January finished out as another month of more of the same, in terms of prices and activity, with a slight dip in volume. For the 3 month period ending Jan. 31, 2010, there were 124 closed single family sales reported in the Sullivan MLS, off 7% from the previous month's total, but up 9.7% from the same period a year earlier. Prices, though, are flat, with the 3 month average steady at about $162,000, and the median recording an ever so slight drop to $132,000 from $134,000 in December.
The near term price picture is mixed. Looking at the single month sales data for December and January, as well as the sales for the 1st 10 days of Feb., the median is showing a downward trend into the low $120's, while the average looks like it will hold above $160,000. The data isn't strong enough, particularly with the different directions of the median and average, to posit a marked downward trend in prices, although there's a drift in that direction. But we're definitely not seeing the sign that many sellers are looking for, an upward bump in prices.
Bank owned foreclosure accounted for 16.1% of total single family sales for the most recent 3 month period, roughly on par with the level we've seen since last fall. While only 1 in 6 sales are bank owned, their low average sales price — $64.475 — has a huge impact on the overall average and median price tallies.
The average ratio of closed sales price to asking price for the 3 month period he;d steady at 89.5%, with the ratio of sales price to original asking price tracking at 80.6%.
On the new activity front, January seemed unseasonably slow. Traditionally, there is a pickup in buyer activity after the holidays, and particularly in the second home market, after bonuses are announced later in the month.
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
In terms of buyer activity, January seemed unseasonably slow. Traditionally, there is a pickup in buyer activity after the holidays, and, in the second home market, when bonuses are announced in January.
"Armchair" house hunting activity, by metrics I can measure like visits to my website, number of property searches, and email inquiries about properties, has been quite high. But actual boots-on-the-ground activity, which is a more serious level of shopping, has been low. My two colleagues at CBA and I only had a handful of showing appointments in January, and went an entire month without writing an offer — the first month we haven't written an offer in recent memory. This may be a reprise of last year, when we didn't really have a mid winter second home buying spurt — but did see a pick up later in the spring.
Among the buyers we are working with, there seems to be little actual motivation to buy. Many have made repeat visits, and seen some well priced houses that they like. But they're not pushing the button, deciding, instead, to wait. Or more accurately, just not deciding. There's a lackluster indecision we're picking up from lots of folks that seems to be more widespread than last summer and fall. It's more diffuse than the very real fear among many buyers a year ago, in the months after the bank meltdown, that real estate prices were going to nosedive.
Another notable aspect of the current market is the sharply lower price expectations among buyers, even compared to six months ago. Part of that I think can be attributed to perceptions buyers are forming from the real estate stories emanating from the high foreclosure "basket case" markets, like Florida, where distress sale condos are selling for fifty cents or less on the dollar from their peak market prices. There's an expectation that any real estate anywhere outside of New York City should be fire-sale priced, regardless of whether there's any basis in terms of supply or foreclosure rates, for that expectation. It's not just Sullivan County. I've spoken with number of other Realtors who work in upstate second home markets, and they're all commenting on a similar sharp fall off in buyer price expectations.
I'm regularly fielding requests for small lakefront cottages at $150,000, larger 3 or 4 bedroom lakefront homes under $300,000, quaint farmhouses in a quiet country setting for $125,000 to $150,000, or cabins in the woods for under $100,000, prices that are 30 to 50% below whats likely with even the most motivated sellers. Those prices might be possible with a bank-owned foreclosures, but the problem is that these types of houses that are appealing to second home buyers are very seldom foreclosures.
I'm also sensing a fresh wave of super bargain shopping for dirt cheap properties. Of the requests for more information on properties generated through the MLS search on my website in January, half were for houses with asking prices less than $90,000. One house, MLS 25936, a handyman listed at $19,900 in Swan Lake, generated more inquiries than any other single house. (Please don't email me about seeing the house. It isn't something I'd handle. But if you click the MLS number link, the version of the listing with the listing agent contact info will come up, if you want to contact him for more info.) While this house is at the super low end of expectations, there is a noticeable subset of the buying public with the belief that they can pick up a little getaway for $50,000 or $60,000 and change.
The sub-$100 shopper doesn't make up the lion's share of the second home market, even though those houses generate a lot of inquiries. But it is indicative of the downward trend overall of buyer price expectations. I would venture that the fulcrum of the second home market right now is around $200,000, down from about $250,000 in mid 2009. That's the number I'm most likely to get from a potential buyer looking for a modest, non-lakefront country getaway, plus or minus $50,000. I'm not hearing $300,000+ pass many buyers' lips at all, apart from waterfront shoppers.
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 Jan.31st, there were only 3 closed sales above $500,000 and just 1 between $400,000 and $500,000. That means just 3% 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 rose a bit in January, to 972 single family homes on the market from 943 at the beginning of the month. The average and median asking prices held just about steady, at $279,795 and $199,000 respectively. Even with the barrage of evidence that prices have softened — and are likely to stay there for the foreseeable future — sellers continue to stubbornly hold to their price expectations.
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 be more generous about pricing, because it appeared prices had bottomed and were trending upwards. But with 5 months now of flat prices, and the landscape littered with unsold inventory, I've become a hardliner. My 'target price' for many houses is somnewhat 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, and pricing, particularly for some of the higher priced second home inventory, could become more competitive.
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 (unrealistically high) 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, a 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 compromising 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.
Don't be shy about making offers. I've changed my tune on this over the past few months. Offers, particularly on houses that seem overpriced, are crucial feedback for sellers about how buyers value their property. But keep in mind that low offers below 80% of asking price are seldom successful, so don't get emotionally attached. It's important to remember that the average sale price here in Sullivan County is 89.5% of asking price, and few sellers have a bottom line of less than 85% of their asking price. So that $400,000 house you love? You may get it for $350,000, but unlikely at $300,000.
If you really like a house and it works for you, and you want to get it, be realistic with an offer and be able to support it with solid market data. In certain market segments, particularly in the low to moderate ranges, there have been enough sales and sufficient price stability, to determine a supportable price range. A strong case to support your offer can go a long way to softening a seller's resolve. But if your offer price is just a shot in the dark, with no basis apart from you wanting a deal, it can have the opposite effect, and harden a seller.