Period Sales closed Average $ Median $ 8/1/2007 - 10/31/2007 168 $219,894 $170,500 8/1/2008 - 10/31/2008 138 $174,992 $162,000         7/1/2008 - 9/30/2008 122 $184,982 $164,200

Details About Methodology

Average and Median Single Home Prices in Sullivan County   Current Listings Closed Sales Aug 08 - Oct 08   Average Median Average Median All Single Family Homes $282,482 $210,000 $174,992 $162,000 Lakefront Homes $643,566 $449,000 $338,100 $267,500 Non-Lakefront Homes on 10+ Acres $571,365 $447,450 $245,390 $226,200

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Sales and Prices
Details About Methodology

This months's market conditions report is difficult to write, because the sales data through October generally reflects buyer activity from mid-July through mid September — before the Sept. 15th Lehman bankruptcy and ensuing economic upheaval. Looking at closed sales data for the 3 months ending Oct. 31, the picture actually looks pretty bright. 138 single family sales were reported in the Sullivan MLS for the 3 month period, up 13% from September's number. While this is still 18% below the same period a year earlier, it continued the slow but steady upturn in sales that started in June.

On the price front, the median sales price of $162,000 held pretty steady from September's $164,200, and was only off 5% from the same period a year earlier. The average sales price, however, did drop 5.4% from September, to $174,992., and is off 20% from the year earlier period. The continued slide in the average is partly due softness in the upper end second home market market, a shift by buyers to more moderate and value priced properties, an increase in primary home versus second home sales as a percentage of the overall mix, and an increase in foreclosure sales.

At the upper end, a year ago, there were nine sales above $500,000. This year during the same three month period there was one. (Of the 55 closed sales in the single month of October, the highest was only $286,000!) Foreclosure sales are also contributing to the downward pull on prices. During this 3 month period, there were 15 bank owned (foreclosure) sales, accounting for 11% of total sales. While this is a small percentage compared to many markets around the country, foreclosure sales do exert price pressure, particualrly at the lower end of the market.

The Current Market

Prior to mid-September, I was cautiously optimistic about the pick up in the market we were seeing. Buyers, while still cautious and definitely value focussed, had been steadily increasing over the summer. There were enough sellers willing to deal that it was possible to bring buyers and sellers together in some cases and in some market segments. It seemed as though there was some confidence and stability returning to the real estate market here, after a very difficult and unsettling winter and spring.

Through the summer, there were some noticeable shifts in the market. Second home buyers were definitely downshifing their price expectations, with the "hotspot" for moderate range buyers moving down to about $250,000 from about $325,000 a year earlier. In my experience, the upper end was very soft — a market segment that had been very robust over the past few years (and large responsible for driving the average sales price to over $252,000 in June, 2007.)

While I can slice and dice shifts in the second home market, the most interesting trend I'm picking up from the sales data is a fall off in the second home market as a percentage of total sales. In reviewing the single family home sales for the 3 months ending Oct. 31 2008, it appears that second or vacation home purchases dropped to 32% of the total single family sales, from 44% for the same period in 2006.

My methodology here isn't something you could take to the bank, as it's based some qualitative factors and judgements, and I might not have been spot on in how I categorized some sales. (See below the chart.) But the implications if, in fact, my trend spotting is correct, are significant. Second home sales have dropped off far more sharply than primary or investor sales. In fact, primary or investor purchases seem to be chugging along quite nicely. (One important consideration is that primary and investor sales could have been subdued in 2006 due to higher prices.)

A note about methodology: There isn't a check off in the Multiple LIsting Service for whether a sale is for a primary residence, a second home for personal use, or for investment. So I went through the 138 sales for the latest 3 month period and made my best guess based on a few factors — in town or out of town setting, house style, parcel size, lake or vacation development, condition and financing type (e.g. FHA financing can only be used for an owner occupied primary residence.) By my guesstimate, only about 32% (or 44) of the 138 total sales appeared to be second homes. When I looked at a similar sample from 2006 (two years ago), the second home segment of total sales seemed to be about 44%.

All of this adds up to a market mix very different than it was two, or even one, year ago, which has a major impact on market dynamics. Second home buyers are decidedly less prominent, and the ones who are in the market are definitely more price conservative, both factors contributing to the downward slide in prices.

However, most of the closed sales data through Oct. 31 reflects buyer behavior prior to the Lehman bankruptcy on Sept. 15th, widely viewed as marking the start of the economic crisis. After September 15th through mid October there was a dramatic fall off in buyer activity here, during what is traditionally our busiest season. For a month, my phone pretty much stopped ringing. Most folks, myself included, seemed to be in economic shock. While the impact of that month long black hole won't be reflected in real estate sales numbers for a month or two, there is some proxy data already in for October that doesn't bode well. October auto sales were down 32%. October sales for most retailers were down well into the double digits, with high end stores postings the biggest drops. The National Association of Realtors' Pending Home Sales Index, which tracks sales in contract through September, showed a 16.8% drop in the northeast region from August.

While there were a few deals being made during that "black hole" month, for the most part I think buyers went into a holding pattern. Since mid-October, activity has started to pick up again, but it's hit or miss and seems very much related to the tone of the most recent economic news. When the stock market plunges and the news is particularly bleak, there are fewer calls and emails; a good stock market week, more calls. A lot of the folks I'm talking with, and going out with to see property, are more in a shopping mode than a buying mode, getting the lay of the land and seeing what's available. Many have indicated that they are definitely interested, but want to wait until they see how things play out in the economy.

The timing is actually pretty good to go into a lay low mode. Traditionally, real estate activity (here and elsewhere) slows to a crawl from mid-November until after the holidays. In January, we'll have a new president and (hopefully) some new economic policies. We usually have a second "shoulder season" from mid January to mid March, but that will probably be very slow as well, as I expect there will be much less bonus money floating around Wall Street. My hope is that new economic policies will kick in by spring that will shore up consumer confidence in time for our summer selling season.

Sellers, Asking Prices and the Inventory Picture

Inventory has been dropping, with 1,112 single family homes on the market at the beginning of November compared to 1,196 at the beginning of October. Traditionally, inventory begins to drop seasonally here starting in October, but even so, there are 4% fewer homes on the market now than a year ago. In the second home sector, selling, like buying, is often discretionary, and a number of sellers have taken their houses off of the market for the winter or rented them out, waiting to see if conditions are better next year. Some pundits have predicted inventory bloat from foreclosures, but that isn't happening. Less than 3% of the inventory in the Sullivan MLS is listed as "bank owned." While not all foreclosures are MLS-listed, that number does seem to jive with that I'm seeing on RealtyTrac and Foreclosure.com, so I don't think the total of listed and non-listed foreclosures is more than 5% of total inventory.

There has been a continuing, if slow, downward movement in seller asking prices. This month, the median asking price in the Sullivan MLS dropped 3% to $210,000 from October's $217,000. The average dropped less than 1%, to $282,482, down from $284,590 in October. There is tremendous seller price resistance to the new pricing reality. On the 1,112 single family homes on the market, 576, or 51.7%, have had no price reduction since being listed. Another 246 have had price reductions less than 10%. That adds up to a total of 73.5% of the inventory with no price reductions, or reductions of less than 10% since being listed. Of the total inventory of 1,112 houses, 423 have been on the market for longer thanm 180 days. Of that group, 28% have had no price reductions, and 25% have had price reductions of less than 10%. These statistics, frankly, are shocking to me, in a market where price and value are the prime considerations among buyers.

In the past month I've gotten a few calls from listing agents to tell me that the seller of a particular house doesn't want to lower the asking price, but asked them to call around to agents to let them know they are very motivated and would take considerably less than their asking price. I don't understand that logic — it's based on the hope that there will be one buyer out there who falls in love with their house and will pay close to their asking price. When sellers don't their asking price, they're literally surfed over by buyers doing internet triage looking for the best values.

Amid this massive swirl of unrealistically priced listings is an oasis of rationality and good value. I'm seeing some things come through that are getting my attention — an Emerald Green lake rights 3BR for $199,000, a contemporary foreclosure near Bloomingburg for $194,900, a 3 bedroom lakefront at Walker Lake in PA for $379,000, a renovated farmhouse on 85 acres for $699,000, a log-sided 3 bedroom on 2.5 acres with lake rights for $275,000, a 4 bedroom renovated farmhouse on 4 acres for $299,000 and a nicely set village colonial for $199,000. These may not be "bargain hunter" priced, but their definitely well priced enough for me to sit up and take notice. And there are others, but definitely a small segment of the market. I would venture that less than 15% of the available inventory is priced in a value range to motivate a buyer to buy now.

A year or two ago, a house would make a buyer's short list if they went away thinking "What a beautiful (view, house, setting). We love it." Price, of course, was a consideration but secondary to the love. Today, the number one perception a buyer has to walk away with is "Wow, what a great deal." Unless a house hits a triple home run — and almost none do — it really doesn't matter how much they love the house. If they don't see it as a great value, they'll wait until a better value or a better house comes along.

The Appraisal and Financing Picture

The financing picture has been improving since mid October. Last month, rate quotes for 30 year conforming fixed rate loans were swinging wildly in an 80 basis point range from about 6.4% to 7.2%, with some banks unwilling to rate lock for longer than 30 days. Rates seem to have settled back into the mid 6% range, with banks able again to lock in longer rate commitments. The mid 6% range is the fulcrum that rates have been moving around for the past two years, so there hasn't been a significant reduction in affordability from a rate standpoint. That changes, though, if rates move into the 7% range and stay there.

Loan qualification is certainly tighter than a year ago. Buyers need good credit history and actual cash to put into the deal. The days of 0% down mortgages are pretty much over. For second home buyers, banks are looking for a 20% down payment, with the possibilty of a 10% down payment with PMI (private mortgage insurance.) Down payment requirements can be less for primary home buyers. Because of the tighter credit and down payment requirements, a number of primary home buyers are turning to FHA and VA loan guarantee programs. For the 3 months ending Oct. 31 st, 16 of the 138 sales were FHA or VA. Now, that may not seem like much, but a year or two ago we did almost no FHA or VA sales. (If you meet the credit requirements, an FHA loan may only require a minimum 3% down payment.)

The big kahuna issue, though, is the appraisal. While credit availability may be loosening a bit, appraisal and underwriting standards aren't. Underwriters only want to see appraisal comps less than six months old. (Previously there has been a 12 month window). That presents enough of a challenge because of the seasonality of the business, but may become insurmountable if sales drop. For example, lakefront sales traditionally drop off during the winter, and they were pretty soft to begin with this summer and fall. So, say I have a buyer next April who wants to buy and finance a 3 bedroom lakefront house on Swinging Bridge with a purchase price of $450,000. The last comparable sale may have been 8 or 10 months before. It will likely be impossible to find 3 comps within 6 months. The problem is compounded by new appraisal guidelines that prohibit anyone on the selling side (loan officer or real estate agent) from having any substantive contact with an appraiser, many of whom — under the new :blind" appraisal ordering protocols — are not from Sullivan County, and may not have local market knowledge or data.

What Does This Mean for You as a Buyer?

Believe it or not, I think this is a very good time for some buyers. If you're looking for a good value and aren't too picky, there are some very interesting opportunities. True, the vast majority of sellers aren't that motivated, but there is a small subset of sellers that are — and that's where the good opportunities lie. There are some houses owned by estates. people who've been transferred out of the NY area, or folks in a financial squeeze who are motivated to get a house off their books. But the key to nabbing one of these deals is not being too picky. (See my blog post, "Marshall's Versus Macy's".) An opportunity shopper has to be prepared to accept some trade offs in exchange for a great deal. If you're looking for the perfect "Country Living" house, in the perfect setting, set far off the road with a pond, then opportunity shopping probably isn't for you.

Surprisingly, even though the upper end (above $500,000) is the softest part of the market, I'm not seeing much opportunity pricing in that range. Contrary to what you may think, most of those "better" houses aren't owned by ex-Lehman investment bankers who have to liquidate their non-essential assets to cover margin calls. Sure, there are a couple of folks in that situation, but most upper end sellers have the luxury to sit tight. Only 20 of the 97 houses currently listed above $500,000 have had price reductions greater than 10%. However, if you're looking for better property this doesn't mean you shouldn't look and make an offer.

Keep in mind that a property "priced to move" is probably going to be priced about 15% to 20% below its competition, not 50%. For example, most 2 bedroom lakefront cottages on the market are listed in the low to mid $300's. So something "priced to move"might be listed in the mid to upper $200's to catch attention, but would unlikely be priced under $200K. Even bank owned properties tend to be priced about 80% to 85% of market, so be cautious is something is just "too good to be true." There's a perfect price for most houses on the tipping point between "Wow, what a great deal" and "Why is this so cheap? There has to be something wrong."

If you're serious about finding a good deal, you've got to stick in the market. When great deals do pop up, they tend to sell pretty quickly — even in this market. So if you want a Realtor to keep an eye out for a deal for you, you need to rise above the tide of casual window shoppers and one-off inquirers. Do your research, make a reconnaissance trip to look at property options, and then stay in touch with your Realtor, whether it's me or someone else. A lot of summer shoppers have pulled out of the market, so if you're still in, its important to say so. Calling the person you're working with every couple of weeks wouldn't be a bad idea.

Don't rely just on automated systems, like Multiple Listing automated searches, to keep you informed of deals. Reach out and make a connection with a Realtor. There's a lot of "back story" behind quite a few listings right now. There are a number of sellers who have indicated to their agent that they are "very motivated" and willing to deal. They're OK with their agent putting out the word in the real estate community, but are reluctant to lower their asking price. So, there might be a house on the market at $299,000 that you've scrolled over that may be much more appealing if I told you it might be possible to pick it up under $240,000. Likewise, if you're a cash buyer, there might be a house where a deal just fell through because of an appraisal issue, and as a cash buyer you may be able to step in and make a great deal. None of these sceanrios are reflected in online systems.

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.

David Knudsen
845-468-5710
email: davidk@beechwoods.net

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