The closed sales figures for March were somewhat disappointing, with just 77 single family sales reported in the Sullivan MLS for the 3 month period ending March 31st. This was off 17% from the previous month, and just about on par with the same period a year earlier. In 2009 there was a similar large drop in sales volume between February and March, with a pick up later in the year. So this may be indicative more of a shift in buying seasonality than a downward volume trend.
On the price side, both the median and average sales prices rose significantly in March, with the 3 month average sales price jumping to $177,929 from $159,029 at the end of February, and the median moving up to $137,000 from $120,000. In March, there was a $1.35M sale that skewed the average up, but taking out that sale still leaves an improvement in the average sales price to $162,507 and the median to $133,500.
The significant point here is that the downward price trend seems to have reversed, even with adjusting for the single $1M+ sale. However, sellers should be cautious about interpreting this as a sign that prices are moving back up in any widespread way. First, the price uptick is on very low sales volume, and both the average and median are still 30+ percent down from their mid 2007 peaks.
Bank owned foreclosures accounting for 15 of the 77 sales, or 19.5%, about the same 1 in 5 ratio we've been seeing for the past few months. The average sales price for these bank owned homes was $70,150.
The ratio of closed sales price to asking price slipped a hair to 88.9%. The ratio of closed sales price to original asking price was 78.3%.
The Current Market
I saw a nice pick up in buyer activity in March, particularly towards the end of the month when the weather improved. A nice dose of spring does wonders to get folks thinking about houses in the country. However, much of the daffodil-driven interest at this time of year is casual, with buyers at the very early stages of thinking about a getaway home. In my experience, it seems to be taking about 3 to 6 months for casual shoppers to evolve into serious buyers. They're visiting different areas, comparing markets, honing their wish lists and forming opinions of comparative values.
I've written a number of times in this column and on my blog about many sellers not being ready to 'do the deal' until their houses have been on the market for a year or longer. There's a parallel phenomenon on the buyer side. Buyers seems to need about six months of comparison shopping, tire kicking and soul searching before they're ready to get serious.
It seems as though quite a few buyers who were casually looking last year are stepping up to the plate. In the past month, I've been close to shocked at the number of houses I've called about to show that have contracts on them or are in deals. The houses themselves that are in deals have a few factors in common. Most are in the moderate-priced sweet spot, from $150,000 to $300,000. Most have been on the market for quite a while, so the sellers are primed to do a deal. But the buyers also seem to have one key factor in common — most have been looking for a while as well. When I've been talking to seller agents about listings that are in deals, I've been asking, "Just out of curiosity, are the buyers new or have they been looking for a while?" In almost every case, the answer has been "Looking for a while."
Here's my read on the situation. In my experience, new buyers, particularly second home buyers from the city, usually have wildly unrealistic expectations, in terms of what's possible in a specific price range. An initial 'wish list' often includes privacy, charm, water, a minimum of 3 or 4 bedrooms and 2 baths, a view and an open plan kitchen. There are variations on the theme — lakefront, cabin in the woods, Dwell modern house. But almost universally, a buyer's initial price expectation is 30 to 40% below what their dream home will likely sell for (in the same way that a seller's initial price expectation is often 30 to 40% too high.) It seems to take new buyers about six months to hone and shape their expectations as they see and compare houses and areas. Some adjust their expectations and evolve into buyers, others become disappointed and drop out. It also takes time for buyers to gain 'market confidence' that prices aren't likely to decline markedly from their current levels for the type of property they may be interested in. One factor that seems to be helping buyers gain that market confidence is relatively stable prices for the past five quarters. With the exception of the 2nd quarter of 2009, when the median price ticked up to $145,000, the quarterly median has been moving in a very narrow range between $132,000 and $136,000 since Jan. 2009.
I detoured into that commentary because I've been changing my thoughts about buyer dynamics in the current market. A lot of real estate agents are too quick to tar and feather buyers with the "low balling" and "unrealistic bargain hunting" brush. I can certianly relate. It can be very frustrating to talk with a potential new buyer looking for a 3+ bedroom lakefront house with privacy under $250,000 when that just isn't in the cards. But the key phrase here is "new buyer." Most people I'm talking with are new to the market. Last year, in the depths of the recession, they weren't even considering a second home. Now they have a little more confidence and are poking their heads out of the foxhole. We're in the process of rebuilding a cache of shoppers who have sufficient 'market time' to become buyers. It may be six months or a year before this bears fruit.
That's definitely what we're seeing this spring. Last year's shoppers have become this year's buyers. This, combined with the pick up in inquiries and 'first timer' trips, makes me somewhat optimistic for the rest of this year, but I'm still very cautious. Buyers continue to be very value focussed, and I'm not seeing price ranges among buyers climbing. The result of six months or more of "market curing" among buyers isn't that they raise their budget by 30% to get more of their 'wish list', but that they pare their wish list to bring it in line with their budget. Last year's $200,000 buyer is still a $200,000 buyer. They're just more ready to appreciate what $200,000 will buy. And I'm not talking about a wave here.
Price remains a key consideration. The market pick up seems to be largely concentrated at $250,000 and under, with the sweet spot below $200,000. Above $250,000, the interest seems to drop off apart from some buyers looking for larger acreage properties.
Curiously, I've also been getting a lot of inquiries about hunting property, whether raw land or with a house. In fact, I've been getting more "hunting and ATV" property calls than "cute farmhouse" calls. During the price run up of the mid-2000's, sportmen looking for large acreage had to look further north, in Delaware County or beyond, to find affordable acreage. Acreage prices have dropped sharply here in the past two years, probably even more sharply than houses, making closer-in Sullivan County affordable again, and that may be bringing sportmen back. Houses with 50+ acres, priced between $300,000 and $500,000 have been finding buyers, and those buyers have largely been sportsmen. Rifles and ATV's may be replacing arugula and chardonnay at the upper end of the market. Recently I've had a lot more conversations about duck hunting than wainscotting.
What I'm not seeing is a lot of activity in lakefront, which traditionally is a cornerstone of the second home market here. That largely may be a function of price. The starting point for a 3+ bedroom lakefront house is about $350,000, and for one on acreage with privacy, it quickly jumps above $500,000, which is well above the sweet spot of moderate range second home buyers. Lakefront interest, however, is clearly there. Lakefront property searches on my website outrank other property searches by 4 to 1! In some other sectors of the market, we've seem a pick up when sellers adjusted prices to be more in line with buyers, notably moderate range farmhouses. At $275,000 to $300,000 they weren't moving, but at $200,000 to $225,000 they are. There has not been a similar adjustment in lakefront pricing, and as a result, that part of the market isn't moving.
The other part of the market that's pretty stagnant is the upper end, the $1.35 million sale I blogged about notwithstanding. While there are 2 houses with asking prices above $500,000 in contract, there are now a total of 87 houses above $500,000 on the market. There was considerable hope here that the January bonus season would result in a pick up in the upper end, but that largely does not seem to be the case. This is the one segment of the market where the limiting factor isn't crap inventory. There are quite a few very nice houses on the market between $500,000 and $1 million.
Sellers, Asking Prices and the Inventory Picture
We're seeing the traditional spring pick up in inventory. There were 1,053 single family homes listed for sale in the Sullivan MLS at the beginning of April, up from 957 at the beginning of March. The average asking price dropped a modest 1% to $276,852, while the median asking price held at $199,000. 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, with only the occasional jaw dropper.
The median and average asking prices haven't moved in six months! The average has fluctuated in a narrow range between $275,000 and $280,000, while the median hasn't budged off of $199,000. 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.
In some segments of the market, there has been enough sales activity to determine a "market clearing price". Modest farmhouses and vacation chalets, for example, seem to have an established market in the $200,000 to $225,000 range. Likewise, there's been solid activity on builder closeouts in the $240,000 range, and modest in-towners under $150,000. A seller with a house in one of these categories has a pretty clear road map about where they need to be price wise.
The situation is more difficult for sellers in market segments with little recent sales activity. The quandry is determining whether there buyer demand, and the issue is price. Or whether there is simply little to no buyer demand. In the case of lakefront homes, for example, there is clearly buyer interest. The issue is price. Buyers and sellers have been too far apart to generate an active market. I think the next six months are going to be rough in the lakefront market. Thereis enough buyer demand that we'll eventaully make a market — but at a price point likely quite a bit lower than current seller expectations.
Sellers in other market segments with little buyer demand, or with houses with sigificant drawbacks, face a stiffer challenge. Is there a market for a $750,000 farmhouse or lake house? Is there buyer demand in that range? Can price reductions stimulate that demand? Likewise, price may not be sufficient to overcome perceived buyer objections. For example, there have been a number of cute renovated farmhouses on main roads that even with significant price cuts have not found buyers. Main road settings, as well as other factors like low ceiling heights, may have been acceptable trade offs during the boom years when buyers were scrambling for houses, but may be insurmountable turn offs today.
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