On the surface, sales data for the 3 months ending March 31st, 2009 looks miserable on most metrics, continuing the downward trend we've since the fall. The number of closed single family sales in the Sullivan MLS fell to 74 for the 3 month period (that's less than 25 sales a month, or one sale a day!). That's 20% less than the same period a year earlier, and 12% off from February's 3 month tally.
On the price front, March's 3 month median sales price dipped 4% from February, to $132,200, while the average actually jumped 13% to $188,412. The average includes 2 sales above $1M (one at the end of January, one at the beginning of March), which pushes the average up. Pulling those 2 sales out of both periods, March's 3 month average was still 5% higher than February. In looking at single month data (which I'm always hesitant to do other than to eek out the trend movement because of the small single month sample size), the median sales prices for both February and March were higher than January. The trend seems to be pointing a bit up. Note I said "a bit", not "sharply". But what I'm looking for here are indications that prices may not be continuing a steep downward plunge.
The ratio of closed sales price to asking price was 89.2%.
Foreclosure sales continue to have an impact on the market. For the 3 months ending March 31st, 26% of the closed sales were bank-owned properties. Foreclosure sales are their own sub-market, mostly driven by bargain shopping investors rather than more traditional owner-occupiers. This is creating effectively a dual market. The average sales price for a bank-owned property was $89,643, while for non-foreclosure houses (exclusing those two $1M+ sales, which would skew the average even higher) it is $179,897. Of course, the foreclosure and non-foreclosure markets aren't totally independent of each other. Some owner-occupiers shop in the foreclosure market, and appraisers certainly take note of these sales. But the inventory and likely buyers are somewhat different.
No matter the data is sliced, one fact is clear — prices are sharply down from their mid 2007 peak. Both the average and median are off about 35%. Some of that overall price decline is attributable to to a shift is what's been selling — foreclosure and lower end properties are comprising a larger part of the market basket. But casually adjusting for that, it's probably safe to say that prices have pulled back about 25% from their peak.
The Current Market
The good news is that it seems like second home buyers are trickling back. Inquiries and "foot traffic" picked up considerably in March. But then, the winter was so dismal that it wouldn't take much to think there was a stampede. The pick up in interest could just be a short term blip, but it was certainly welcome. I attribute it to two factors. The stock market uptick in March gave some relief to the pall of doom and gloom. And the weather was quite nice.
That being said, the buyers who are out looking have a very different attitude than just a year ago. They're definitely very value focussed, with much lower price expectations. Even though their price expectations are lower, they aren't just bargain hunters exclusively focussed on finding that elusive "super deal" — about the only type of buyer in the market at the end of last year. They're looking for a house, first, but at a good price.
Buyer price expectations are falling into some well defined ranges. Lakefront buyers looking for a 3 or 4 bedroom house on a 1/4 acre or so lot are looking up to about $400,000 — not the $500,000+ where most of those houses are listed. Lakefront "cottage" buyers, looking for something small and simple, are in the low to mid $200's, not the mid $300's. Non-lakefront second home shoppers, looking for a modest renovated farnhouse or "vacation chalet" style on a few quiet acres, are hovering in the mid $200's, and there seems to be quite a bit of "little cabin in the woods" demand, but under $150,000.
The problem, of course, is that while buyer price expectations have pulled back to these levels, seller price expectations, for the most part, have not. Overall, buyers seem to be back — price wise — to about 2004, while sellers have barely budged since last year.
Buyers are happy to wait out sellers. They have very little motivation to move quickly. If anything, they see waiting as in their favor. They have the expectation that both prices and mortgage rates will fall further. So to take the plunge, a huose has to be near perfect and very well priced. The most common refrain from buyers isn't "Let's write up an offer," but rather "Keep us in mind if anything new comes up we might be interested in."
Contributing to the price pull back are the financing challenges buyers are facing. As recently as a year ago, a second home buyer could qualify for a mortgage with 10% or even 5% down. Today, most lenders are looking for a 20% down payment, although 10% down is still possible with PMI, but only if the stars and planets are perfectly aligned. Many younger buyers — who have been a bread and butter segment of our second home market — may have good incomes and FICO scores, but limited down payments. A year ago, saving $40,000 for down payment would enable them to buy a $400,000 house with 10% down. Today, using that same $40,000 as a 20% down payment only qualifies them for a $200,000 house.
One final note about the market is that the interest I'm seeing is almost all in the lower to moderate range. I'm fielding almost no inquiries about upper end property. I haven't talked with a serious Chapin shopper in a couple of months, and have had no calls lately about "better" farm or river properties.
Sellers, Asking Prices and the Inventory Picture
Inventory ticked up slightly in March with 933 single family homes listed in the Sullivan MLS at the end of the month compared to 895 at the beginning. This seems to be in line with the normal seasonal fluctuations we see here, as houses start trickling back on the market as spring sets in. The average asking price fell 2%, to $276,010, which the median asking price actually rose 2%, to $209,995. Notably — even though we're weathering one of the most severe economic downturns in decades — there has been only a minimal pull back in asking prices. The average asking price today is only 3% lower than a year ago, while the median is down by 9%.
Buyers, on the other hand, are expecting to pay about 20% to 25% less than a year ago (although the actual year-over-year price decline is closer to 10%.) The gap between buyers and sellers isn't narrowing, but actually widening.
If the common refrain among buyers is "We can wait until something better comes along", a lot of sellers are saying "We don't have to sell, and we're not going to give our house away." It's leading to a classic stalemate. Ultimately, it's leading to a divide in the inventory. A year or two ago, I put houses in one of two broad categories — good houses or not so good houses. The motivaton of the seller wasn't the primary cut.
Now my first cut is categorizing houses as having motivated sellers or not having motivated sellers. I'm not even bothering with the "unmotivated seller" listings. What's the point, because you can't make a deal. It's just a lot of wheel spinning. So then I divide that group of "motivated seller" houses into good and not-so-good categories. At the end, I'm working with a pretty thin portfolio of good houses that I think a buyer can swing a good deal on.
I'm hearing from a lot of listing agents that they're being hammered by sellers who question why their house isn't being shown, or why they aren't getting any offers. At the same time, they won't take their listing agent's advice to lower their price to make it more attractive. They somehow believe that if their overpriced castle gets more exposure, more advertising, and more showings, some buyer will be magically enchanted to pay their price.
Well, in this market, the ante to even play is an attractive asking price. Most buyers aren't even willing to look at houses that are priced more than 10% above the budget they've set. I hear from listing agents all the time, "Please show the house and bring me an offer." But I gotta tell you, that's falling on deaf ears. To get buyers' interest, sellers have to indicate motivation by the signals they send through their asking price, or history of price reductions.
What Does This Mean for You as a Buyer?
There are some good opportunities in the "motivated seller" part of the market. But keep in mind that this is a relatively small subset of the overall inventory, and there might not be as much choice if you want to find a house that you can pick up at a "great deal" price. For example, there are currently 62 lakefront houses listed in the Sullivan MLS. But I consider less than 15 of those to be well-priced or "deal capable."
When making an offer, consider whether a house is pretty well priced to begin with. Some buyers recently are predisposed to offer no more than X% of a seller's asking price (where X could be 50%, 60% or 70%), and put it on the table as a "take it or leave it". But a seller who has priced their house well to sell shouldn't be penalized by a "tough love", take-no-prisoners stance. Every offer should be crafted to the specifics of the house and its relative value. And keep in mind, the average ratio of sales price to asking price here is 89.2%, not 60%.
If you're planning to finance rather than pay cash, talk to a lender about what you can afford, before you start looking. Lately, I've talked with a number of buyers who are restarting to look after taking a hiatus. They may have been preapproved for a certain loan amount last summer, and are working under those assumptions. Particularly if this is going to be a second home purchase (even if you rent an apartment in the city as your primary residence, this will be a second home for qualification purposes). Online mortgage calculators and preapprovals will likely not give you an accurate picture.
While sellers have to let go of their magical belief in a quick rebound, buyers also have to temper their hopes for a further huge price drop. Prices are already down about 25-30% from the peak, and there could be further price moderation through the rest of the year. Particularly at the lower to moderate ends of the market (where we're seeing the most interest), we may be near the bottom. It's always hard to predict the future, but some of the economic rescue initiatives seem to be gaining traction, kind of like the brakes on skis that keep you from tumbling all the way down the mountain. If you find a good deal in the low to moderate range, it's probably worth going ahead. The upper end, however, is likely a different matter and buyers there need to exercise more caution.
Don't be blinded by low price alone. A lot of folks recently have been zeroing in on the lowest priced houses when internet house shopping. I spend hours every week emailing comments back to shoppers asking about "too good to be true" deals they found on the internet. — houses on main roads or in less-than-wonderful locations, houses with major problems like freeze damage, crumbling foundations or wood rot, or double-wide mobiles masquerading as "ranches." No ifs, ands or buts — something on a few acres under $100,000 is probably going to have something you won't like or want. And a $125,000 house that needs tons of work can be a much worse value than a $175,000 house that doesn't.
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.
