Have We Lost the Value Edge?

I'm noticing the market is definitely slower than 3 or 6 months ago. I'd venture a guess that the number of inquiries I'm fielding is down by a third to a half. But I've still been pretty busy with appointments on the weekends since Labor Day. Most people I'm going out with, though, are new to second home shopping and often making their first trip to Sullivan County to check us out. That's been the case for the past few months --- we're one model being test driven along with a lot of others (Pennsylvania, Delaware County, the Upper Hudson, Greene County, even the Berkshires.)

Lately it seems we're not doing well in the second home horse race. Of course, some of that can be attributed to a more widespread buyer hesitancy about real estate in general.  But I'm sensing something more specific to Sullivan —  that many buyers aren't delighted with the values here, and are in fact, disappointed in what they're finding. We Realtors can try to sweep it under the rug with a comment that buyers have unrealistically low price expectations. But at the end of the day, it is those expectations that drive the market.

Three or four years ago, before the start of the "boom", buyers were often blown away by the value they found here. $250,000 got you a pretty nice country getaway, and outside of Chapin and Lew Beach, $500,000 was a huge budget and could buy you the world. Smaller, 2 bedroom lakefront cottages could be had in the $250,000 range, and a nice 3 or 4 bedroom house on Swinging Bridge seldom climbed above $500,000. The occasional lakefront house that sold above $500,000, at York Lake or Black Lake, raised eyebrows.

3 or 4 years ago, there was also an optimism here that's been tempered somewhat. Bethel Woods was under construction, and many believed it would become the summer home of the NY Philharmonic and a huge tourist draw. Casinos were edging closer to approval. Louis Capelli was floating plans for the redevelopment of the Concord. Hotel developers were scouring the county for potential sites, with plans leaked for five star resorts near Roscoe and Livingston Manor. Million dollar plus homes were rising at Chapin. New fancy restaurants were opening in Livingston Manor and Jeffersonville. The 'New Catskills' was on a roll, with Sullivan County at its heart. We even made the covers of magazines!

The psychology here shifted from seeing Sullivan County as a "value" destination to seeing us as a "world class" destination --- a country playground, just 2 hours from one of the wealthiest, more powerful cities in the world. Some of us, me included, saw us as the New Saratoga Springs.

Four years later, all that optimism hasn't borne a lot of fruit. Yes, Bethel Woods is open, and its a spectacular venue. But the expected surge in development related to it hasn't come to pass. There hasn't been a shovel put into the ground for a new resort or hotel. Many of our villages are still struggling. Some of the new restaurants fueled on all that optimism, like Resort in Livingston Manor and Stella's in Jeffersonville, have closed. (To be fair, a number of new restaurants have opened in Kauneonga Lake, an unexpected new center of activity.) And casinos are dead in the water, at least for the time being.

Sullivan County is kind of in the same place we were 4 years ago. We're an idyllic backwater with beautiful natural resources just 2 hours from New York City. We haven't evolved into a New Saratoga or New Woodstock. We still don't have a luxury destination hotel with a spa and restaurant.

We're back to the USP (unique selling proposition) we've enjoyed relative to our second home competition — we're the best value in a country getaway within 2 to 2 1/2 hours of NYC. But we may have lost sight of the "value" part of that statement. I don't know where we need to be, pricewise, to recapture the value crown. But without a slew of world class amenities (like the Lodge at Whiteface in Lake Placid), what we have to sell is value and proximity. Consider lakefront buyers, for example. Lately, a lot of folks looking for a lakefront second home with 3 bedrooms seem to be thinking in the $400's, while most lakefront houses of that size are priced in the $500's. For a smaller cottage-sized 2BR lakefront, buyers seems to be thinking low $300's, while the asking prices for those are more in the high $300's.

I expect things to be sluggish over the next few months, until the uncertainty hovering over the real estate markets settles. But we also need to take a hard look at the value proposition here. We need to bring back the words "great value" on the lips of our potential new neighbors.

Comments

[John]

Appreciation in Sullivan County was out of conrtol since 2001. More than that of NYC and Long Island. All due to speculation in the catskills.
My house was worth 400k in 1987 and might be worth 800k today (double in 20 years).
In sullivan county, land is more than 6-10 times what it went for only 8 years ago.
1000k per acre in 1999 and 6-10k per acre today. Where is the logic in that?
Prices that have appreciated in that fashion similar to Florida and parts of the west will fall much harder and faster in this housing recession.

From a national perspective, we are looking at 5-10 years of housing depression or stagnation similar to 1989-1997. This time it will be a much more painfull decline. A Hailstorm.

By the way, the casino has been coming since 1970 when my uncle was hyped to buy property up there!

[Chuck]

David - any feedback from any of your Chapin customers about the lake of water in Toronto Resevoir? It's pretty extreme for people who spent $800k+ for lake front land.

[Chuck]

Sorry DK - I meant to say "any feedback from any of your Chapin customers about the LACK of water in Toronto Resevoir? It's pretty extreme for people who spent $800k+ for lake front land.

Concerning your 'value' blog, Chapin Estate is a perfect example. In 2002, before the bum-rush success of their lakefront parcels, a family could buy 5 acres of lakefront for $250k, and build with Woodstone for $175/sq ft - meaning a 3000 sf lakefront house could be built for $775,000. That's a far cry from today, with the lakefronts going for $800k and Woodstone charging a base price of $240/sf, meaning a 3000 sf home now costs $1.5m - nearly doubling. Is it any wonder sales are nearly non-existent for the past 18 months? Excerbating this issue is the 4 or 5 Chapin imitation projects that are also charging these new inflated prices - and the market/buyers have responded clearly - they don't want it, or can't afford it.

These leading projects could lead the way to sane pricing by going back to the basics. If they could build a nice house on water for $700k in 2002, why not do it now in order to jump start lackluster sales? The main reason for projects other than Chapin is because they paid too much for the land and development costs, based on optimistic sale price assumptions - and now they have no choice but to charge amounts buyers seem unable/unwilling to pay.

It's pretty clear that Sullivan's real estate success in the past few years is double-edged - because the prices led to unreal expectations, and in the end, are unsustainable.

I don't believe that spells doom and gloom for our local real estate prospects - Chapin, Bethel Woods, Kauenoga Lake, the Racino are all building blocks for the area, and very well could propel and support new businesses - it doesn't seem to happen overnight - but then again the heyday of the Catskills, and the subsequent decline, were decades-long processes.

I know Chapin blames taxes on their lack of sales. Wouldn't it be interesting if it's really just their new and aggressive pricing model? Success can be the most dangerous attribute, as it leads to wishful projections. As they say, past performance is no guarantee of future returns.

[Tony Ritter]

Who knew?

However, you both might get your wish with a late summer / early fall sales push with today's {Friday, September 21 2007} artcle about Bethel, New York in the Escapes section of the New York Times.

The New York Times has now featured our area - and with good reason - in the past three years which has included Callicoon, Livingston Manor, Jeffersonville, Barryville and my home town of - Narrowsburg.

Thank you New York Times.

Entitled:
"Unwinding in the Capital of the Woodstock Nation"

The photo editor at The Times has opted not to showcase lush splendor of Bethel Woods nor a visual pix of the luxe 'The Chapin Estate' as the lead photo for the story - but, however - the reader sees two youngsters frolicking on the shore of a pond (possibly Fillipini's Pond? - where over thirty five ago their parents (possible wearing flowers in their hair - and not much else - might have swum in the pond listening to the tunes of Hendrix, CSN&Y and Ten Years After) - these kids are looking for of all things - FROGS - and without their Ipods!

It's time to get back to the garden.

Kindest regards from Narrowsburg,
Tony Ritter

http://www.nytimes.com/2007/09/21/travel/escapes/21havens.html?_r=1&ref=escapes&oref=slogin

Havens | Bethel, N.Y.
Unwinding in the Capital of the Woodstock Nation

[John]

It is beyond extreme to spend 700K+ for any kind of waterfront home in Sullivan Co.
You can go to the northshore of suffolk county on Long island and find a waterfront home for 650K. And that would be on the sandy sound, not a lake.

[Steve-o]

Great to see another positive article about Sullivan County in the Times, but there's one glaring error. The following sentence would be true about Bethel, Maine, but not Bethel, New York -- that's some lazy Googling!

"There is nature for those willing to walk; the Mount Will and Androscoggin River Walking Trails are among the favorites in Bethel."

[Chuck]

I find when you really dig into these 'special sections' of the Times, they are full of errors, misquotes and exagerations. It's really quite astounding and sort of interesting and distressing at the same time.

[David Knudsen]

I don't think its realistic to think we'll roll back to 2002 prices. But Chuck, I agree, we probably need some rollback to kick start the market, particularly on the developer side. In my opinion, $250,000 for a 5 acre wooded lot without any particular amenities, which is the price point of some developers in Bethel, isn't that realistic. On the bright side, Kenoza Lake has made a few sales, but it seems at prices quite a bit below their original asking prices. A lakefront lot there recently closed at $350,000 and I understand there are a couple of others under contract.

I thought the NY Times article was more accurate than most. The lake house resale they quoted was $925,000 at Black Lake. The author didn't search out and feature something totally unrealistic, like a farmhouse on 10 acres for $250,000, which was the problem with the NY Magazine article a couple of weeks ago. I also thought is was very interesting that Scott at Chapin used $600,000 as the price point for a lakefront lot there. That's probably down a bit from what we would have said 6 or 12 months ago, when the least expensive resale lakefront lot was $525,000 and most were priced well above $600,000. Today there are one or two resales on the Swinging Bridge side priced at $425,000.

The article had some blip impact yesterday, with web visits to my website up about 15% above Thursday. But previously when there's been a prominent article about Sullivan County in the NY press, the short-term blip impact has been much greater, with 30% to 40% jumps in visits for a few days. In fairness, my website isn't optimized as well for a search on "Bethel, NY Real Estate", compared to other Sullivan County real estate terms. So other brokers may have seen more of a jump. While the article is certainly positive, I don't think it had people rushing to their computers to search for Bethel real estate before its all gone.

I have a personal parallel. Many regular readers knew I was in the process of buying a coop in the Bronx, in the Kingsbridge Heights section around 231st and Broadway. A week ago, I was rejected by the coop board. Turns out they don't want a "pied a terre", or a second home owner. (I was the second applicant rejected on this apartment; the seller is upset, to say the least.) The broker practically pleaded with me to appeal, but I decided to let the deal die. I just didn't have a great feel about the whole process. Then this week. Time Out had an article on the up and coming neighborhoods outside of Manhattan. The upper Kingsbridge Heights neighborhood in the Bronx was #2 on the list. I went into a mini-panic, thinking I should try to resuscitate the deal, that I'll never be able to find anything at this price there again, that its going to be so hot the neighborhood will defy all the other real estate market indicators. That may be so, and if I decide to pursue something in that neighborhood in a year I may pay more than I would today. But the article along wasn't enough to move me over the line. I perceived a minimal downside to waiting. I think the same is true of the NY Times article and Bethel.

[Chuck]

DK - to clarify - I don't think prices on most of SC real estate should/will roll back to 2002 prices - I used Chapin as an example because those prices were extremely aggressive at the time. So while the general market doubled from a pretty affordable starting point, Chapin's prices more than doubled from a very expensive starting point - and a lot of Chapin imitations followed suit.

The point being - as you have said many times - how big is the $1m+, custom home market in SC? Could these big development projects help themselves and the County's growth at the same time by understanding the market better instead of waiting around for their wishful thinking assumptions to bear fruit?

There is a big difference between a $700k second home and a $1.5m second home, and the truth is - most of these projects that are currently stalled can make money at both price points - although perhaps not enough to cover the inefficiencies and structural overhead quick success can create.

Whether it be Chapin, Bethel Farms, or the Highlands - 5 acre non-lakefront land in these projects should be priced under $100,000. I'm not sure if being behind the gate (with few other amenities or advantages) should enable land to be priced 3x higher than the market in general.

As a buyer's agent, I'm sure you have trouble recommending non-lakefront land in these projects - which is bad for everyone.

[John]

A terrible position for the 400 realtors in Sullivan co. Many jobs to be lost over the coming year. The recession is going to be like a giant Katrina rumbling through quietly and taking with it people's hopes and dreams of making a decent living.

[Chuck]

John - there's medicine you can take.

[John]

http://www.nytimes.com/2007/09/27/business/27cnd-econ.html?hp

[David Knudsen]

I wouldn't be surprised if we see a 25% drop in Realtors here over the next year. There are 3 times during the year when a Realtor has to put out real money to continue in the business. During the 1st quarter of 2008, Realtor membership dues are payable. On July 1st, the annual fee for their Multiple Listing membership is due. And sometime during the year, just like your car renewal, they have to renew (and pay for) their real estate license. If you're a member of more than one MLS, or are licensed in both NY and PA, those fees and memberships can add up to well over $1,000. At any of those payment points, we're likely to see drop offs and shrinking of the Realtor ranks.