Sullivan County Real Estate

Sorry, I Can't Help You At That Price

Recently I've been engaged in a not-so-pleasant tug of war with potential buyers. I've gotten quite a few emails or calls over the past few weeks from potential buyers who are very specific about what they're looking for, and even more specific about what they're willing to pay for it. Now, that's not so uncommon. What is different is that the "what they're willing to pay for it" is so low, and they're so confident that's the right price.

A few days ago I got an email from someone I've been casually communicating with for months. She's looking for a good lakefront house on a nice, large lake --- with an absolute firm price cap of $350,000. The tone of the email was "We're savvy buyers and we know there are lakefront houses on the market in this price range and certainly more to come with the slowing market." With a firm price ceiling of $350,000, a buyer's target price is more likely $300,000 to $325,000. Now, I'm pretty familiar with Sullivan County inventory, particularly lakefront, and I'm not seeing any good lakefront houses with asking prices in that range, or even somewhat higher that are likely to sell in the low $300's. That's now to say that in 6 months or a year we won't see that - I don't have a crystal ball. But right now I don't. Yes, there are a few 'lakefront' houses on the market in the low $300's here. But they're listed at that price because they're have some factor that's less appealing, or they're on a lake that's less attractive. But this buyer is absolutely convinced that $350,000 is the absolute market value for a good lakefront house here.

I don't believe this particular potential buyer has been to Sullivan County, or seen our different lakes. They're internet shopping, and forming their opinions. But anyone who knows our lakes knows that Amber, Weiden or Mohican are VERY different than Wolf or York or Tennanah. A house at Wolf Lake would likely sell for 50% more than a similar house at Amber Lake. Just like a 2 bedroom coop in Chelsea is more expensive than a 2 BR coop in Riverdale.

I emailed them back and said, "Sorry, I just can't help you at that price." Now, there are some interesting lakefront houses that are priced from $400K to $450K that might sell for slightly under $400K. But I don't think they'll sell for under $350K. Should I send them the listings with a come-on that maybe we can get one for under $350K, spend my time and gas running them around to look at them?

Another potential buyer recently emailed me a property listed at close to $1M. He'd done a calculation, based on square footage and cost per acre, and said that he thought the house should be priced at no more than $550,000 - and would I please email him some similar properties for him to consider that I think should sell for that $550,000. Now, I do think the property he sent, which is listed at $975,000, is priced somewhat high. I personally think it should sell in a range of $750,000 to $800,000, based on the view (pretty fabulous), setting (very private) and house (4,000 sq. ft., quality construction.)

But that potential buyer had somehow determined that house wasn't worth any more than $550,000.

These are extreme examples, but I've had a number of contacts with potential buyers lately that are similar in tone. Basically, they've decided what they want and what they want to pay for it with little or no 'boots on the ground' experience with this market. Many have never even been to Sullivan County, and have no idea of the difference between Woodbourne and Jeffersonville or between Mohican Lake and Swinging Bridge.

Where are people coming up with these value numbers? If I called a broker in the city and said I wanted to buy a one bedroom in Chelsea for a maximum of $250,000, they'd hang up on me. If there's a severe market turn in the city over the next couple of years, that might be realistic in a couple of years, but it isn't now. Anyway, real estate doesn't rise or fall in huge increments in 24 hours like the stock market. In a slowing market, a one bedroom in Chelsea listed for $600,000 might go for $550,000 or even $525,000, but it will take time for that to drop to $400,000 or less, if it drops there at all. Likewise, a modest $400,000 lakefront house might sell for $375,000 or $360,000, but not likely at $300,000 or $325,000.

I'm used to working with people who have budgets, and helping them understand the trade-offs. Commonly I hear from potential second home buyers who are looking for a charming farmhouse around $200,000. Now, when you search on the internet, you'll find a bunch of them here in Sullivan County, priced from, say, $175K to $225K. But in that range, they're often are 'locationally challenged' --- on a busier road, in a village or with close neighbors --- or have low ceiling heights (common to many older farmhouses, but the kiss of death to value.) I try to be honest about the downsides and tradeoffs of the houses people find on the internet and email me. Sometimes I feel like a crumudgeon and a Scrooge, but I've been out with hundreds of people over the years and think I have a pretty good idea of what a lot of people, particularly second home buyers from the city, are looking for.

Particularly when buyers are on a tighter budget, my job is to help them understand and prioritize the inevitable trade-offs -  privacy, house style, quiet location, whatever. I was out with someone earlier this week who gravitated - on the internet - to houses in classic styles with 'charm'. But in her price range, most of those were 'locationally challenged'. Before she came up, I told her I'd like to include a few other houses in different settings that might be in a style she didn't necesssarily resonate with, but the settings might be more appealing to her. We even swung by a couple of vinyl sided ranches. At the end of the day she had a real good grasp of the trade-offs. I didn't show her more expensive houses to get her to up her budget, but rather a range of options within her budget. As she was leaving to drive back to the city she said "I understand that in my budget range I have to make trade offs. But what I'm really excited about is how much I saw that I really liked, and places I might not even have considered."

I felt great. I'd really done my job, and she'd let me do it. She may or may not buy a house right now but ultimately I think she will. Its so different than those folks who have something so set in their mind, in terms of house and price, and don't let me do my job.

Lately, I've been emailing them back and saying "Sorry, I just can't help you at that price." Because I realize I'm in this business to help people find houses, not just deals. If all you're looking for is a deal (and don't get me wrong, I'm pretty good at sniffing them out), then I'm probably not the guy for you.   

Forestburgh Set To Take Off?

Look at Forestburgh township on a map of Sullivan County, and you'll notice its one of the least developed townships, crisscrossed by the fewest roads. Its western flank is bordered by Swinging Bridge reservoir, and thousands of acres in the east are parts of state wildlife areas. Hartwood Road and Oakland Valley Road, running east to west across the southern part of Forestburgh, rank among some of the prettiest (and least developed) roads in the county.

Forestburgh has been kind of a Sleeping Beauty, while fancier developments took root further north in Bethel and further west towards the Delaware River. Over the past few years, the locus of activity has quietly shifted to the Bethel area, with Bethel Woods and the string of new restaurants on Kauneonga Lake.

That may be about to change. The Japanese Heritage Foundation has announced plans to revive the Sho Fu Den, a replica of the Imperial Palace in Kyoto, Japan that was brought to the site in Forestburgh after the 1904 St. Louis World's Fair. The palace and gardens will be the centerpiece of a 195 room garden inn and spa with a Japanese theme.

But that's nothing compared to the plans by Double Diamond Resorts for a 2,200 acre site off of St. Joseph's and Cold Springs Road. Double Diamond (www.ddresorts.com) is a developer of upscale golf communities, with 4 communities in Texas and one in Pennsylvania. Double Diamond closed on the property in late August or early September, and has been in discussions with the Town of Forestburgh regarding its plans.

Both Sho Fu Den and a Double Diamond community are likely a few years off, but are both exciting projects. And the Drive and Race Club, the "race car country club" planned for the old Monticello Airport (north of Lake Joseph and not far from these 2 Forestburgh projects) is well off the planning boards with a scheduled opening sometime in 2008. This could shift the locus of excitement in the county to the band between Route 42 and Cold Spring Road south of Monticello.

It All Comes Down to Psychology

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.

NAR Sept. Sales Data Paints Bleak Picture

Yesterday, the National Association of Realtors released the national and regional Existing Home Sales data for September. (Click here for the data) and the results were worse than most analysts were predicting. On a seasonally adjusted basis, sales dropped 8% from August to September, and were down 19.1% on the a year over year basis. For the first time since sales started dropping earlier this year, the Northeast led the month-to-month drop, with 10% fewer sales in September than August (on a seasonally adjusted basis), edging out the West with its 9.9% drop. However, on a year-over-year basis, the Northeast is still doing better than the other 3 regions, with a 13.5% sales decline versus 16.2% in the Midwest, 18.7% in the South and a whopping 27.8% in the west.

On the price front, the median sales price was off 4.2% from a year earlier, with the Northeast actually eeking out a 0.5% increase. But the $261,700 median sales price in September reported in the northeast is off 10.7% from the peak reported in June, 2007. NAR's price reporting has more seasonal variation because its not seasonally adjusted.

NAR largely attributed the large Sept. sales drop to the mortgage crisis in August, and the difficulty of buyers to get mortgage financing. There is certainly  truth to that. Since August, the mortgage markets have stabilized and credit is more readily available.  But with or without a 'mortgage crisis adjustment', the numbers are pointing to a trend I've definitely been seeing here in Sullivan County, that a lot of buyers are waiting it out.  The fall has been very slow relative to the past couple of years.

One very interesting difference, though, between Sullivan County and data being reported by NAR is inventory.  Nationally, inventory is up 28% from 2006 levels, but here in Sullivan County the inventory is about the same, around 1100 houses on the market.

Bad News on Prices Coming

For months, amidst all the real estate doom and gloom, I've been surprised that Sullivan County has held so steady, with no marked year over year price declines. That's about to change. Almost every broker I know here has been commenting about how slow business has been since sometime in August (when the mortgage crisis news peaked). Because of the time lag between buying activity and closing, that August slippage will just start showing up in the October closed sales numbers.
Every month I take a preliminary peek at the closed sales data about 10 days before the end of the month, to see where it looks like we're heading. As many of you know who read my monthly Current Market Conditions report, I do 3 month running statistics due to the small sample size here rather than single month snapshots. Unless some big spenders close on a lot of higher priced properties between now and Halloween, the median sales price for the 3 months ending Oct. 31 may drop below $170,000 for the first time since April 2006. (Right now, for the almost 3 months from 8/1 to 10/20, its at $169,000). That's a 10% drop from last month's $188,950 median. In looking at single month data for September and October, the median will likely trend lower, into the upper $150's, a price we last saw in June 2005.
You can't extrapolate these price moves to individual properties, because there seems to be a shift in what people are buying. People who are contacting me about houses are definitely looking at more moderate price points. In the last month, for example, most inquiries for lakefront houses I've gotten have had a price cap of $300,000 — which at current pricing levels is not that realistic. Likewise 6 to 12 months ago, the most common price range for a second home buyer was around $300,000. Now I'm getting a lot of requests around $200,000.

Activity Up This Week

Since Sunday this week, web visits to this website have been up around pre-August (e.g. the onset of the dismal real estate news) levels, after showing drops of 15 to 20% for the past 5 or 6 weeks. Property searches on the MLS search section of this site are also back up, and since Monday I've been fielding a lot of inquiries about properties. Of course, this doesn't necessarily translate into sales. But its certainly a positive sign that there seems to be a return of interest.

House Passes Change to Second Home / Primary Home Tax Treatment

HR 3648, the  Mortgage Forgiveness Debt Relief Act of 2007, has one of those "Mom and Apple Pie" bill titles that Congress is so fond of. Basically, the intent of the bill is a good one. Under current tax law, if a homeowner who faces foreclosure has some of the debt relieved by a lender, the amount of that debt relief is treated as income (whether its part of a foreclosure or a loan modification.). The Mortgage Foreclosure Debt Relief Act would eliminate the treatment of that debt relief as income.

But the loss of that tax revenue has to be made up somewhere, right? So embedded in the bill (which passed the House 386 to 27) is a provision that would modify the capital gains tax forgiveness on primary homes. Currently, a married couple can exclude up to $500,000 in capital gains on a house if it has been their primary residence for 2 or the past 5 years. HR 3648 would tie the size of the exemption to the number of years a home is  used as a primary residence. The change is forecast to raise $2B in taxes. Declaring that one of your homes has been a primary residence for 2 or the last 5 years is a popular tactic among many owners of more than one home to avoid capital gains taxes on a sale.

The bill still has to be passed by the Senate, and there will likely be some jockeying between the House and Senate over general terms. I expect, though, that the change affecting tax treatment for primary homes will stay in the bill. After all, there probably isn't a whole lot of sympathy for people who own multiple homes when others are struggling to hold on to one home.

For multiple-home owners who currently have a house on the market, or are currently in the sales process and anticipated declaring the sold property as a primary home, this is very important to watch. The provision change will apply to all sales after Dec. 31, 2007. Sellers need to discuss this with their tax advisor.

Will 'Right Pricing' Work to Sell a House

The hot real estate term right now is 'Right Pricing'. (No, its not 'foreclosure'.) There's been a new construction spec house at Chapin Estate on the market for well over a year, listed first with Chapin Realty and then 3 months ago moved over to Malek Properties. (Click here to see the house.) The asking price for the 4BR, 3 1/2BA, 3,319 sq. ft. house on a 5 acre non-lakefront parcel hovered just under $1 million --- between $964,500 and $997,500 --- and it just lagged. The house is well built, in a lovely Adirondack lodge style with a good floor plan. The house has been shown quite a bit, but nobody bought it. It just didn't hit the value proposition right for buyers. Yesterday, the owner dropped the price to $824,900. I sure sat up and noticed. The seller bit the bullet and made the 'right pricing' move, and I expect, even in this sluggish market, that the house will have a buyer within the new few weeks.

Then in today's Sunday New York Times, there was an article in the real estate section on "The Case for Right Pricing". The examples they used were in the NJ suburbs, but I think there is far wider application. I was curious about how the pace of price reductions here in Sullivan County. I looked at the 760 single family houses that have been on the market here longer than 90 days. Of those, 400, or 53%, have had a price reduction from their original listing price. But most of those price reductions have been very modest, less than 10%. Only 196, or 26% of the 760, have had a price reduction of 10% or more. I also wonder what those other 47% of sellers who've made no price reductions after 3 months with no sales action are thinking. They must be watching a cable channel I don't get.

I've blogged before about my experience selling my condo in Florida. It was on the market for 18 months, always priced just slightly below similar units. I was always priced better by a few thousand dollars, and my broker kept advising me that was the right positioning. But it wasn't the right price. My last asking price before I took the plunge was $339,000, and the next closest similar unit was listed at $345,000. I bit the bullet, lowered the price to $299,900, and had a full price deal within a day.

I can't say that will work for all properties here. But there are plenty of properties with enough appeal features that could benefit from some radical price surgery — and likely capture that coveted "SOLD" sign.

Current Market Report Posted with Sept. Sales Data

OK folks, the numbers are in and they're not bad. Sales for the 3 months ending Sept. 30th are running on par with 2006. Sales prices, though, took a dip, with the 1st year over year drop in the median sales price since I started collecting data in 2001. But all is not doom and gloom, though you'll have to read this month's Current Market Report to get the whole scoop.

But its important to remember that September's sales data reflects market activity mostly in June and July, before the tsunami of negative real estate news in August. Its been very slow since mid August, and only time will tell how that plays out in closed sales figures over the next couple of months.

Please check out this month's Market Report and then drop on back here and post your thoughts. Now more than ever I think its important to get as wide a variety of perspectives as possible, because its really tough to get a handle on which way the real estate market is moving.

NYRI Power Lines Get Big Boost from DOE

It didn't come as a suprise. Yesterday the U.S. Dept. of Energy officially designated a "Mid Atlantic National Interest Electric Transmission Corridor" that includes the proposed 190 mile route for the NYRI (New York Regional Interconnect) power line project slated to run through western and southwestern Sullivan County. The designation essentially paves the way for NYRI to circumvent state regulation, and would allow the government to take land by eminent domain for the project.

Essentially, the designation gives New York state 12 months to approve the project. If NY doesn't approve it within that time frame, NYRI can apply directly to the Federal Government for approval. And given the Bush Administration's pro big-energy bias, its likely they'll get that approval --- along with the coveted right to take land by eminent domain for it.

Opponents, like the Upper Delaware Valley Preservation Coalition, haven't given up hope, and there are still some avenues left to stop the project. But the DOE designation was a major hurdle for NYRI and moves the project a giant step closer to reality. Click here to read the article in the Times Herald Record. For maps of the route, you can go to NYRI's website at www.nyri.us.