Closed single family sales, which had been steadily (if slowly) rising from their mid-winter lows, plateaued in July. For the 3 month period ending July 31st, there were 105 closed single family sales reported in the Sullivan MLS, down 36% from the same period the previous year (but up 22% from the low reached in April of this year.)
While the sales pickup over the last few months is encouraging, we are still well below the peak sales rate of 2005/2006. During the peak of the market (the 2nd half of 2005) the rate of sales per 3 month period ranged from 210 to 230, more than twice the rate we're seeing now.
On the price front, the median sales price rose from $164,850 to $170,000 in July, but still off 13% from the same period a year earlier. While the median rose, the average sales price dropped for the 3rd straight month, to $194,947, 20% below a year earlier. The drop in the average can largely be attributed to a fall off in activity at the upper end of the market. For the 3 months ending July 31, 2008, for example, only 1 sale closed above $500,000, while for the same period in 2007, there were 9 sales above $500,000, including 2 above $1 million. The good news in all of this? The median sales price was up 13.3% from the bottom of $150,000 reached in May.
The big question in all of this is whether we've passed the market bottom. That's tough to answer. If we were a more homogeonous area with relatively interchangeable inventory, and saw a market-wide uptick in prices, it would be easy to posit a 'Yes'. But for such a small county, we're an amalgam of submarkets with different dynamics. Some parts of our market will likely see rising foreclosures resulting in increasing inventory and depressed prices. Other parts of our market have very sluggish demand (e.g. the upper end second home sector that was largely driven by buyers from NYC's now-beleaguered financial services), and prices will likely fall there, as well. But the affordable-to-moderate second home market as well as pockets of the primary home market seem to be chugging along just fine.
The Current Market
July started out very slow, which isn't surprising given the general economic climate. The stock market was tanking, oil was skyrocketing, and we were all wishing our savings were in euros, not dollars. Things noticeably started turning around towards the end of July — about the same time the stock market started back up and oil prices started back down. I've fielded a lot more calls and emails asking about property, and going into August my weekend appointments have been fully booked — the first time this year that's happened. A number of other agents, particularly in the western part of the county, have reported a similar uptick. A good sign is that a number of folks are coming back for 'second looks.'
Buyers continue to be cautious, and are very price and value focussed. They want a lot for their money — a great house at a great price. Whether you call it 'discerning' or 'finicky', buyers are eliminating houses that involve much, if any, compromise — a little too close to the road, a little too far from the city, not private enough, not quite large enough. If they see something they like but isn't quite perfect, the tendency is to wait to see if something better comes on the market.
There has also been a noticeable downward movement in buyer price expectations. In 2007, the 'moderate range' of the second home market hovered in the low $300's. Today, its closer to $250,000. That seems to be the sweet spot. There are a number of interesting listings right around $300,000 that I expected to move pretty quickly that just aren't finding buyers. Upper end buyers, looking for something really nice, have shifted down into a range of $375,000 to $450,000 (from $500K+ a year ago.) Apart from lakefront properties, I'm seeing very little activity above $500,000, and almost no inquiries in the trophy-luxury home ranges including Chapin.
Notably, I've gotten a lot of inquiries at the inexpensive end of the market, under $175,000, both primary and second home. My colleague at Catskills Buyer Agency, Kathy Rieser, who focusses on this market segment, has been the busiest of us all. However, its a very tough segment to work. Second home buyers looking around $150K often want more privacy or house than you find in that range, and for both primary and second home buyers, property taxes are a significant issue.
Sellers, Asking Prices and the Inventory Picture
Inventory is pretty stable, with 1,261 single family homes listed in the Sullivan MLS at the start of August, up just slightly from 1,243 at the beginning of July. I'm shifting my view, though, on the inventory picture. For the last few months, I've taken heart that inventory here hasn't skyrocketed like in some of the speculative, overbuilt areas of the country. (Inventory here is up about 75% from the very tight inventory levels between 650 and 750 houses on the market we saw in 2005/2006. Some areas in the sunbelt, in comparison, have seen absolute inventory numbers double, triple or even quadruple.) But the inventory picture changes here somewhat if you look at it relative to sales volume. In 2005/2006, there were about 700 houses on the market at any given time, and we were selling at a rate of about 850 houses per year. So there was about a 300 day supply of houses on the market then. Today, inventory is only up to 1,261, but we're only selling at the rate of about 440 houses per year. That is almost a three year supply, or more than triple in terms of clearing the market.
Of course, supply and demand is not evenly spread across property types. There are some types of property that have little or no demand, with probably enough supply to last a lifetime. And there isn' a lot of supply in some categories, like renovated farmhouses, updated lakefront houses or cute vacation chalets tucked into the woods. But overall, these numbers should be very sobering to some sellers.
But even if a house is in a higher demand category, buyers are only considering houses that they perceive as outstanding values. There are a half dozen farmhouses on 10+ acres here on the market above $500,000 — without deals. When a similar farmhouse came on the market last month at $449,000, it had a full price offer and backups within a week. 3+ bedroom lakefront houses around $500,000 are moving, but similar higher priced houses aren's. And on Swinging Bridge, there are five 2 bedroom lakefront houses on the market, priced from $299,000 to $449,000, and its the lowest priced house (even though it needs considerable work) that has a deal. In another category — cute little houses on a couple of acres on a quiet country road — there are a number on the market priced from $239,000 to $279,000 without deals. But when a similar house hit the market at $199,000, it was gone in the first week. A 2 bedroom cabin-chalet on 5 wooded acres outside of Livingston Manor listed for $209,000 didn't last through the first weekend.
The lesson here is that there are buyers, particularly in certain market segments. They're ready to jump on something, but only when the price is right. That isn't a lesson that a lot of sellers, however, have learned yet. But there are some signs that sellers are beginning to adapt to the changed market.
At the beginning of August, the median asking price for a single family home fell slightly to $225,000, down from July's $229,000. That may not seem like much, but its the first downward movement in the median since January. The average asking price also took another drip, dropping to $289,728 from July's $294,985. During July, there were price reductions on over 20% of the single family listings in the MLS. Overall, though, the vast majority of price reductions are very minor and not sufficient to stimulate the market.
The Appraisal and Financing Picture
Interest rates on 30 year conventional fixed rate mortgages rose sharply in July, to around 6.75% with no points, up about 30 basis points over June and 80 basis points from the 2008 low in late March. With less than 20% down, borrowers paying PMI are well into the low 7% range. HIgher interest rates translate directly to lower housing affordability, and I've already had a couple of clients pare down their price range due to higher borrowing costs. At 6% interest, a $1,000 monthly payment will let you 'rent' $166,805 in mortgage money. At 7%, that same payment only lets you rent $150,375, or about 10% less. On August 7th, Fannie Mae announced tighter loan standards and higher fees for loan originators, all of which adds up to money being harder to get and more expensive. In my experience, the second home buyers tend to be less sensitive to cost-of-money issues. but the dampening effect of higher mortgage rates in the wider real estate arena is certain to have some spillover.
Rates aside, the appraisal and underwriting process continues to pose a significant challenge in a low density, low sales rural area like Sullivan County. Almost all national lenders are now requiring all appraisal comps to be within the past 6 months (down from the traditional 12 months), and have been resistant to expanding georgraphic 'neighborhood' definitions to encompass sufficient comparable sales for appraisal. Tight underwriting standards may work in high density, cookie cutter suburbs, but they aren't working here. Lately, I've suggested that clients work with local lenders rather than the big nationals, because I have less and less confidence that the big national lenders will actually close the loan.
What Does This Mean for You as a Buyer?
Current indications are that closed sales prices aren't heading further down from where they are now — in market segments with reasonable buyer demand (like moderately priced second homes or affordable-range primary homes.) So the rationale to delay a purchase to wait for further price declines may not hold the water it did at the beginning of the year.
The previous statement doesn't mean that buyers shouldn't wait for sellers to get with the program. Seller price expectations, in many cases, are substantially higher than the current market value range for their properties. If the sellers are motivated, good negotiation could bring the price in line. But if they're not, it likely won't.
In some segments, we're seeing enough sales data points to establish market value ranges for certain types of properties with some confidence. As a buyer, set your final price expectations within that range, not necessarily under it.
When making an offer, think like an appraiser. Understand the comps for the house you're bidding on, and why this house may be worth more or less. Its fine to make some adjustments for intangibles that are valuable to you, like privacy or a big open family kitchen. But ultimately, you're making the case for your offer.
Keep your emotions in check. In this market, buyers need discipline, and emotion is the nemesis of discipline. The fact is that the most well-crafted offer supported by indisputable comps won't necessarily convince an owner to sell you their house at a price you want to pay. Sometimes you just have to walk away.
Avoid equating "good value" with "percent off of the asking price." Some houses, believe it or not, are good values at or close to their asking price. Others would still be value dogs if an offer of 35% less than the asking price was accepted. Don't unfairly penalize sellers because they've 'right priced' their houses.
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.
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.
