In other parts of the country, there are very tangible factors contributing to the real estate downturn. In the south, particularly in Florida, investor/speculators who put hefty downpayments on unbuilt condos and houses are looking to dump them. Builders are flush with unsold inventory and slashing prices to make sales. In the south and west, stretched borrowers who bought houses in ever expanding cookie cutter suburbs with risky mortgages under the assumption that house prices would climb skyward forever, are losing their houses to foreclosure. Those foreclosure sales are starting to drive neighboring property values down. In the northeast, foreclosures will also start to take a bite, as adjustable rate mortgages reset and owners find they can’t meet the payments. But New York may be a bit more immune, because this state traditionally has a lower rate of ARMs and negative amoritization loans than places like Georgia or Florida, and New York has already put in place a mechanism through SONYMA (the State of NY Mortgage Authority) to aid threatened homeowners and keep them in their homes.
For the most part, the factors that are creating panic in some areas of the country just aren’t at work here. There isn’t a a high percentage of speculator and investor participation in this market, or at least not at levels that would encourage dumping. There’s been very little speculative building, and almost no large developments where builders have a lot of unsold inventory of houses to move. (Although there are a number of developments with unsold land parcels.) Sullivan County is a large second home market, and second home buyers don’t tend to be subprime borrowers. In fact, almost every deal I’ve done in the past 6 years has been with very traditional conventional financing, with qualified borrowers at fixed rates. Second home owners from the city are likely to have assets outside of their Sullivan County home they want to protect, and are unlikely to risk foreclosure. I just don’t think we’re going to see a lot of foreclosure activity in the Sullivan second home market.
If financing wasn’t available, or rates were sharply climbing, that would be a big brake on the market. But that isn’t happening, either. Mortgage rates have dropped about 30 basis points since they peaked during the crisis in mid-August, and the spread between conventional conforming and jumbo mortgages has narrowed to about 60 basis points, still higher than the 25 to 30 basis point spread last year, but about half the spread during the spike in August. While rates have dropped, underwriting requirements are tighter. You actually have to be able to afford a house now before a bank will lend you the money for it!
The economy in our mothership, New York City, continues to be stable and robust. There hasn’t been any widespread drop off in employment or income. The coddled Wall Streeters may not walk home with the same multi-million dollar bonuses this coming January, but they aren’t a significant part of this market except for the very upper end. Sullivan County is traditionally a middle class market, not really driven by Wall Street bonuses.
If you look at the likely Sullivan County second home buyers, they haven’t changed a lot, either. 30-somethings living in cramped New York City apartments haven’t stopped having children. Mountain bikers and fly fishers haven’t had a sudden mass lifestyle shift to opera and stamp collecting that would keep them in the city. And there isn’t any indication that New York City will become cooler and less stifling in the summer, or that there’s going to be a mass exodus from the city that will miraculously reduce crowds and congestion. If anything, the ‘green’ trend will continue and that’s good news for Sullivan, with clean air, open spaces, clean water and locally grown vegetables.
When I put at all of this together, and look for the reasons for a real estate market slowdown here, the only thing I come up with is psychology. Buyers are just nervous about buying real estate. And who can blame them, with all the negative news reports. I think it will take a few months of stability to reinstate buyer confidence, and that may take some time.
Interestingly, the market here is much slower, but it isn’t dead. I’m aware of quite a few deals on interesting properties at a range of prices, from under $200,000 to over $1 million. While properties selling across that range aren’t at all similar at first glance, they share two important qualities. They all have something compelling or interesting about their setting, whether privacy, view or water. And they are all well priced for what they offer. While prices on some of these houses may fluctuate in the short term, they all have that ‘something special’ that gives them long term staying power.