For the 3 month period ending Feb 28. 2009, there were 85 closed single family sales reported in the Sullivan Multiple Listing System, down 22% from the same period a year earlier. The three month average ($166,119) and median ($137,500) sales prices were down 11% and 17% respectively from year earlier levels. The average sales price has been pushed up by one $1.75M sale at Chapin in January. With that sales excluded from the sample, the average sales price drops to $147,263.
Overall, the median sales price has fallen 29% from February 2007, while the average is off 23%. These numbers are pretty consistent with what's being reported nationally as well as what's being projected for 1st quarter 2009 performance in Manhattan. Case-Schiller, for example, in it's latest data (through Dec. 2008), a national decline in prices in the 27% to 28% range from the peak.
The troubling part of the sales data is not so much prices, but volume. Looking at February as a single month, there were only 19 closed single family sales reported in the MLS. There were 33 reported sales in February 2008, and 35 in February 2007. February tends to be a low closing volume month, but this year it was dismal.
There are a few bright spots in the data. Looking at the single month data for February, the median sales price climbed to $148,750 (from January's single month $125,000, excluding the Chapin sale) and the average rose to $152,723 (from January's $136,070, excluding the Chapin sale.) However, given the very small sales volume in February, market watchers should be very cautious about giving too much weight to this price uptick.
The February single month data, however, may indicate a bit more balance may be returning to what's selling. During the 4th quarter of 2008, it seemed like the only people buying were bargain hunters shopping for foreclosures or other distressed, veyr low priced properties. For the 3 month period ending Jan. 31, 2009, for example, 22% of the closed sales were bank owned properties. For the 3 months ending Feb. 28, 2009, only 14% of the sales were bank owned.
In a further indication that we are in the grips of a buyer's market, the ratio of sales price to asking price for the 3 months ending February 28 was 88.8%.
The Current Market
February, in terms of shopping and tire kicking, was surprisingly busy, given the ongoing barrage of grim economic news. I had appointments every weekend in February, and have been fielding a pretty steady stream of email and phone inquiries. City buyers thinking about a second home are sticking their heads out of the foxhole.
That doesn't mean, however, that we're seeing a lot of actual buying activity, much less a return to a robust market. The buyers who are venturing out to look are very price driven and value focussed. A lot of the folks I talk with are only interested in looking at houses that fall into an "extreme deal" category. The terms that get buyers' juices flowing right now aren't the typical "pristine setting", "classic charm" or "stunning views" but rather "short sale", "foreclosure", "estate sale" and "seller needs to sell and will take a loss." One of the hurdles right now is that a lot of shoppers still want a pristine setting and classic charm, but only if it's distress-sale priced.
One reason I believe there's a greater focus on "distress sale" properties is that they're the only ones that come close to meeting buyers' rapidly falling price expectations. Since the beginning of the year, there has been a marked pullback in buyer price ranges. The kind of price points I'm hearing from buyers are for small lakefront cottages in the low $200's, larger 3 or 4 bedroom lakefront houses in the low $300's, farmhouses under $200,000 and cabins in the woods under $100,000. Even the subset of distress properties aren't quite hitting those price points, much less the wider inventory of non-distress properties. Interestingly, over the past month I've gotten a number of inquiries about homes at the Chapin Estate. But even in the more rarefied sphere of upper end lakefront buyers, price expectations are well below the available inventory. Every potential Chapin buyer I've talked to, for example, has indicated a ceiling of $800,000 to $1M, when the least expensive lakefront home there is listed for $2.15M.
While I'm sensing an uptick in demand (or at least 'demand' as indicated by interest) compared to the dismal 4th quarter of 2008, that demand/interest isn't widely translating into sales activity because of a big cloud hanging over the market: fear. Buyers fear that prices will fall further. As a result, they only want to consider cheap properties or super bargains to mitigate that risk.
A related factor pulling down price expectations is that buyers are being very financially conservative. Apart from Chapin, Lew Beach and a handful of trophy properties here in Sullivan, we're overwhelmingly a middle class second home market. Across the spectrum, middle class folks — even those with no fear of job loss — are hoarding their acorns. I hear over and over, "We can afford more, but we just don't want to spend it right now. If we can find a lakefront house for $250,000, great. If not, we'll wait." This has been particularly noticeable among the handful of clients I've been working with since last summer and fall. While all of them stopped shopping post Lehman, a number have resumed looking in the last couple of months, but with markedly lower price ceilings. A lakefront buyer looking in the $500,000 range last summer now wants to stay under $400,000. A $250,000 farmhouse buyer is now more comfortable around $175,000. A $750,000 lake or river buyer now wants to be closer to $500,000, and Chapin clients who were shopping in the range of $1.5M to $2M have now asked me to give them a call if anything comes up in the $1M range.
The interesting thing is that all of these buyers have — independently — reset their price expectations to roughly 2003/2004 levels, which is coincidentally just where we've pulled back to in terms of closed sales prices, and just before the big price run ups that started in 2005/2006.
Sellers, Asking Prices and the Inventory Picture
Inventory continued to drop in February, with 895 single family homes listed in the Sullivan MLS at the end of the month compared to 920 at the beginning. Part of the inventory slide, which is down 39% since it's peak last September, can be attributed to seasonal fluctuations. (The inventory low point typically comes in mid-winter). But even accounting for seasonal variation, inventory is down 11% from a year ago. I believe that 11% year-over-year inventory slide can be largely attributed to sellers just pulling their houses off the market. In some property categories, like lakefront houses, in fact, there is a dearth of houses on the market.
Overall, asking prices aren't showing much downward movement, with the average asking price of $281,284 and median asking price of $199,900 holding at virtually the same levels since December. There have been quite a few significant price reductions on individual properties, some into an eye-popping "What a great deal!" range. But these individual price reductions. However, these price reductions have not been widespread enough to have a significant downward impact on the market-wide average.
The fact that the overall asking price average hasn't budged since December indicates continuing seller resistance to the downward price pressure in the market. 53% of current listings have had no price reductions since being listed, while a further 22% have had price reductions since being listed of less than 10%. Of the 468 houses on the market 6 months or longer, 33% have had no price reductions, while a further 25% have had price reductions of less than 10%. This latter group is kind of shocking. Of our total inventory, 53% were put on the market prior to the September Lehman meltdown. And of that group, 58% have had no reductions in their asking price or reductions of less than 10% since being listed. What are these sellers thinking? That there's going to be some miracle second coming?
Compounding the picture is that we're starting to encounter some sellers who are "upside down" on their houses, meaning that they owe more on their mortgage than they can get from the sale of their house when sales expenses are included. Recently I've been involved in a couple of negotiations where the seller has not accepted a buyer's offer because they'd have to write a check to the bank at closing to make up the price shortfall. Unfortunately, I think this will become a more common occurrance over the next year. Some sellers have the impression that they can negotiate a "short sale" with their lender, but that's a difficult and not always successful process that can severely damage one's credit rating.
While an inventory of 900 houses on the market may seem pretty substantial, the effective inventory is much smaller. If a sellable house requires a sufficiently motivated seller who is willing to do a deal at a good price, and that seller is actually able to sell the house at the price (e.g. not being too upside-down), the sellable inventory probably drops by at least half, maybe two thirds. And that's not even accounting for whether a house is attractive or appealing. For example, there are 59 lakefront homes currently listed for sale in the Sullivan MLS, but I would probably categorize less than a dozen as great deals, or "deal capable", meaning that there is a seller who's indicated they are very motivated to move the house.
What Does This Mean for You as a Buyer?
There are some good opportunities for savvy buyers at the moment, but they're not widespread. The common wisdom among Realtors who've weathered previous downturns is that sellers lag buyers in adjusting to the changing market by 6 to 9 months. Most seller price expectations are set at pre-Lehman levels. We're now six months out from the Lehman meltdown, so be on the lookout for more meaningful price adjustments over the next few months.
If you're thinking about buying a house sometime this year, keep actively shopping. Those "opportunity houses" do pop up, and you want to be on a Realtor's radar screen when they do. Often the "opportunity" isn't reflected in the MLS. Frequently, a listing agent gets direction from the seller that they're ready to move the house, possibly that there's been a chance in their economic or family circumstance, and they're open to "any" offer. The sellers may be reluctant to lower the asking price, but there could be a great deal made. You want to be in the loop when that happens, and if you just casually touch base with brokers every few months, you probably won't be.
If you're looking for a great deal, don't be too picky. "Great deal" and "ideal" seldom come together in the same package.
Make offers, even if they're low. A history of offers is the most effective way to communicate with sellers how 'the market' values their property. If you're not able to come to terms today on a property you like, don't be shy about circling back in a month or two if the property is still on the market. You may find that sellers are more flexible as time goes on.
Be wary about penalizing sellers who've gotten with the program, and priced their houses well. In this market, many buyers have a knee jerk response to seller asking prices, and only will consider a deal if they get 20%, 25% or even more off the asking price. That's certainly appropriate with clearly overpriced listings. But some sellers are taking their listing agent's advice and pricing their properties very well, and buyers shouldn't necessarily expect a huge cut off the asking price in these situations.
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.
