Sullivan County Real Estate

Clarification on my Bethel Comments

Today's Times Herald Record carried a story, "Plenty of Property Owners Have Bethel Woods Fever', reporting on the high prices may owners are asking for the properties in the Bethel Woods vicinity. In that article I was quoted as saying, ""I have been telling a number of clients to shy away from Bethel," Knudsen said." Needless to say, I've heard from a number of my colleagues this morning about that comment.

Like many sound-bite quotes, it was a bit out of context. In talking with the reporter, I said that when I have clients looking for the "farmhouse on acreage" country getaway for their own personal use, they'll generally get more for their money if they look somewhat away from Bethel because many sellers near Bethel Woods who have property with acreage have been pricing them for investors, spectulators and subdividers, not for owner-occupiers. I didn't say that everything in Bethel was overpriced and a bad value and that buyers should wholesale avoid the township. But I do stand behind by generalization that folks looking for that quiet country getaway on acreage may find better values elsewhere, where there isn't the 'Bethel Woods' fever.

Otherwise, I thought that the article was pretty spot on. Sellers have the right to ask whatever price they want for their property. And I have every right, and yes, the obligation when I represent buyers as a buyer agent, to say I think a buyer can do better elsewhere.

Need Mortgage Financing? Use a Lender with a Local Presence

Over and over, I implore my clients to use a lender with a local presence. That doesn't necessarily mean a local lender, like First National Bank of Jeffersonville, but does mean using a lender with loan officers located in and regularly servicing this county, like Wells Fargo and HSBC. But buyers are often enticed by the seemingly lower rates offered by online lenders like LendingTree (Banks compete, you win) and eLoan. But in the end, you get what you pay for ... or don't get.

Let me give you a case in point. A friend called me today and said they were working to refinance their house with LendingTree. LendingTree said the appraisal came in low, and they couldn't finance the loan at the great rate that they promised (and my friends paid a hefty application fee to lock in) because the appraisal didn't support the value, but they could probably finance the loan with PMI (private mortgage insurance), adding 1/2 percent to the cost. I told my friend that I would be happy to take a look at the appraisal report and  look for any comps that might support the value. (By the way, the appraisal value that they're seeking for the loan is very appropriate. This is not a case of pushing value.) LendingTree refused to provide the appraisal, but said they could forward any other comps to the appraiser to "review". But that those comparable sales needed to be within the last 90 days. Wow! A 90 comp requirement is really short, particularly in an area where in the WHOLE COUNTY we only sell about 800 houses a year or 200 houses a quarter! Basically, I think my friends should just throw in the towel with LendingTree, lick their wounds and move on to another lender. By the way, the loan officer handling their loan is in California and doesn't know Sullivan County from Westchester.

One of the things about working with a lender with a local presence is that they understand that we are a low density rural area with low sales volume. While nationally their companies may impose stringent time and distance standards for comps, they all have developed relationships with their underwriting departments and educated them about the relatively low volume of sales and the need to loosen comp guidelines. Note that this is NOT the same as loosening guidelines for creditworthiness, which should be applied the same across the board. (The ability to repay the loan is the same in Scarsdale as Swan Lake.) Lending officers who are local can work with their underwriting departments to appropriately evaluate appraisals in a low density rural area to help qualified borrowers purchase houses that are appropriately priced.

In these uncertain times of tight credit and nervous mortgage investors, borrowers need an advocate for them who understands the local market, and not just a friendly sales voice at the end of an 800 number who has to use Google maps to find out where we are.

The Mortgage Crisis - Another Ripoff from Wall Street?

The mortgage meltdown has been front page news for the past couple of months. I've tended to ignore most of the news, thinking it related mostly to subprime borrowing and overheated and overbuilt Sunbelt markets. But this past Sunday there were 2 eye opening articles in the Sunday Times. On the front page, there was an article "In a Spiraling Credit Crisis, Large Mortgages Grow Costly." That report discussed the impact of tighter credit on "jumbo" mortgages — loans above $417,000 that don't confirm to Fannie Mae's guidelines and therefore can't be sold to the Federally chartered mortgage enterprises, Fannie Mae and Freddie Mac. "Jumbo" mortgages are traditionally packaged into mortgage backed securities that are sold to investors, but don't have the government's backing. Investors are running for the exits on these riskier, non-government backed securities. As a result, the rates on these jumbo mortgages have been climbing sharply. This week, the spread between the rate on conventional conforming mortgages and non-forming "jumbo" mortgages has risen to .75 to 1%, up from a spread of .25 to .375. And that spread could grow. And as investors are requiring much more stringent lending guidelines on these non-government backed mortgages, the spread could get much greater. If the availability of mortgage money for large home loans becomes tighter, and the rates higher, this could have a significant impact on buyers — and demand — in the upper end market, particularly in the more discretionary second home sector.

The more disturbing news was buried deeper in the paper, in the Week in Review section. An article there, "Zero Down: The Loan Comes Due" and a companion piece, "Housing Busts and hedge Fund Meltdowns" delved into the ramifications and mechanisms of mortgage backed securities. Its a sobering article about how riskier loans with little down were made to borrowers who couldn't afford them, how Wall Street packaged those loans into mortgage backed securities, and in the cruelest turn, how Wall Street financiers repackaged the riskiest slices to resell them as higher rated "collateralized debt obligations." The big winners in this, or course, were the investment bank wizards who figured out how to do it and skimmed off huge fees for doing so. The mechanisms are too involved to detail here, and unfortunately the archived articles are in the Times Select paid section of nytimes.com, so I can't link to them from here. But if you still have last Sunday's Times and didn't read the article, dig it out of your recycling bin. It will certainly make you wonder, "Where was the government and the regulators in all of this?" I expect that, in the end, the mortgage 'crisis' will take its place next to Enron and Worldcom as yet another poster child of the "business run amok" legacy of this laissez faire, pro business adminsitration.

(Correction Aug. 17: I just had a long talk with a friend who is very familiar with the structure of mortgage backed securities and the mechanisms of that market. He commented that the NY Times article wasn't technically correct, that the 'Collateralized Debt Obligations" derived from mortgage backed securities don't whitewash the risk of subprime mortgages that are packaged into them. His take is that the purchasers of C.D.O.'s and the riskier slices of mortgage backed securities are were sophisticated investors, well aware of the risks --- and were paid higher rates of return for assuming higher risk. That, frankly, is the basis of risk-based pricing, to offer higher returns for higher risk. And sometimes those riskier investments tank, like mortgage backed securities backed by subprime mortgages. And the investors in those securities knew what they were getting into, and agreed to assume that risk in exchange for a higher rate of return.)

For the past few months, I've looked at the real estate market through a traditional lens of supply, demand and affordability — and from that perspective things looked pretty good in New York. But this recent shift in the ground in mortgage availability and pricing adds a whole new wild card to the mix. I don't have a crystal ball about what the ultimate impact will be. But we could end up with a very divided market — split at that magic $417,000 threshold for conventional conforming loans that come with Fannie Mae's blessing and backing. If availability continues to tighten and money becomes more and more expensive, for larger, non-conforming "jumbo" loans, that could have a more pronounced negative impact on more expensive properties at the upper end, over $500,000. 

July Sales Data Posted

Sorry, folks, that I'm a little later than usual this month with my "Current Market Conditions" report. I was on vacation last week. But the data and my usual opinionated analysis is now posted. Please check it out and then come on back here and add your own comments about what's happening in the Sullivan County real estate market.

Kinda Quiet Here on the Western Front

An eerie quiet settled in a couple of weeks ago. Realtors here in Sullivan County often point to an August lull, but if its the seasonal lull, it started early. (August is generally a slow month because of end of summer vacations the first couple of weeks, and the ramp up to getting the kids ready for school the last couple of weeks.) I'm fielding some calls and emails asking about  properties, but have had very few appointments. A few calls in the last couple of weeks have been from folks looking to head up at the least minute to look at properties — without much preparation or advance notice. In my experience, that tends to indicate more casual looking rather than serious buying interest.

Whenever I mention to colleagues that things seem very quiet, I usually get the response, "David, you always say that, and then in a week or two, you're out of your mind busy." But I gotta say, this feels different. Its July (now August), when we typically see a fair amount of buyer traffic. For the past few weeks, real estate has been at the top of the news, and that news hasn't been great on a macro national level. The stock markets have also been unsettled. With a lot of uncertainty in the air, people may just be holding and waiting.

But whatever the reasons, the weather's been great and the phone ain't ringing.