The number of single family sales closed during the 3 month period through Feb. 2007 plunged 36% over the same period a year earlier, while the median sales price actually climbed 18.2%! Such a dramatic drop in sales accompanied by an equally dramatic rise in prices presents a perplexing paradox, but one I think I can explain.
While prices are up over the year earlier period, it can be more helpful to look at short term performance. If you look at the median sales price (which is a more accurate measure of trend performance than the more volatile average), it has been moving in a very narrow range between $190,000 and $198,000 since August. Keep in mind that closed sales data lags buyer behavior by 60 to 90 days, so what we're seeing is a price flattening that really started last May.
The important thing to note, for both buyers and sellers, is that prices are neither sharply higher nor sharply lower.
Why The Big Sales Drop?
The fall selling season, from Labor Day until Thanksgiving, is typically the busiest period here. Last year, the fall selling season was terrible, a reflection of the housing bust jitters that started last summer. Basically last fall, few people were buying real estate unless they had to. In a heavily second home market like Sullivan County, home buying is discretionary and can be postponed.
The 3 month period covered by the latest closed sales data, from Dec. 2006 through Feb. 2007, is the result of buyer behavior during the 4th quarter of 2006. The February sales number really shows how slow the late fall really was. We didn't start to see a real pickup in the market until January.
More difficult to explain, given the sales slowdown, is the relative strength of prices. Traditional economics would say that if demand falls, so should prices. I think the price profile were seeing is also a function of the discretionary nature of a second home market. Just like many buyers don't have to buy, many sellers don't have to sell — so there wasn't a lot of panic selling.
The Current Market
The first two months of the new year have been very active, particularly in the second home market. The post-New Year is traditionally busy, but this year was even more so, which can be chalked up to two factors. First, the doom and gloom housing bust, particularly in this region, just didn't happen. The fear among buyers that if they buy something today, they might take a bath in the near term, has really diminished. Second, I think we're seeing some pent up demand that built during the fall.
Is it real or is it Memorex? Real, at least from my vantage point. The 3 of us who work together at Catskills Buyer Agency have pretty much been booked solid on weekends since mid-January. Currently, I have as many clients in contract to purchase houses as I've ever had. Visits to this website, which is a rough indicator of buyer interest, are running at peak levels.
The market pick-up, though, does not seem to be universal throughout the county. From talking with agents in different areas, those who focus on the more in demand second home areas in the western part of Sullivan are reporting they're very busy, while those in the more primary-home focussed central and eastern parts of Sullivan are complaining about being much slower, at least in the owner-occupied residential home market.
In the second home market, which is my focus, the areas of greatest activity are the affordable range, from $150,000 to $250,000, and the moderate range from $250,000 to $350,000. I'm seeing a little pick up in the upper-mid range from $350,000 to $500,000 but the upper end above $500,000 continues to be very sluggish. One very striking difference between this year and last year is that I the traditional January pick-up didn't seem fueled by Wall Street bonus money this year — which is likely a big factor in the continuing softness in the upper end second home market. For example, I haven't taken a client to Chapin Estate (where lakefront lots start in the $600's, and lakefront homes at $1M+) so far this year, and am not getting calls for other upper-end trophy property either. In fact, the last property above $750,000 that sold here (at least, as reported in the MLS) closed last August, while there hasn't been a $1 Million + closed sale since last June.
The data consistently show that Sullivan County is a middle-income second home market at moderate price points with a strong value focus. The sweet spot for many buyers is $275,000 to $325,000. While we do have the occasional upper end sale, we just haven't made the transition into a premium market to consistently compete for trophy property buyers — even tough upper end buyers can get far more for their dollar here than in more 'brand name' second home locales within 2 or 3 hours of NYC.
Sellers, Inventory and Asking Prices
Inventory took a slight dip at the beginning of March, slipping to 1,002 single family homes on the market from 1,030 at the beginning of February. A drop in inventory is common here in the winter, and will likely continue until April or May. Inventory is only up 7% from the same time last year. Asking prices have climbed for the second month in a row, with the median asking price for a single family home hitting $249,000, up 3.8% from the $239,900 median that held through the fall.
There's been a noticeable firming of prices on the seller side, and again I'm seeing an influx of new listings at unrealistic, pie-in-the-sky asking prices. (See my recent blog post, Magical Thinking and Sullivan County Real Estate.) Some sellers are suffering a bad case of 'casino fever' that will probably take a few months to wear off. A significant factor in seller price expectations is the discretionary nature of a heavily second home market. Many second home sellers do not have to sell or move, and see little downside to waiting to see what happens in the market.
While there is a lot of inventory overall, there are actually inventory shortages in some key market segments. Well-priced houses with the features most in demand by second home buyers — a charming or interesting house with privacy in a nice setting — in the $250,000 to $350,000 range are in short supply, as are lakefront houses on a few acres in the $600,000 range. There seems to be a glut of houses in the $400,000 to $500,000 range, many of which are actually pretty attractive. But there just aren't that many buyers looking in that range. Many of these $400,000 to $500,000 have mid-market features, but are priced well above the mid-market sweet spot.
While we're seeing stabilization is actual sales prices, I think it will be another six months or so until we see settling in asking prices. Owners of many of these overpriced houses will have to go through a summer selling season before they're likely to accept the wisdom of the market about their unsold houses if there is not a market surge.
Not all houses, however, are overpriced nor are all sellers stubborly holding to unrealistic prices. A lot depends on the situation of the seller, and I have been able to make some very attractive deals recently.
What Does This Mean for You as a Buyer?
Broad market generalizations don't apply. Its important, when looking, to be aware of the dynamics in your specific submarket. For example, if you're looking in the prime $250,000 to $350,000 second home range, you probably have competition and there's limited inventory. If you see a house you like, don't assume it will be there next month. Good $300,000 properties with attractive features for second home buyers are jumping off the shelves. But if you're looking for a more 'suburban' style new construction primary home on an acre or two from $300,000 to $350,000, you have a choice of inventory and fewer competing buyers, so can take your time.
Because sellers' price expectations are all over the map, its important for buyers to stay focussed on demonstrated market value. Annual price appreciation has moderated into the single digits. Review sales of comparable properties over the past 6 months, and set your target price range accordingly. Don't expect to pay less than that range, but be wary of going much above it, either.
Stay dispassionate and don't get angry at sellers. In you can't come to agreement on a price that you think is fair market value, walk away. A lot of sellers right now are stuck on inflated values. Just because they think their house is worth $399,000 doesn't mean that it is. Working with a buyer agent can be helpful to come up with a market value range and support an offer to a seller with comparable sales data. But it doesn't always work.
Avoid the tendency to think a property is only a good value if you get a big cut off of the asking price. The average ratio of actual sales price to asking price over the last 3 months was 92.3%. Many buyers think that houses sell at 80% or 85% of asking price, and that just isn't true. If you apply the "average" to a house listed at $299,000, the sales price would be $275,977, not $250,000. But don't use this as a hard and fast rule, that if you don't get at least 7% or 8% off of the asking price you're paying too much. I've had clients recently who've paid full price for houses, in situations where the house has been well priced, in a high demand market segment and I've been comfortable that the market value is clearly there.
Be realistic with your expectations. Very few houses on the market here, are "magazine-ready":, but many buyers come here with magazine expectations — looking for a perfect Norman Rockwell farmhouse, a pristine "On Golden Pond" lake cottage that oozes charm or an architect-designed modern home that could grace the cover of Dwell. We do have those types of houses here, but they're not cheap — when they're available. In the moderate price ranges, most houses involve some compromises and need some work, particularly updating and refreshing. The best values are for house styles that are in less demand, like ranch houses or bi-levels in nice settings that can be transformed. I call them "houses without stories" — they don't evoke cozy mountain or country narratives. In contrast, houses with lots of charm or drama — even in their unrenovated state — can carry sharply higher price tags.
Be cautious about setting your price expectations based solely on internet house shopping! (See my blog post, The Pitfalls of Internet House Shopping.) Yes, you will find some "farmhouses" under $150,000, a "lakefront" cabin for $250,000, 5 acre parcels of land under $25,000, and scores of other "too good to be true" bargains. I have a lot of experience with second home buyers and what they're looking for. I also know the reasons why many of these properties are priced low. Trust me, there's no magic here — if the owner felt they could get more for the property, they would. Seldom do I see a listing that honestly describes a house's flaws. For example, a "too good to be true" farmhouse may have 6 1/2 or 7 foot ceilings, it could need major structural work, like lifting the house and repouring a foundation or the front door could be located 20 feet from a busy road. And I've never seen a listing photo taken to include the mobile home on the property right next door with four junk cars in the front yard.
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.
