February's sales performance was, frankly, disappointing. For the 3 month period ending Feb. 28th, there were 91 single family sales reported in the Sullivan MLS, about on par with the 89 sales for the same period a year earlier. What is disappointing in these results, however, is that Feb. 2009's 3 month data was the first full 3 month report period following the Lehman meltdown in Oct. 2008, and sales then plummeted. To have fallen back again to that sales rate, after months of steady improvement, is striking.
The single month of February was particularly poor, with just 16 single family sales reported in the Sullivan MLS, compared to 19 in February 2009. The sales drop from Feb. 2009 can probably be attributed to the winter storms at the end of the month that effectively shut down the county — and delayed closings — for the better part of a week. But even without that setback, there was unlikely to be a volume pickup over the previous year, and the momentum which has been building for six months seems to have lost steam.
On the price front, the median sales price for the 3 month period ending Feb. 28th, $120,000, was down 9% from the previous month's $132,000. The average sales price, however, slipped a bit as well, to $158,293 (from $162,123), a more modest 2.4% drop.
However, in looking at single month data, as well as houses currently in contract and closing soon, I don't think the February dip portends a continuing downward trend. It looks like the median will stick pretty close to $120,000 with the average hovering around $160,000 for the next few months.
Bank owned foreclosure sales rose to 21% of total sales for the latest 3 month period, up from 16.1% at the end of January. This is the highest percentage since I started tracking this metric. At the other end of the spectrum, upper end sales continued very soft, with only 3 houses closing above $400,000 for the 3 month period.
The ratio of sales price to asking price remained steady, at 90%. The ratio of asking price to original asking price also held at 80%.
The Current Market
February seemed very slow, in terms of buyer activity. I had very few appointments during the month. A number of other agents I spoke with also commented on a slow February. Some of the slowness can be attributed to the string of winter storms in late February. But it may be further evidence that the traditional "second" buying season in midwinter for second home buyers has largely disappeared, with a shift to later season purchasing similar to 2009.
"Armchair" house hunting activity, by metrics I can measure like visits to my website, number of property searches, and email inquiries about properties, remains quite high. But the inquiries I'm getting have heavily favoring very low end properties, with the lion's share for houses priced under $125,000. I've also gotten quite a few inquiries about inexpensive large land parcels (40+ acres), with or without a house, for recreational and ATV use.
Buyers continue to be very price and value focussed, with a marked shift to lower priced properties. While actual sales prices may have plateaued, at least for some property categories, I'm seeing a continuing decline in buyer price expectations. Over the years, I've often written about the "sweet spot" of the second home market, the price range of buyers looking for a modest second home getaway — a smaller farmhouse on a few acres, or a "vacation chalet" style house on five wooded acres, for example. The price range buyers are giving me for those types of houses right now is around $200,000. In 2008, it was closer to $300,000. Price expectations for other popular second home categories have also experienced a similar decline. Lakefront shoppers I've been talking with have been topping out around $400,000 for a 3 bedroom lake house. For a smaller 2 bedroom lake cottage, the number is around $250,000. And for that 'little cabin in the woods', buyers are looking under $150,000.
These buyer price expectations actually track the price drop in the market since the 2008 peak pretty closely. Prices are down about a third from the peak, and buyer price expectations are also down a similar amount. Sellers (and their agents) often bitterly complain that buyers are "unrealistic" and just lowballing. But I beg to differ. While a 3+ bedroom house on a motorboat lake might have sold for $575,000 or even $600,000 at the peak, the 'right price' for a similar house today is likely just shy of $400,000, or off about a third.
I'm more and more convinced that the biggest drag on this market, particularly the second home sector, is the very wide gap between sellers and buyers over price. While demand has certainly moderated from the frenzied peaks, it is still there, at least in the affordbale to moderate property category ranges. I don't see much of a market pick up until sellers leave 2008 behind and get with 2010.
The outlier in all of this is the upper end. For the 3 month period ending Feb. 28th, there were only 3 closed sales above $400,000! Not $750,000, not $1 million. 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. I'm only getting the occasional call or inquiry about upper end property, and haven't been out with a $400,000+ buyer since early December. I had expected some bonus-driven pick up in this range in February, and was struck that it didn't materialize.
Sellers, Asking Prices and the Inventory Picture
Inventory remained steady in February, with 957 single family homes listed for sale in the Sullivan MLS. The average and median asking prices held rock steady, at $279,476 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. Sure, there are price reductions on individual properties in the MLS, but most are tepidly modest. Reducing the price of, say, a $299,000 listing to $295,000 doesn't make it any more appealing to buyers. But that's the kind of reduction I'm generally seeing, $5,000 here, $10,000 there, not enough to get buyers to perk up and plunk down their cash.
The median and average asking prices haven't moved an iota in six months! Sellers need to take a good price laxative to get this market moving again. I keep hoping to pull the monthly asking price statistics and see at least a 5% drop in the average and median asking price, but it isn't happening.
Over the past few months, my two colleagues and I at CBA have worked on 4 deals above $300,000 where the buyers and sellers just weren't able to agree on price. The offers we fielded, by the way, weren't unrealistic low ball offers, but were well supported by comps, and in a couple of instances where the comps were light, the buyers agreed, upfront, to make up a modest appraisal gap. But the sellers didn't go for the deals. All 4 houses are still on the market.
It is going to be very interesting to watch what happens this spring and summer. Seller price expectations are rooted in a somewhat magical belief that we've bottomed out, and prices are poised for a dramatic rebound. Whether actual sales prices have bottomed or not is a matter of opinion, and unfortunately none of the big name real estate economists have put the upstate New York second home market under their microscopes. But there's no real estate economist out there predicting a dramatic upturn, outside of some of the high foreclosure Sunbelt markets. But let's say, for the sake of argument, that the Sullivan market has bottomed and we're poised for a 3% increase in the next twelve months. So if you have a 3 bedroom lakefront house that could sell today for $400,000, adding 3% to that only brings it up to $412,000, not to the $450,000 the seller may want. If you take into consideration carrying costs (property taxes, insurance, maintenance and the cost of money), waiting 6 months or a year and selling at $412,000 you actually lose money.
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.
Achived Sullivan County Real Estate Market Conditions Reports