there will be a better house or a cheaper price in 3 or 6 months. In the second home market, which is a discretionary purchase, they can wait. They're willing to go on a date or two, but not go to the altar.
I'm also seeing a continuing shift to more moderate price ranges. The target price for moderate range second home buyers seems to be about $250,000, give or take $25,000 — down about $50,000 from where that same buyer may have been a year ago. This is putting quite a bit of pressure on the mid-$200K inventory. There's also significant interest among some second home buyers in the 'budget' sector, under $150,000 — but its a challenging range because of the often wide gulf between expectation and reality in that range.
What I'm not seeing is much, if any, interest in higher priced properties. I've been out with only one or two potential buyers in the last two months looking for houses above $400,000, lakefront or otherwise. There are a couple of dozen really good houses on the market between $400,000 and $600,000 that aren't seeing much action — while a year or two ago they would have flown off the shelves.
The upper end softness may be attributable to a changing buyer profile. "Wall Street" buyers have been noticeably scarce over the past few months. In recent years, particularly during the January to March 'mid winter' surge, buyers from the financial sector comprised a large part of my clientele. Many of these buyers, fueled by both optimism and bonus money, were shopping in the upper-moderate and upper end ranges. Upper range buyers — in financial services or not — overwhelmingly owned their primary home (or coop or condo). Whether they tapped the equity in their primary residence to fund their second home purchase or not, there was a perception of 'housing wealth' that contributed to their second home purchase.
Today's moderate range second home buyers present a very different profile. Few are in financial services. Most rent, not own, their primary residence in the city. They're typically two income professional couples, comfortable but not wealthy. Communication directors, IT professionals, publicists, photographers, architects and physicians. They're very value focused, not because they're trying to low-ball and pick up a bargain, but because they want to make sure they're making a prudent purchase and minimize downside risk. Two years ago, many buyers looked at the upside potential when considering a property. Today, buyers are evaluating the potential downside risk. (The affordable range buyer — under $150,000 — has many of the same dynamics, just with a different professional and earnings profile.)
Sellers, Asking Prices and the Inventory Picture
The inventopry picture is very curious. One of the key measures of a "buyers market" is that inventory rises. But here, inventory has been steadily falling since August. At the beginning of February, there were just 982 single family homes listed in the Sullivan County MLS, a drop of 23% from the 1,280 houses on the market last July and 8% below the same time a year ago. The Sullivan County real estate market does have some seasonal variation, and inventory typically does drop throughout the winter. But this year the drop from high to low (and the low point is typically in March/April) seems particularly large. In some property categories, in fact, there are inventory shortages.
In talking with Realtor colleagues, it seems that quite a few sellers have taken their houses off the market for the winter. Ostensibly the reason is that the owners don't want to incur costs for snow plowing and heating. But I've heard more than a few times that the sellers believe that the market will be much better in the spring, and they want to put their houses back on the market 'fresh.'
There is this magical thinking lurking about in real estate circles about "spring", that somehow the market is going to improve with the arrival of the daffodils. That buyers will wake up, stop their irritating low balling and bargain hunting, and start offering 'realistic' prices. Of course, 'realistic' is in the eyes of the sellers. I think, though, that rather than a "Spring Awakening", sellers are instead going to have a "Rude Awakening." There is very little indication that the economic picture is going to substantially improve over the short to mid term and that buyer psychology is going to become much more optimistic.
There is some indication that some sellers are becoming somewhat more realistic. The average asking price has dropped 7.4% from its peak of $310,378 last June. But its only dropped 2.1% in the 4 months since October, just a fraction of the 13% drop in average actual sales prices since then. I would say that most sellers are taking baby steps to realistic pricing, if they're taking steps at all. Honestly, I don't think we're going to see any significant move on the seller side until this coming fall. Right now, the sellers are looking to spring, and if the spring is soft, they'll look to the summer. If their house hasn't sold by Labor Day, maybe they'll get serious about price.
Deals that are getting put together now generally involve a 'motivated' seller, willing to do a deal at a price that's perceived as a good value by the buyer. A lot of sellers who aren't necessarily that motivated tell their agents that they're willing to wait for a better price and that they don't have to sell now. But the price that the 'non-motivated' seller can eventually get for their house will be greatly influenced by those 'motivated' sellers now. Consider this example. If there are 4 similar houses priced from $350,000 to $400,000, and one of them sells for $325,000, that sale forms the 'comp' that the other 3 now have to rotate around. The owner of the house on the market for $400,000 may do a deal at, say, $375,000, but the appraiser has to compare it to the closed sale at $325,000. The nuances of appraisals are too involved to get into here, but over time in a downward trending market, the motivated seller who sells at a lower price sets the market price. So my advice to sellers is that they are better off behaving like a motivated seller now and getting their property sold, because ultimately their price will be largely determined by other motivated sellers.
The bottom line to make a sale in the current market is for the house to be perceived as a good or very good value by a buyer. I don't know what that means for some houses, but it may be a rude awakening for some sellers. As Realtors, our valuations are based on historical data. None of us have a crystal ball. A particular house may seem a good value to us, because of its price relative to other similar sales within the past 6 or 12 months. But that may not be sufficient to attract a buyer who might be looking at where the price might be 6 or 12 months in the future.
What Does This Mean for You as a Buyer?
Probably the number one thing for buyers to keep in mind is that there isn't an unlimited supply of interchangeable inventory here in Sullivan County. Many buyers approach this market with a mind set that there are lots and lots of houses, all owned by desperate sellers looking to 'get out' at any price. That may be the case in Phoenix or Orlando, but isn't the case here. Yes, there are deals to be made and values to be found, but it is highly unlikely that the $300,000 house you fell in love with is going to sell for $200,000. $265,000 or $275,000? Possibly. $250,000? Maybe. Less than $225,000? Unlikely.
If you find a house you like, and its within your price range and within striking distance of market value range, you should consider buying it. Just like sellers have magical thinking about prices in the spring, many buyers have similar magical thinking about inventory. But the bottom line is that we don't have a lot of houses here, much less many that will get ring your bell. Particularly if you're looking for something with character, or in a special setting, there likely won't be a lot of similar houses coming on the market in the short to mid term.
Intelligent offers, based on comparative sales data, have a greater chance of success. Throwing a number on the table because that's what you want to pay or that's what you think the house is worth, are less successful. Supporting your offer marks you as a serious buyer, and the listing agent is more likely to try to "sell" the offer to the seller. People often ask me, "Is this offer too low too start?" The issue isn't whether an offer is too low, but whether a low offer is unsupported. Remember, many sellers right now are stuck and you have to help them become unstuck.
I'm sure that other Realtors who read this monthly update and my blog are hoping that I'll scream in a big headline, "Great time to buy a house". I don't think there are any particular market forces that make this a great time to buy a house. But neither do I think there are any major indications that its a bad time to buy a house. On the plus side, mortgage interest rates are quite low, resulting in carrying costs about 10% below last summer. There isn't a lot of competition among buyers, and sellers that are motivated are generally very motivated. So if you hit the right house with the right seller, you can cut a good deal. If you buy something now, you can enjoy it for the summer. On the minus side, prices may dip further. But in the end you have to weigh the pros and cons, and whether you want a house to enjoy.
Don't get hung up on the last few percentage points in the negotiation. Recently I've heard of a lot of negotiations stalemating over the last 2 to 4%. Be very careful, when you're close on price, about drawing a 'take it or leave it' line in the sand. This is very different, though, from walking when the seller won't come in to 'deal range' or 'market value range'. If you're aware of values, have made a supported offer and can't come to reasonable terms with the seller, you should be prepared to walk.
Look over a house carefully before you make an offer. If the seller ends up accepting a price below what they considered their 'bottom line', they may resist any further concessions over inspection or repair items. You may well get this response to any requests for post-inspection concessions: "The damp basement and the age of the roof were very apparent when you looked at the house and your offer should have taken that into account." In one case I heard of recently, the buyers came back with the request that the sellers have the house repainted — after they'd struck a pretty good deal for the house. The sellers refused. Don't expect that sellers are willing to do anything to get their house sold. I'm not saying to do an inspection before making an offer, but you should definitely look at some major items, like the foundation, roof and boiler, and take their condition into account when making an offer.
Be wary of 'vanity appraisals' or an appraisal more than a few months old showing an appraisal price above the asking price. 'Vanity appraisals' are what I call appraisals ordered by a homeowner, but aren't tied to lending or underwriting. A lender isn't actually forking over money based on that appraisal. In that case, an appraiser might be free to use comps that might be disallowed or challenged by a lender. For example, some lenders only accept comps no older than 6 months, but in the case of an appraisal not tied to underwriting, an appraiser might include comps up to 12 months old. Likewise, an appraiser may be more liberal in terms of house styles, acreage or geographic distance for an owner-ordered appraisal. The appraiser isn't doing anything wrong, its just a different animal. Also, be cautious about older appraisals that the owner may have had for refinancing. An appraisal 12 months, or even 6 months, old has limited relevance. Ultimately, the only appraisal that really matters is the one that your lender will order to justify lending you the money.
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.
