92 single family sales closed during the 3 months ending Apr. 30th, down 34% from the same period a year earlier. But on a single month basis, April showed a marked improvement over March, with 36 sales compared to 23 a month earlier. On the price front, the median sales price of $150,000 for the 3 months ending April 30th was off 21% from the same period a year earlier, but was statistically equal to the March 3 month measure, while the average of $207,657 actually posted a slight uptick over March.
So how is a 34% drop in year over year sales and a 21% fall in prices good news? The single month March 2008 sales count, down 64% from March 2007, was devastating news. Many of us here were holding our breath to see if a sales drop in that range was a one month anomaly or would continue into April. It appeared to reverse. So while sales and prices are both down year-over-year, sales showed a notable improvement over last month and prices resisted a further drop.
Combined with the stabilization in the median and upturn in the average sales price, the turnaround in the decline in number of sales could indicate we've touched a bottom. That's also supported by the upturn in new buyer interest, particularly in the second home sector of the market, that started in March and continued through April. Sellers should be cautious, though, in interpreting this as a return to the galloping market of 2006-2007, as prices are sharply down from their mid-2007 peak.
The Current Market
There has been a significant turnaround in the attitudes of buyers I've been in contact with since mid-March. During the late fall and certainly into the winter, many buyers had the attitude that its a terrible time to buy real estate, there were few or no buyers, the market was on the verge of collapse, and deperate sellers should be grateful for any offer on their property. It felt sometimes like the tail end of a going out of business or liquidation sale.
Needless to say, most sellers didn't share that opinion. Deal making slowed to a crawl through the winter, which was refected in the sharply lower closed sales number in February and March.
Starting in mid-March, that attitude among buyers seemed to change — a number have commented that, with prices down, this could be a good time to buy. Prices have dropped significantly from their mid-2007 peaks. Many (but far from all) sellers have adjusted their price expectations downward to more realistic levels. The widespread fear that whatever they buy now will be worth much less in 6 months has National estimates are pegging the potential 'top to trough' drop in real estate prices, in the worst case scenario, at about 20%. (For example, Case Schiller has recorded a 10.7% drop already, and Lehman Brothers estimates a further 10%. See article.) Here in Sullivan County, we've already seen a drop of about 20% from the top, although because of shift in demand for different property categories, the 'same property' drop is probably closer to the mid-teens. While there may be some further slide in prices, the widespread fear among buyers that prices could plummet another 20% or more in the next year seems to have abated.
Another factor re-invigorating interest in Sullivan County is the continuing price strength — at least for the time being — of the Manhattan real estate market. A lot of younger second home buyers I work with from NYC are renters, and are looking to buy a second home outside of NYC because they can't afford what they want in Manhattan or the close in Brooklyn - Jersey City areas. I think many of these buyers have been hoping for a sharp drop in the 20% to 30% range in city prices so they can afford the coop or condo they want, but that doesn't seem to be in the cards. While prices have dropped in the suburbs, particularly the outer rings, these younger urbanites have little interest in moving to the suburbs. So they're back in the hunt for a country place to have the city-country split.
On a related note, it seems that many people don't see a reliable, safe harbor for their money right now. One client of mine commented that if the recession gets worse, real estate prices may drop further, but so will stock prices. With lower interest rates, the return on money market funds is pretty grim, so he might as well put some money into a house he can enjoy. Of course, this is a perspective that only someone wiht cash to stash may have, and not the wider market of potential primary home buyers struggling to fill their gas tanks.
The uptick in second home interest could be fragile, and if the recession deepens and broadens into the non-financial sectors of NYC, we could see widespread acorn hoarding until there are signs of an economic recovery.
Among buyers who are in the market right now, they are definitely more conservative than a year ago. Value continues to be a prime concern, and they're making multiple trips up and looking at lots of houses before making a decision. A lot more also seen to be casting a wider net, commenting that they are also looking in Ulster, Delaware, Columbia or wherever — which means that houses here are competing for buyers with a much wider population of houses.
Among second home buyers I'm talking to, the $250,000 range continues to be a sweet spot, but I am seeing some folks looking again at higher price points. The firm buyer price ceilings that were almost universal over the winter have loosened, and I'm hearing much more "Our budget is $X, but we'd consider something above that if it knocked our socks off." It seems that more buyers are prioritizing finding the right home, rather than just the lowest price or best deal.
I'm also seeing revived interest in the upper-moderate range around $400,000, with a number of deals struck lately in that range and more people looking into the $300's. Above that, though, I'm not seeing a lot of activity outside of lakefront shopping.
On the primary home front, I think the picture here is bleaker. I'm not seeing a lot of bread and butter primary homes (ranches, bi-levels, builder's colonials) moving into deals. I don't work much in that market, so can't really comment on those dynamics.
Sellers, Asking Prices and the Inventory Picture
Sellers have started to get the message that "We're not in Kansas anymore." In the last month, a number of attractive new listings have come to market with very realistic asking prices and there have been notable price reductions on others. Overall, though, we still have a ways to go for seller expectations and asking prices to come into line with buyer expectations and sales prices. Surprisingly, the overall median and average asking prices (around $229,000 and $286,000 respectively) haven't really moved at all since January, and many new listings continue to come on the market at unrealistically high prices, offsetting the impact of price reductions on other houses. A lot of sellers probably harbor some magical thinking about the arrival of spring and summer leading to some surge in demand, and I expect will see a drop in the overall asking price market basket as the summer progresses.
Notably, for the 3 month period ending April 30th, the ratio of actual sales price to asking price dropped below 90% for the first time since I've been keeping records (2001), hitting 89.2% of final asking price (and just 81.9% of original asking price.) That's sharply down from the 94.5% ratio of sales price to asking price we saw at the peak of the market.
One thing that sellers are having to come to terms with is that prices have rolled back to about mid-2005 levels, when the median sales price ranged from $159,000 to $162,000 and the more volatile average ranged between $180,000 and $202,000. (Due to the difference in the median and average, you could also make the argument that prices are similar to mid-2006 levels, as well, but in either case are well below their peaks.) It can be a tough pill to swallow. I spoke with one seller who reduced the price of his house from around $500,000 to the mid-$400's and indicated he'd consider a deal around $425,000. He thought he'd made a huge cut, and almost choked when I suggested that the market price, given the apparent roll back, might be closer to the mid-$300's.
One thing we're starting to confront here is sellers who may be facing a loss, particularly when they factor in sales expenses, if they were to sell at what the market is willing to pay. Its one thing to accept a smaller profit than you expected, quite another if you're actually going to take a loss. Its interesting to me that people sell stocks all the time at a loss, without the same emotional hand wringing that accompanies selling a house at a loss. We're often not taking pre-foreclosure short sales here, but rather sellers who may have bought a home in the last couple of years, possibly over-renovated it and now can't quite get back out what they put in.
Inventory has not been growing substantially here. The slight rise in April to 1,087 single family homes in the Sullivan MLS is a pretty typical seasonal uptick. Inventory tends to start rising here in April to hit the summer season and peaks around August. In some property categories, the availability of well priced, attractive homes with features that buyers, particularly second home buyers want, is limited. There's almost no moderately priced view property on the market, and almost nothing in another bread and butter category — the 3BR, 2BA vacation chalet style home on 5 wooded acres with privacy under $300,000.
The Appraisal and Financing Picture
Since late fall, financing has been a huge wild card. Mortgage financing seemed to be in chaos. While rates continued to be historically low, the rules for qualifying for a mortgage seemed to change almost on a daily basis. And even if you got pre-qualified at the start of the home buying process, there was little guarantee that the lender would actually underwrite the loan a month or two later — because the mortgage investors changed the rules on them. Appraisal rules tightened to mirror tighter underwriting. It almost seemed as though we were caught in a Kafka-esque nightmare where it seemed as though the only people who get a mortgage were people who didn't need one.
The financing situation has, thankfully, stabilized. Lending standards are tighter for borrowers. But at least the rules right now seem to be understandable and consistent. Borrowers do have to have good credit and a down payment — the days of subprime, nothing down cowboy lending are over. But you can pretty well have a feel for the outcome of the process at the beginning.
What Does This Mean for You as a Buyer?
You have to make your own call as to whether this is a good time to buy or not. I can't make a statement like "This is a good time to buy" because I don't have a crystal ball. But I have presented the latest statistics so you can form your own opinion.
Consider looking somewhat above your price ceiling. Some sellers are very resistant to lowering their asking prices, but are willing to negotiate. Certainly not all, but some. Looking about 20 to 25% above your ceiling is probably about right, especially if that bumps up against a "traffic jam" price. For example, there are 42 homes listed between $299,000 and $299,999 — a traffic jam price point. If you're looking to spend $250,000, its worth it to look at some of those houses. Some of those sellers have likely been pushed kicking and screaming under $300,000, but at least they moved there. But its probably not worth looking at something priced from $319,000 or $329,000, because a price point like that sends a clear message that the seller doesn't want to come under $300,000.
Don't expect a huge inventory surge that will flood the market with perfect houses. There are fewer than a couple of hundred nicely renovated farmhouses, for example, in the whole county and in a single year probably less than a dozen come up for resale. A lot of buyers lately have said, "We can wait for the right house", but its important to keep in mind that most houses here involve some type of compromise.
Do your homework so you understand the market value range for what you're looking for — and make sure you compare apples to apples. A 3 bedroom vacation chalet style house up near Walton in Delaware County may be priced at $199,000, but that's 3+ hours from NYC. Here in Sullivan, 2 hours from NYC, the right price for that same house may be $299,000. At $299,000, the house in Sullivan may not be overpriced. Yes, its more expensive than a similiar house around Walton, but its also closer to the city.
Don't assume that in all property categories, its a buyer's market. Some buyers I've been working with have that across-the-board assumption and it can work against them. Sure, if you want to buy a vinyl-sided bi-level on a main road or a 2 story builders colonial on a couple of acres in a new development, it probably is a buyer's market. But if you're looking for a cute farmhouse on a quiet country road, or a lakefront house with privacy, its not such a clearcut buyer's market. And don't make the mistake of assuming that all houses are wildly overpriced. Some are, but many aren'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.
