GIven all the doom and gloom national real estate newsduring August, it may come as a surprise that the August closed sales figures for Sullivan County real estate actually showed an improvement over the previous month on some measures. The 162 single family sales for the 3 month period ending Aug. 31., were up slightly from the 158 recorded for the 3 month period ending July 31. But the big news is that those 162 sales were only 9% down from the year earlier period. This is the first time since the beginning of 2007 that the year-over-year decline narrowed into the single digits.
On the price front, the median sales price of $193,500 was essentially unchanged from July. While the median sales price is up 1.9% from the year earlier period, if you look at the graph to the left you'll agree that the median sales price has now been essentially flat for 12 months. There was a substantial 6.8% decline in the average sales price from July to August, but as I constantly caution, the average is not a reliable measure of market trends as it can be high affected by a few large sales. That was the case for the May through July data periods, with 2 $1M+ sales that skewed the average upwards.
In looking at individual month data, as well as reviewing upcoming sales in contract, these price and sales levels will likely continue through the September and possibly into the October sales periods. But is is very important to remember that closed sales data is backward-looking, and reflects buyer behavior roughly 60 days in the past. August's closed sales data, for example, is actually tracking buyer activity in June. The mortgage meltdown didn't accelerate until July, which led a barrage of very negative media reports about real estate through July and August. We won't see the impact of that on sales figures until later in the fall.
The Current Market
From my perspective, August was very slow. Traditionally, August is not a big sales month, as many people are focussed on end-of-summer vacations and then back-to-school preparations. Even so, this August my appointments were way down from August 2006. Of the buyers I did go out with last month, none made an offer an a house, although many liked the houses they saw.
The general tone of people I've dealt with in the last month is "Wait and See". Many buyers seem gripped by a paralysis of indecision fueled by uncertainty. There's a fear among many buyers — whether spoken or unspoken — that what they buy now may plummet in value in the near to mid term. Or, in a slightly different take on the same theme, that the real estate market is on the verge of tanking and in the next year houses can be scooped up at a fraction of today's prices.
Buyer psychology is largely shaped by media reports about real estate market performance. Real estate varies tremendously by region, and the prognosis for California and many sunbelt states like Florida is pretty grim. In California, for example, many economists are predicting a 15% to 20% decline in prices, with a rapidly accelerating rate of foreclosures. The national media go for high drama,. and have been largely focusing on these overbuilt, overheated and high foreclosure markets. The result is that buyers all around the country start believing that their local market has the same dynamics and is going to plummet as well.
I don't want to sugarcoat the situation, nor leave the impression that New York is immune. But so far, the northeast region has weathered the storm better than other regions, and reports that I read generaly forecast possible price declines here in the low single digits at worst. That doesn't mean that there won't be pockets of headline-caliber declines. For example, the area around East Stroudsburg, PA, where cheap suburban houses were slapped up in the last few years to sell to marginally qualified borrowers from NYC, could take a big hit as adjustable rate mortgages reset and owners default.
I can quote statistics and point to economic indicators until the cows come home. But if the overall buyer attitude about real estate is pessimistic to negative, there's little I can do to change that. Only time can repair buyer confidence. We probably need six months for buyers to feel comfortable about the direction of the market, and to ascertain the local impact of macro trends.
While buyers are certainly more cautious and the market is slower, it isn't dead. But what folks are looking for, at least in the second home market, has shifted. The BIG thing right now is waterfront houses — lakefront and some riverfront. Recently, lakefront interest and inquiries have far outstripped every other property category, with 4 out of every 5 buyers I talk with in the moderate and better price ranges asking about lakefront. I'm not getting a lot of inquiries about other typically popular categories, like renovated farmhouses with acreage or the bread-and-butter of the mid-range market, privately set houses, cabins or cottages on 5 wooded acres with privacy in the $300,000 range. I haven't even talked with one person looking for a renovated farmhouse on 10 to 20 acres in the $500,000 to $700,000 range in a couple of months.
The price point for many buyers also seems to be dropping. Even among those lakefront buyers, most requests are for lakefront houses under $400,000 — a range with very little inventory. Most houses with water under $400,000 have moved very quickly. Likewise, a year ago many buyers looking for a private getaway in a wooded location were considering a price range into the low $300's; today, buyers looking for the same type of property are giving a range of $250K to $300K.
There are a few other common elements I'm seeing in buyers I'm working with. One is an unwillingness to do much, if any, work. Houses that require work, even if they're pretty well priced and in good settings, just aren't getting much interest. A year or two ago, buyers were snapping up ugly ducklings that could be turned into swans. Now those ugly ducklings aren't getting dates, much less marriage proposals. Houses with any significant negative factors, like farmhouses with lower interior ceiling heights or a location too close to a road, are being passed over. Even the lack of a master bath, or even just one bath instead of two, in any house over $300,000 can move a house into the "no" column.
Buyers are in a tough position right now. I can sense the internal struggle in many of them. On the one hand, the desire for a second home getaway, an escape from NYC, is there. But on the other hand, everything they hear, see and read is telling them "Don't buy real estate now." Its a classic id - super ego battle. The desire side is saying "do it" while the adult superego is saying "bad decision - wait". This push-pull gets manifest in a whole lot of different ways. A lot of second home shoppers can satisfy the desire side by coming up and looking at property. But then by finding some fault with it, however minor — like a setting that isn't quite right, a roof that might need replacement in a year or two, or the lack of a master bath — they placate the adult in them, and don't have to actually buy. Right now for many shopers to actually push the buy button, a house has to overwhelmingly hit on all cylinders — price, setting, size, condition, style and location. Buyers may be looking at houses, but they're also looking for any reason not to buy them. House shopping is a fun, low-risk, low investment activity. Actually buying them, at least in the minds of many shoppers, isn't.
So, if folks have scaled back on buying, how does the looking look? Definitely slower as well. Visits to this website as well as Google searches on key search terms related to Sullivan County real estate are down about 10-15%. That's not a huge drop off, but is the first negative turn in a key indicator of buyer interest. Most calls and appointments in the past month have been from people just starting out looking, and more in the "tire kicking" rather than serious buying category. That's not great news for the near term, but if the real estate market here (and in the city) shows stability through the end of the year, we could be laying the groundwork for another very strong winter season.
The Inventory Picture
Contrary to many parts of the country, inventory here has been dropping. There are currently 1,179 single family homes listed for sale in the Sullivan County MLS at the beginning of September, down from 1,292 homes at the beginning of August. The average asking price slipped to $283,908 from $287,651 a month ago and down 9% from the peak of $312,381 at the beginning of April. For the first time in 6 months, there was a drop in the median asking price as well, from $239,000 to $230,000.
There continues to be an inventory shortage in a couple of property categories, namely lakefront houses priced under $400,000 and privately-set "vacation-style" houses on 5 or so acres between $275,000 and $325,000. Also, houses on 2 or so acres on quieter backroads under $200,000 are in short supply. In other categories, like renovated farmhouses above $500,000, we don't necessarily have a lot more houses on the market, but there just aren't a lot of buyers in that range.
The modest drop in the average and median asking price indicates that some sellers are starting to get the message that the market has slowed. Sellers are, after all, seeing the same news reports. But many are only taking baby steps in adjusting prices. I wouldn't be surprised if we start seeing more dramatic price cuts as winter approaches. Note that I'm not predicting any major drop in actual sales prices, but reductions in asking prices that will bring more inventory in the range of what buyers are willing to pay for particular properties.
That being said, price alone will not move most properties. Properties that are selling need 3 G's — good price, good bones and good setting. Marginal houses that involve a lot of compromises I fear won't move at all. Sellers really need to take note the key factor I mentioned above, that buyers, for the most part, are looking for any reason not to buy a house. Houses really need to stand out against their competition to attract a buyer. The days of successfully selling a house with peeling paint and a long list of repair items is over.
There's competition for buyers at all price points. For example, in the mid-upper to upper end ($500,000+) there are currently 104 homes on the market. In the past 12 months there were just 33 sales in this price range. Even if the sales rate of the recent past continued, two thirds of the houses in this price range won't find a buyer. And if the pace slows (which I sense is definitely happening at the upper end), that ratio will get worse for potential sellers. And that one third / two thirds ratio tends to hold across prices ranges. Over a 12 month period, about 1,800 houses are listed at some point in the Sullivan MLS, and about 600 sell.
What Does This Mean for You as a Buyer?
Its really tough to offer advice as to whether you should buy now or not. As a Realtor, I make my living from people buying property. But I'm also very aware of the current inertia against buying real estate, particularly if its a discretionary purchase like a second home. However, I think many shoppers are laboring under the assumption that prices may plummet more than a few percentage points in this region in the next year. But the data just isn't pointing to that. Prices may drop substantially on houses that lack attractive features and are in low demand, but those aren't be houses most buyers I work with are looking to buy.
If you look at the houses that are selling, they're houses with the 3 G's --- good price, good bones and good setting. Particularly for second home buyers, there is unlikely be a surge of inventory of houses with the most attractive features. Even in segments where we're not seeing a lot of demand at the moment, like renovated farmhouses on acreage, there aren't going to be dozens flooding on the market in the next six months. Sullivan County is different than a cookie-cutter suburb. There just aren't that many houses here with great settings and features, period.
Perfect houses here are rarer than a Republican caught in a compromising moral situation. Whoops! Wrong analogy. But you get my point. Except in the top price ranges, most houses need some updating or reconfiguration to bring them into the 21st century. If you find a setting that works, and a house that's workable, don't write it off your list so quickly because of a few fixable flaws.
Over the near to mid term, the best values are likely to be in "ugly duckling" houses with little buyer demand — bi-levels, vinyl sided ranches, etc. Anything quaint, cute and charming on a quite country backroad will continue to attract interest from second home buyers, and demand — and prices — will likely remain relatively strong. Even if prices drop on those ugly ducklings, I'm not confident that they're the best investment. Over the near to mid term, the second home market will likely remain the strongest part of the market here and that segment is discretionary — amd discerning. Any major compromise factor is likely to be a deal killer for these buyers. In equity markets, when there's a downturn or even the threat of a downturn, investors shift to "quality." The same can be said for real estate.
In the current mortgage environment, the price you want to pay for a house may take a back seat to your ability to pay for it. Buyers should expect sellers to evaluate their financing terms more closely, and well qualified or high cash buyers may have a significant advantage. On a related note, appraisal and underwriting requirements are tightening and lenders are far less willing to lend on property that doesn't have strong demonstrated value. Sellers, if an appraisal comes up short, don't expect buyers to be willing to make up the shortfall with cash like they were doing the boom.
Be educated about the market value range for the type of property you'd like. The "market value range" is the approach an appaiser would use, determining the value of a property based on closed sales, e.g. what other buyers have actually paid for similar houses in the last 6 or 12 months. The "market value range" is not saying, "These are the features I want and this is what I want to pay." You may want a classic farmhouse with 3 bedrooms, a view and a pond on 5 acres on a quiet country road for $300,000, but the market value range for that type of property is much higher. Knowing the market value range for the type of property you want can help you evaluate whether a property is overpriced and enable you to negotiate from a position of strength rather than just emotion. One good reason for working with a buyer agent is that we help our clients establish those market value ranges.
The price range you have in mind for the house and features you're looking for may be below the "market value range" for that type of property. If you're, say, 5% or even 10% below the range, you may find what you want at the price you want to pay due to seller circumstances or a house that has been marketed poorly. But if you find that your price expectations are more than 10% below the market value range, you probably need to revise your property expectations in terms of size, setting, style, location or condition or wait out the market to see if it adjusts in line with where you want to be.
A good place to start to evaluate prices is to ask "What would this house have sold for a year ago, in mid 2006?" That's probably a good base line for what a house should sell for today. Prices have been relatively flat since late summer 2006.
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.
