Making predictions about Sullivan County real estate is a fickle folly. In 2015, I didn’t expect the rash of lower end investor buys during the 1st quarter following the casino announcement that drove the second quarter median and average sales prices through the floor, the frigid winter that largely killed the early season second home market or the late year buying surge that pushed end of year sales volume through the roof. But the fact that I wasn’t on the mark in 2015 won’t keep me from making a stab at predictions for 2016. The big question is whether prices, which dropped about 10% in 2015 over 2014, will climb in 2016.
My gut feeling is yes, prices will climb, but not necessarily in all sectors across the board. There are some key market sectors where inventory is very low and demand is high, and in these sectors we’ll likely see prices rise. Tight inventory sectors include moderate priced lakefront houses in the $300,000 to $400,000 range, farmhouses or country charmers on a few acres in the $200,000 to $250,000 range and smaller cottages or cabins under $200,000. Over the past few months, there have been bidding wars in all of these segments, and good houses that have come to market have generally moved very quickly.
A key metric is the number of sales that closed above asking price. In 2014, only about 5% of sales were at 101% or more of asking price. In 2015, that number doubled to almost 10%. The “bid to ask” ratio, which was 89.9% in 2014, rose to 91.7% during the 4th quarter of 2015. This is still well below the 94-95% bid-ask range we saw during the run up to 2008, but given that it’s moving up and not down, it’s another indicator of price firming.
Sellers, though, should be cautious about expecting price increases across the board. Even in key demand sectors, there will be some winners and losers. In the moderate lakefront category, for example, demand is much higher for houses with 3 or more bedrooms than for 2 bedrooms. Sellers of two bedroom houses will need to sharpen their pencils. Likewise, the farmhouse and cottages that will get top prices are ones with good settings, in good condition, with original detailing.
While the moderate and affordable range of the market has been very active, the upper end of the market is still soft. In key sectors under $400,000, demand is outstripping supply, but move above $400,000 and that equation starts to reverse.
We’re unlikely to see skyrocketing prices even in key demand sectors because of two factors. First, lenders are very conservative. If they’re not seeing strong value support, they’re not making the loan. Buyers are also more cautious. During the frenzied run up to 2008, when prices were climbing by 10% or more a year, buyers were often willing to pay well above appraised value, expecting that the value would ‘catch up’ in a year or two. Today, though, even in a multiple bid situation, the spread between the winner and the losers is often only a few thousand dollars. I’m not seeing buyers pulling out all the stops to blow other bidders out of the water.
So what’s my prediction? In segments with high demand and low inventory (i.e. lakefront under $400,000, charmers under $250,000, cozy-sized cabins and cottages under $175,000), expect to see modest price increases. A good lake house that may have sold in 2015 for $350,000 may fetch $380,000 to $400,000 in 2016. I also expect fierce competition in the sub-$200,000 charmer market to push prices higher in that sector as well. The wild card in all of this, though, is whether the anticipation of higher prices will encourage more sellers to list their houses, which could balance out the supply and demand equation, and temper prices. I think the most interesting sector to watch will be between $400,000 and $500,000. There are quite a few good properties listed between $500,000 and $650,000 that didn’t find buyers last year, not necessarily because they were ‘overpriced’ per se for what they offered relative to lower priced properties, but there just wasn’t much buyer demand in that range. I expect that some of these sellers will throw in the towel and sharply cut their asking price. That could encourage $400,000 range buyers to raise their ceiling and consider those properties — which could result in a more active market in the upper $400’s to lower $500’s.
But only time will tell. I think 2016 is going to be a very interesting year for Sullivan County real estate.