From a closed sales standpoint, March was the pits. Just 21 single family sales closed during the month in the Sullivan MLS, a whopping 66% drop off from March, 2007. March's poor performance served to drag down the 3 month total to 86 closed sales between Jan. 1 and Mar. 31, 2008, 34% below the 1st quarter of 2007. The March closed sales numbers didn't come as a big surprise, given that they reflect buyer behavior from December and January, when it seemed the phone just stopped ringing.
On the price front, the picture is mixed. The median sales price for the 3 months ending March 31st fell to $153,250, the 1st noticeable drop in the median since November. The average sales price, on the other hand, had its first uptick since sliding from its peak in the $240's last summer, climbing to $199,344. The uptick in the average, however, can be largely attributed to one $1M+ sale closing in March. (Excluding that $1M+ sale drops the average back to $188K.) Over the next few months, due to the relatively low sales volume, I anticipate more month to month volatility in the average.
While there have been a handful of notable sales (like the $1M+ sale on Tennanah Lake, a large acreage estate that sold about $1.5M not reflected in the MLS and two more million plus deals closing shortly), the broader market seemed to come to a screeching halt in January, a perception that's validated by the latest sales figures.
On a positive note, there was a noticeable pickup in buyer interest and activity starting in mid-March. During the last two weeks of March and 1st week of April, I wrote three offers (after almost 2 months without writing a single offer). Two of those 3 offers involved multiple bidders. My appointment calendar has been full the past few weekends, and I've spoken with a number of agents around the county who are commenting that they're seeing more activity.
The Current Market
The typically busy post New Year winter season was molasses slow, until about mid-March. In January and February I had some weekends with no appointments and others with only one. A number of clients I've been working with for months told me they want to "wait a while and see what happens" and maybe look for a rental for this coming summer. There seemed to be widespread real estate paralysis resulting from generalized nervousness — about the economy, real estate prices, gas prices and jobs.
The picture changed in mid March, with a noticeable upturn in buyer activity. Some of the shift can be attributed to the weather — we're notorious here for linking the real estate market to the weather. Personally, though, I think the better weather is only a minor factor.
I've commented a number of times over the last six months, as we've watched the sales slide, that I don't sense a huge drop off in the underlying demand factors. Throughout the slide, indirect measures of interest — visits to this website, online property searches and Google searches on key terms related to Sullivan County real estate — have remained pretty stable, showing at most a 10-15% drop on any of these measures. What has dropped off is more direct action — picking up the phone and calling, coming up to see houses, making offers and ultimately, buying. I definitely sense there is pent up buyer demand that could translate into a sales pick up over the next three to six months, particularly if asking prices drop and buyer confidence stabilizes.
But a more important factor than the weather, in my opinion, is that potential buyers are becoming more comfortable with the "new reality". I've seen this happen a couple of times over the last 2 years, since the first wave of "sky is falling" real estate headlines in mid 2006. There's a concentrated flash bang of bad news — the first year over year national drop in prices, the subprime mortgage mess, the increased foreclosure numbers, the bailout of Bear Sterns — that brings real estate to a standstill. But then that news is absorbed, we adjust and move on.
Economists also have a couple of quarters of 'downturn data' under their belt, so they are able to make some reasonable predictions about where real estate is likely headed. Case-Schiller, for example, is predicting a 25% "top to trough" drop in the national markets it tracks, with other economists looking at a 15% to 25% correction range using broader market baskets. While this isn't great news if you're an owner of a new construction condo in Florida that you bought at the top of the market, it is good news for buyers because it starts to bracket the market. A top-to-trough drop of 15% or 20% is something buyers can work with, while the fear of an endless, bottomless spiral isn't.
While we may be picking up, we're not picking up where we left off last year. The real estate landscape is very different today. The number one thing I'm seeing among buyers is that they're very value-focussed, both in terms of purchase price and ongoing costs. Budgets have been trimmed, with buyers that a year ago would have been looking in the $300,000 to $350,000 range now looking in the $250,000 range. Almost everyone I'm working with now exhibits a concern about overpaying and want to review comps before considering an offer. Ongoing carrying costs, particularly property taxes and heating costs, are getting increased scrutiny, and one side effect is more buyer interest in smaller houses.
Mortgage financing has also become a central factor. A year or two ago, mortgage financing was kind of like electricity. You didn't think much about it, and it was there when you needed it. Today, transactions really involve three parties — the buyer, the seller and the lender. Lenders have indirectly played a major role in the pull back in prices. Second home buyers today, for example, need sterling credit and most lenders want to see 20% down on a non-primary home. Tightening credit has culled some buyers from the market and caused others to trim their price range to meet higher down payment or qualification requirements. But the big kahuna impacting the market is appraisals. Lenders have tightened their underwriting standards, including appraisal requirements. Based on casual discussions with other agents, or calling about houses that were in contract but have come back on the market, it seems that a significant number of houses are appraising short of their agreed upon purchase price. Coming to a compromise between buyer and seller when there's a short appraisal is tough, because many buyers are unwilling to pay a dime above the appraisal value unless there is some very special setting feature about the property. Some deals are just dying at the appraisal and financing stage.
I'm seeing a few positive shifts besides just an increase in activity. There is revived interest in the upper moderate range, from $350,000 to $500,000, among buyers who are looking for something more unique or with a more interesting of special setting. I'm also sensing a shift from pure price-driven bargain hunting (where price is the number one factor) back to home shopping, where setting and lifestyle attributes are equally important. The distinction between price shopping and home shopping may be subtle, but its very important because it marks a shift in buyer psychology.
Sellers, Asking Prices and the Inventory Picture
Inventory remains pretty much static, with a slight rise this month to 1,038 single family home in the Sullivan MLS. The inventory of good houses, particularly with appeal to the second home market, continues to be limited. I continue to be struck at how few lakefront houses, houses with lake rights, houses with views or even houses with some privacy on five or so wooded acres I have to show. That's tough for many buyers to understand, particularly when they see inventory surging in the suburbs. Overall, I would venture that I work with a sub-inventory of about 100 to 150 houses that would appeal to the NYC second home buyer — and that's in all categories in all price ranges.
One problem compounding the inventory shortage is that buyers are much choosier than they were a year or two ago, and far less willing to accept compromises. That puts tremendous pressure on the inventory that's well priced with attractive features. When a house comes on the market that meets those 2 criteria --- good price and attractive features --- it can generate surprising interest. A cute little vacation chalet with a stream near Eldred came on the market at $249,000, had 3 offers within a week and will likely close slightly above the asking price. I've been personally involved in 2 multiple bid situations within the last few weeks on houses with attractive second home features. Buyers are usually shocked when they get a call saying there is another party bidding on the house. That's something that should only have happened in 2006, not today.
The problem is that only a very small proportion of houses fit into that "good price with attractive features" category. Most sellers believe that their house, of course, fits that category and there continues to be significant across-the-board seller resistance to reducing prices. While we are seeing a slight downward movement of about 1% a month in the average asking price in the Sullivan MLS, most of that trend can be attributed to a small proportion of sellers that have reduced their asking prices by 10% to 20% to move their houses.
Setting an asking price that gets a potential buyer to think "This is a great deal" seems key to making a sale. Of the 86 single family sales over the past 3 months, 43% had an intermediate price reduction of 10% or more from the original listing price prior to sale. (Over the last couple of months, I've seen a number of cases where a house that's been on the market for quite a while with no takers has a significant price drop and generates a buying frenzy.) Sellers also should be prepared to deal. During the 1st quarter of 2008, the average sales price was 90.5% of the final asking price. Buyers expect some price reduction and even if you reduce your asking price, be prepared to take something off of that. (An average 10% cut off the asking price is significantly more than a year ago, when the average sales price was 94.5% of the asking price.)
We'll likely see more and larger reductions in asking prices over the next few months. Some sellers likely harbor some magical thinking about seasonality, holding off on any price adjustments in anticipation of a spring-summer buying rush. While I anticipate we'll settle into a steady market given the current level of interest, I doubt we'll have any surge unless something unanticipated happens — like Brad and Angelina buy a house in the Beechwoods, invite their friends Marc and J.Lo over for a barbeque and their little soiree makes the cover of People.
Most sellers, when they readjust their price downward, are really just readjusting their profit expectations. Instead of making 40% on the house they bought 5 years ago, maybe they'll walk away with 20%. Some sellers may be looking at breaking even after sales expenses, which is a tougher pill to swallow. But we are going to see some sellers who will be looking at a loss — and that's the toughest pill to swallow. I'm already hearing from some listing agents that the asking price is pretty much the bottom line because the seller will lose money at anything lower. This is especially true in cases where someone bought a marginal house, in terms of style or location, and overrenovated it, or a builder overbuilt a spec house on a piece of property that doesn't support it.
Lastly, I get a lot of questions about foreclosures. Yes, foreclsures have been increasing in Sullivan County like in most areas and more bank-owned properties will be coming on the market here over the next year. But foreclosure homes don't tend to be the type of properties, or in the locations, that appeal to second home city buyers. For the most part, the cute little farmhouse on 20 acres isn't the type of property that goes into foreclosure. Foreclosures tend to be more in-town properties. So while there are certainly values to be had in foreclosures, they're a different animal than most of my clients are looking for.
What Does This Mean for You as a Buyer?
Don't assume that its a wide open buyers market in all property categories in all price ranges. The $250,000 getaway with charm on a few acres on a quiet country road is in pretty short supply. Likewise, a chalet-style home on 5 private acres, or anything with water on it in a moderate price range.
Have your financing ducks in a row before starting to look seriously for a house. Know your FICO score and have a mortgage pre-approval. Bringing a strong financial profile to the bargaining table is as important today as price.
Set yourself off from the pack to get the best value. A lot of buyers I'm seeing lately have a very set wish list, in terms of number of bedrooms and baths, house style, setting, features and condition. When that wish list is shared by a number of buyers at a certain price point, you have a pack. A buyer who is willing to compromise on one or two items in their wish list (compared to the other buyers with a similar wish list) and distance themselves from that pack is in a very strong position.
In a softening market, look for quality, particularly in setting. In general, a house can be changed, expanded or updated, but like diamonds, setting is forever. The houses right now that are having the toughest time on the market are those with compromised settings. If you have a long list of setting attributes, e.g. you want something private with a view as well as a stream or pond, you may not get all of that at your price point, and then you have to prioritize. But while you may have to give up a setting feature, be cautious of accepting a setting liability. For example, at a certain price point you might have to give up a pond to get privacy and a quiet country location — and that might be a good tradeoff from a long term value perspective. But buying a house on a main road in order to get the pond might not.
Be prepared for a possible appraisal shortfall. They're more and more common, and not always because the value isn't there. With fewer sales to act as comps, and tighter underwriting requirements, sometimes an appraiser just can't demonstrate value within a lender's underwriting guidelines in a low desnity, low sales volume rural area like Sullivan County. If you found a house you love, with the lifestyle attributes you want at a price you can afford, don't be too hasty about walking away from the deal if the appraisal comes up short and the seller won't renegotiate the price to the appraised value. I'm not saying you should necessarily agree to pay above the appraised value, but each situation is different.
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.
