May was a very good month here, continuing to show an improvement in the market. The 147 single family sales recorded for the 3 month period ending 5/31 were down 16% over the 175 sales for the same period the previous year, but that's a considerable improvement over the 20% to 25% year over year drop we saw during the 1st quarter of 2007. A handful of sales closed in May will likely dribble into the MLS in the first few weeks of June, and I expect when final figures are in, the sales decline settle in at 12% to 13%.
The big news is on the price front. For the first time in the 8 years I've been tracking data, the median sales price for a single family home here hit $200,000, up 16.9% from a year earlier — and breaking out, ever so slightly, from the $190K to $198K range that the median has been floating in since summer 2006.
The average sales price, $253,344, recorded a huge jump this month, up 11.7% from April and 17.3% from May, 2006. But the average, in terms of a trend, can be misleading, in that 2 sales over $1 million were recorded this month — one large farm sale at $1.33M and a lakefront estate at Chapin for $2.77M. In the entire 12 months prior to May, 2007, there was only 1 sale over $1 million in the Sullivan MLS. One or two very large sales in a single month can have a significant upward skewing impact on the average sales price. The impact on the median sales price is much less pronounced, and a more consistent trend indicator.
While we're showing a 16.9% year over year jump in the median sales price, its very important to look at the median trend line since last fall. The majority of that almost 17% jump occurred during the summer of 2006, with the median remaining relatively flat since last fall. Since hitting $190,000 last August, the median sales price has only increased 5% over three quarters. It appears that the annual rate of appreciation has settled into the low to mid single digits.
The Current Market
Interest among potential buyers continued strong through May, at least in terms of the activity we've been seeing here at Catskills Buyer Agency. Our focus is heavily in the second home market, in the moderate to upper price ranges. That's been the most active sector here, and the relatively higher prices in the second home market are likely a major factor in the strong price performance.
A significant change over the past few months has been a shift away from the price-driven bargain hunting that drove many buyers over the fall and winter, when fears about a real estate collapse pervaded the media. The buyers we've been working with this spring have been more focussed on personal lifestyle factors like setting, house style and size, location in the county and access to recreational amenities. Value remains an important consideration to be sure, but "bargain hunting" seems to be taking a back seat.
Another noticeable shift is the unwillingness of buyers to settle for major compromises in what they're looking for, or to take on 'project' houses that need lots of work. At the height of the go-go market in 2005/2006, with inventory in very short supply and bidding wars common, even ugly ducklings that needed work found buyers. I'm finding buyers today to be much pickier. Particularly in the moderate to better price ranges ($250,000 and up), buyers want houses that are close to 'move in' condition. Buyers are shunning houses with significant negatives like low ceiling heights, locations on busier roads, quirky layouts or out-of-favor styles unless they're really bargain priced. And even then, they're a tough sell.
While the sweet spot of the second home market here continues to be the moderate price range (from $275,000 to $325,000), there has been a noticeably uptick in buyer interest in better upper end properties — notably lakefront houses offering privacy and renovated farmhouses or other classic styles on acreage. I've spoken to a number of people in the last month looking for these types of homes in the $500,000 to $750,000 range. Unfortunately, inventory in these 2 categories continues to be very limited.
Another active part of the market, at least in terms of buyer interest, has been among second home buyers in the more affordable range under $200,000. However, we're not seeing as many sales relative to contacts among clients we're working with in this range. This could likely be a function of a gap between buyer expectations and market reality in this price range. Buyers searching the MLS often find properties in this range that look "great on paper" but fall short of their expectations in reality. Yes, you can find attractive farmhouse style houses on a couple of acres on the web for under $200,000, but they may have low ceiling heights, be located on a main road, have close neighbors or be in handyman condition.
Rising mortgage rates and gasoline prices are 2 factors we need to watch closely for their potential impact on the real estate market here. The rate on 30 year fixed rate mortgages has climbed from around 6% to around 6.5% over the past couple of months. That jump doesn't appear to have had a major impact on many of the clients I'm working with. But further jumps to 6.75 or to 7% could have an impact, particularly at the more affordable end of the market. The other wild card is gas prices. We seem to have adjusted to $3.30 a gallon gas, and we'll probably adjust to $3.40 or $3.50 a gallon prices as well. But if gas prices rise above $4 a gallon, that could curb interest — at least temporarily — in driveaway second homes. Conversely, though, these factors could — in the long run — have a positive impact on this market. Higher gas prices could dampen demand for second homes further from NYC, in the Adirondacks or Berkshires, for example, driving buyers closer to home. And higher mortgage rates could make our relative affordability, compared to other close-in second home markets, an asset.
The Inventory Picture
At the beginning of June, there were 1,191 single family homes listed in the Sullivan MLS, just slightly up from the 1,100 houses on the market in June, 2006, but well up from the inventory drought in 2004/2005. (In June, 2004, we only had 697 homes for sale here.) There has not been an inventory surge since last summer like the doubling or even tripling of inventory reported in many overbuilt Sunbelt markets, for example. In fact, in many popular market segments — classic renovated farmhouses, nice lakefront properties, and moderately priced houses with privacy — a lack of inventory remains a drag on the market.
From a price standpoint, sellers seem to be getting the message that prices here are stabilizing and not increasing at a breakneck pace. This month, for the first time since March, the average and median asking prices did not increase and actually dropped just a hair. Of course, there are still scores of sellers with overly optimistic opinions of their houses and price them accordingly. But I think we're finally entering the phase of seller attitude readjustment! All the old pros told me it would take 6 to 12 months, and lo and behold, they were right.
One of the big challenge segments is the moderate second home sector, from $275,000 to $325,000. There are a few areas that I could reliably count on having a few houses with second home appeal for the typical buyer I work with in this range — North Branch Commons, Pyne Ayre (Split Rock), non-lakefront homes at Lake Devenoge and York Lake and the areas near Fremont Center. At the moment, though, there is virtually nothing for sale in this price range in these areas. Clients often ask, "What if we went up to $350,000?", and I still come up pretty empty.
There is better inventory when you push up to $375,000 to $425,000 — but this is what I call an 'orphan' range. We don't have a lot of $400,000 buyers. We have $300,000 buyers and $500,000 buyers, but that area in between is kind of an orphan segment. A lot of houses priced around $400,000 seem to lag on the market unsold. They're too expensive for the buyer in the $300,000 sweet spot range, and frankly, not nice enough for upper end buyers — who are more interested in finding something fabulous than finding a great deal.
The mid range tug of war between $300,000 buyers and $400,000 sellers is probably the most interesting sector to watch over the next couple of months. I don't see the $300,000 buyers stretching to $400,000 and making a market there. But I do think many of those moderate range buyers would stretch into the $325,000 to $350,000 range, if some of those properties with $375,000 to $425,000 asking prices moved into striking distance of that price point.
The other 'orphan' price point I'm watching closely is $475,000 to $499,000. There's quite a bit of inventory priced just under $500,000 that doesn't quite hit on all cylinders for the upper end of the market, in terms of setting, house style or house size.
Overall, I expect to see some 'downshifting' in asking prices across many market segments over the next few months. Buyers seem to have settled into fairly discernible price and expectation brackets — a $150,000 to $200,000 "affordable" segment, a $275,000 to $325,000 moderate segment, and a $500,000 to $650,000 "better" property segment, with a handful of trophy lakefront and estate buyers in the $850,000 and up range.
What Does This Mean for You as a Buyer?
As a buyer, be aware of the submarket you're in, and whether it is active, with a lot of buyer activity, or less active. If you're in an active market segment, you need to adjust your behavior and expectations accordingly. If you're in an active market segment, there may not be a lot of selection at any given time, and when you find a house you like you may need to move quickly on it.
Many buyers harbor the mistaken belief that we've entered a strong buyers' market, that sellers are desperate, and most houses sell at big discounts off of their asking prices. That's not quite true. The average sales price to asking price here is 93.3%, down just slightly from the 94.9% we saw at the peak of the market. Of the 147 houses sold over the last 3 months, 30 (or 20%) sold at or above their asking price. Yes, there are houses that sell for less than 75% of their asking price, but that's the exception rather than the norm.
Sullivan County continues to be the best second home value within 2 to 2 1/2 hours of Manhattan, but that's not the same thing as 'cheap'. Yes, there are some parts of Sullivan that are less desirable, and still qualify as 'cheap' --- but they're not probably what you're thinking of when you conjure up a cute country town or idyllic rural getaway. Its probably useful to think of Sullivan County as the rural equivilent of Inwood or Hudson Heights (if you're familiar with New York City real estate.) A few years ago these neighborhoods were dirt cheap, with one bedrooms selling for as little as $100,000 or $150,000. Today, a good one bedroom in Inwood can cost $300,000 or more — still a great value relative to anything else in Manhattan, but outside the bounds of cheap. To find cheap, you need to push further up into the Bronx. The same goes here. Sullivan is still a great relative value, but truth be told, we've been discovered — and prices reflect that. To get 'cheap' you probably need to travel a little further north into Delaware County beyond the 3 hour circle from NYC.
If you're price conscious and looking for great value, get away from the pack and be prepared to do some work. There are dozens of people looking for cute, charming older houses on acreage with some privacy that can use some freshening. But there aren't a lot of second home buyers looking for vinyl sided ranches or bi-levels — houses that can be transformed with some creativity and money — or houses that may need more substantial structural renovation. If you're on a tight budget, think of dark paneling, dated kitchens and vinyl siding as your friend — every 'yuck' factor that may turn off less adventurous country getaway buyers can keep the price down.
There are "magazine quality" houses here, but like anywhere, they're not cheap. Many buyers, particularly those new to second home shopping, come with "magazine quality" expectations. In my experience, "magazine quality" houses here range from $500,000 to $800,000 (more for estate-quality lakefront or large acreage homes), and do have beautiful kitchens, luxurious baths, expanses of glass and fine detailing. If you can't afford one of these homes, there are plenty of places here that can make great getaways at a more wallet-pleasing price point. They just may not be "Ready for my close-up, Mr. DeMille."
Be cautious about setting your price expectations based solely on internet house shopping! (See my blog post, The Pitfalls of Internet House Shopping.) Yes, you will find some "farmhouses" under $150,000, a "lakefront" cabin for $250,000, 5 acre parcels of land under $25,000, and scores of other "too good to be true" bargains. I have a lot of experience with second home buyers and what they're looking for. I also know the reasons why many of these properties are priced low. Trust me, there's no magic here — if the owner felt they could get more for the property, they would. Seldom do I see a listing that honestly describes a house's flaws. For example, a "too good to be true" farmhouse may have 6 1/2 or 7 foot ceilings, it could need major structural work, like lifting the house and repouring a foundation or the front door could be located 20 feet from a busy road. And I've never seen a listing photo taken to include the mobile home on the property right next door with four junk cars in the front yard.
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.
