September's sales numbers, from a closed sales standpoint, were mixed, with sales steady but prices down. There were 118 closed single family sales reported in the Sullivan MLS for the 3 months ending Sept. 30th, on par with August and up from the lows of May and June. But closed sales are a backward looking indicator, and September's numbers reflect buyer behavior over the summer — when we saw a slow but steady return in buyer interest and confidence.
That all abruptly changed in late September. In a matter of a couple of weeks, the tone of the economy shifted from cautious to crisis, with Armageddon-like pronouncements emanating from Washington. Interest in real estate, at least here, came to a screeching halt.
In my monthly Current Market Conditions report, I typically massage the data, look for shifts and trends in what's sold and what's on the market, flesh it out with experiences and anecdotal reports from other agents and end up with at some forecasts and predictions — most of which, over the years, have proven pretty accurate. I find, at least this month, that's impossible to do. It seems as if we've been thrust into a collective economic shock, like waiting for a hurricane to hit land.
That being said, it is worth looking at the sales figures through September, which gives some indication of where we were heading before the Bush-Paulson economic A-bomb. The 118 closed single family sales for the 3 months ending Sept. 30th, while on par with the previous month, were down 31% from the same period a year ago, about the same year-over-year fall off we've seen for the past few months. Prices, however, took an unexpected downturn. The average sales price fell about 7% from August, while the median dropped a more modest 4%. Both were well off their year ago levels, with the average down 20% and the median off 13% from the same period in 2007. (The median sales price of $164,200 is about where it was in the fall of 2005.)
Much of the price falloff, particularly in the average sales price, can be attributed to a dramatic slowdown in the upper end of the market. For the 3 months ending Sept. 30th in 2007, there were 11 sales over $500,000 (including 2 over $1 million). This year, during the same period, there were only 2 sales over $500,000 (including one over $1 million.)
The Current Market
Prior to the mid-September economic 'whatever you want to call it', there was a reasonable level of real estate activity here. The trends I've seen over the last few months were continuing, with softness in the upper end, buyers shifting to more moderate price ranges, longer decision times and a focus on value. Overall, though, there has been a steady, if somewhat smaller, stream of both primary and second home buyers.
One noticeable change, though, that started in late August, was a further downshift in buyer price expectations. Last winter and spring, we saw a sharp drop in both sales and prices, but over the summer that began to recover, and pricing confidence was returning to some property categories. For example, over the summer we saw pretty strong demand for second homes between $225,000 and $275,000. Those prices were definitely below the previous year, when the 'sweet spot' of the second home market was above $300,000, but in early September I saw buyers with a similar profile shift down closer to $200,000.
A very interesting segment to look at right now are the least expensive sales. Historically, if you pulled out the bottom quartile of sales, you'd generally find mostly seasonal cottages, bunaglows and handyman fixers. For the 3 months ending Sept. 30th, there were 52 sales under $150,000 (including 22 under $125,000), and the vast majority of those appear to be primary home sales, not seasonals or investor flips.
But the game totally changed on September 15th, with the Lehman bankruptcy, followed in quick succession by the proposed AIG takeover, the $700 billion bailout plan and subsequent fight, the failure of Washington Mutual and the takeovers of Merrill Lynch and Wachovia. There hasn't been a glimmer of bright economic news in over a month, with crisis upon crisis hitting the news. People are afraid and understandably hoarding their acorns. Now is not the time most people are contemplating large purchases, particularly discretionary ones. In late September, we received a number of calls from clients we've worked with for a few months looking for homes. They said, basically, that they're putting their search on hold because of the economic uncertainty.
Usually, in this monthly report, I identify the hot spots and cold spots in the market, But right now I don't see any spots. In my opinion, the real estate market here (and in many places around the country) is at a standstill, and will likely remain there until some sense of stability and confidence returns. While Paulson et. al. may have had to whip up economic hysteria to get the bailout passed, its had a devastating effect on consumer confidence.
Sellers, Asking Prices and the Inventory Picture
Inventory fell slightly in September, with 1,194 single family homes on the market as of October 1st, down from 1,257 at the beginning of September. The average and median asking prices also dropped about 2%, to $283,707 (average) and ($216,750) median. The drop off in inventory seems to be largely a function of sellers pulling their houses off the market, often by simply not renewing their listing agreements when they expire. I've heard from a number of listing agents that many of their clients are planning to "wait until the market improves" to try to sell.
There seems to be a growing sense among real estate pundits in the media supporting this view. A few months ago, for example, real estate gurus like Barbara Corcoran on the Today Show, were recommending that sellers spruce up their houses and drop their price 15% to be the best value in their segment. Now their tune has changed to "Unless you have to sell your home, now isn't the time to sell."
For months, I've been saying that the wide gap between seller and buyer price expectations has been the major drag on the market, particularly in segments like mid-market second homes and moderate lakefront properties where there has been buyer demand. Over the summer, there was case after case where a significant price cut resulted in a sale. But over the summer, there were also buyers ready to jump when they saw a good value.
I think we've entered an entirely different world right now. Its hard to guage demand when there's so little of it. And without a guage of demand in different price and property segments, its difficult to set pricing. What is a lakefront lot at Chapin worth that would have sold for $400,000 in 2003 and $800,000 in 2007, when there aren't a lot of bonus-rich traders and bankers shopping for trophy property? A mistake a lot of sellers are making is pricing from the top down. For example, in 2006/2007, a 3 bedroom, 2 bath lakefront house on 5 acres at York Lake or Timber Lake may have sold for $700,000 in 2007. So a seller of a similar property may think that if they sell a similar house today for 10% less, or $630,000, they're giving it away. But that's not where buyers are at. In the couple of months before the mid-September meltdown, buyers I've worked with who would like that type of property were looking in the low $500's. When we come out on the other side of this 'crisis', I expect that buyer price expectations will downshift even further.
The Appraisal and Financing Picture
The financing picture was improving through the summer, but has turned south again in teh wake of the 'credit crisis.' Underwriting standards are tightening again. I had one client who earlier in the summer was told by his bank that he would qualify for a second home loan with a 5% down payment. In late September, when he spoke with his bank again, he was told that he would have to make a minimum down payment of 20%. Also in late September, a client with very good credit was told by his lender that they couldn't lock his rate for any longer than 30 days. Lenders are also tightening up on the types of loans they'll make. Last week, for example, Chase announced that it will not longer issue jumbo mortgages (over $417,000) for second home and condominius loans in Florida originated by mortgage brokers. Now, that may seem obscure and far away, but its just one more example of the tightening we're seeing in loan originations. 18 months ago, a second home buyer here with 3% to 5% down, a FICO score of 680 and a debt to income ratio of 40% would have qualified for a mortgage. That's not the case today, and ultimately that means there are fewer buyers who can get financing, and often those buyers have to trim their price expectations to fit within tougher lending guidelines.
The problem isn't only on the buyer qualification side. The appraisal and underwriting side is also tightening again. Lenders are very reluctant to accept comps that are older than six months. The comp situation actually improved over the summer, particularly in more active segments. If we have a substantial sales slowdown over the next six months, we'll again be facing the appraisal conundrum of few comps within the previous six months. With fewer sales, it becomes more difficult for lenders to determine value and therefore become more reluctant to make loans.
What Does This Mean for You as a Buyer?
In the short term, I think both buyers and sellers are in a holding pattern — waiting to see if some stability and confidence returns to the wider economy. These daily swings in the equity markets of 3 to 6% are clearly unnerving.
Over the next couple of months, savvy buyers who are willing to take a little risk rather than sit on the sidelines may want to be on the lookout for opportunistic buys. A lot of sellers who have the option to sell now or wait may choose to wait. But inevitably there will be some sellers without that flexibility, and that could be an opportunity for some buyers.
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.
