Sullivan County Real Estate

If Its So Bad, Where's All The Inventory?

The past couple of days I've been making arrangements to go out a new client this Saturday. What they're looking for in a second home getaway is fairly 'typical' — a house with some charm or unique character, nice quiet country setting with some privacy, 3 bedrooms, under $300,000, willing to do some updating or reconfiguration. A no-brainer, right? There will be dozens of houses on the market to choose from. After all, the market has collapsed and everyone, just everyone, has put their house on the market, and at fire sale prices to move them.

Wrong. Big time wrong. From the MLS I only found about 15 possibles. After looking the listings over and talking about the various houses, the client and I shrunk the list down to about 8. Then I started calling to make appointments to show the houses, and found that 3 of the 8 had deals on them.

I'm finding a similar situation in a number of other property categories. I have someone looking for a nice lakefront house on a non-motorboat lake, something with a little acreage and privacy. Good budget, not bargain hunting, but there's very little available. And then there's someone looking for a non-lakefront house at Black, York, Timber or Wolf — and again, nothing apart from one house at Wolf that needs significant updating. There hasn't been a non-lakefront house at Black, York or Timber on the market in six months. I've worked with a couple of folks who have been looking for good fly fishing property on one of the Big 3 rivers for over 6 months, and there's been almost nothing available.

If the market is so bad, where's all the inventory? A year ago there were a number of cabin or chalet-style houses at modest prices on the market in Black Forest Colony and Pine Ayre. Now, nothing. (Well, there is a larger house in Black Forest at $399K, and a new construction cape in Pine Ayre, but neither hit the target for the moderate getaway buyer.) There isn't even a lakefront house on Loch Ada, and as long as I can remember there's always been one lakefront house on the market there.

The inventory of available houses in Sullivan County is actually dropping. Today, there are 1,129 single family houses listed for sale in the Sullivan MLS, down from 1,160 at the beginning of November. Market pessimists will surely say, "Just wait until the world as we know it collapses. The market will be flooded by second home owners trying to get out." But the fact is that most second home owners are quietly enjoying their houses, and not looking at them as just pieces of an investment portfolio to shift to another category.

I do think, though, we'll see something different with raw land. I don't track land inventory historically, so don't have the figures on how much there was on the market a month or year ago versus today. But I would venture that most owners don't have the same "enjoyment attachment" to land, even if they bought it with plans to build rather than hold for investment.

October NAR Sales Data Out

Yesterday, the National Association of Realtors released the Existing Home Sales data for October. (Click here for statistics.) Then this morning, I opened my hotel room door to find the big headline on USAToday "Home Prices Plunge Further" in BIG letters. Not once in the entire article did the reporter mention regional differences, and only mentioned that there are a few markets where prices are holding --- in the 3rd to last paragraph. And of course, they zeroed in on California, one of the real estate basket case states.

The big problem with this kind of reporting is that those headlines and scary numbers don't necessarily reflect what's happening in the northeast. True, real estate is experiencing a slowdown in the northeast like in other regions, but to nowhere near the same extent. Nationally, October sales were down 5.1% over Oct. 2006, but were actually up 1.3% in the northeast. On the price front, the median sales price for October was down 5.1% over Oct. 2006, but rose 1.3% year over year in the northeast. (To be fair, the year over year calculation is a little misleading, and the median in the region has dropped 12% from its peak in June. However, NAR doesn't seasonally adjust sales prices. In primary homes there is usually a fall downturn after the  spring/summer buying season, so for NAR data the only accurate comparison is really the year over year data.)

I know some folks are going to comment that the lagging downturn in the northeast is a function of the lengthier foreclosure process, and I'm sure that does have some impact. But I do think there are factors in the northeast that are going to help us weather this storm better than the overbuilt and high speculative areas in the south and west. I do think we're going to see a further downturn here --- I'm not a Pollyanna. I do think buyers right now need to be prudent and pay very close attention to value, and particularly features that historically support value. I've been singing that song since the spring.

The Problem with Pretty

Sullivan County doesn't have a deep supply of stylish 'magazine-ready' homes, much less many for sale at any given time. Occasionally I come across a house that's been beautifully designed or renovated that has that extra something that makes a house special and a delight to show. Yesterday I was showing one of those --- very Hamptons country-cottage style, bluestone countertops, soapstone sinks and lots of cool little details. But the home was small, without lots of square footage or bedroom and bath count, and lacked a garage. The house is priced about 25% to 30% above other farmhouses of similar size and acreage that have sold lately. Those other houses have been nicely redone, but frankly don't have the stylish flourishes of this one that gives a house that extra cool boost.

But what's the premium a buyer is willing to pay for that? At or near its asking price the house will fail an appraisal. Unfortunately, in the case of beautifully done houses, an appraiser can't add on a 'beautiful and tasteful' premium. Expensively renovated houses here are actually at a disadvantage, because on a sale involving financing they'll ultimately be compared to more pedestrian comps. With a declining number of sales and tightening appraisal standards (for example, some lenders now are only accepting comps within the past 6 months, not the traditional 12), it may become even harder to support the price of 'better' houses.

Without a significant price reduction, in the face of a short appraisal, a buyer will be in the position of making up what could be a wide appraisal gap. Buyers right now are very nervous about 'overpaying' for a house. I've heard of a number of deals recently that have dies because the appraisal gap wasn't able to be bridged between the buyers and sellers.

This is a tough dilemma. Some well done houses are clearly worth more than some of their comparable counterparts. The question is 'How much?', and how does the buyer pay for that extra 'much' above what a bank is willing to lend on it?

Nobody Wants to Deal with a Declining Market

This past week, at various dinners and soirees, real estate was again a frequent topic. One comment a friend made, when we were discussing the general malaise in the real estate market, was "Nobody wants to deal with a declining market." That comment stuck with me, because it really rings true.

When the market was bounding up, there was this excitement and exuberance. Sellers were thrilled at the prices they were getting, and excited about the drama of multiple bids. People loved talking about real estate, particularly the 'steal' they picked up that climbed 30% in value in a year. Buyers were thrilled at buying, and getting on the 'up' escalator. Even when a buyer would lose a bidding war, they might be disappointed but not depressed. On to the next one. Everybody was excited to be a part of the happy-happy economic miracle called 'real estate'.

Turn the clock ahead a year. We're in a declining real estate market. And nobody seems very happy any more. Sellers are upset that they're unlikely to realize the $150,000 profit on the $250,000 house they bought 2 or 3 years ago, and are resentful if they're 'forced' to sell their house for "only" a $75,000 or even $100,000 profit. When buyers find a house they love, they're nervous that if they pay X dollars for it today it may be worth less in 6 months or a year. The confidence that they were making the right decision has been replaced with a nagging fear that they're making the wrong one.

Brokers are caught in the middle of this. When an agent recommends to a seller that they lower their asking price, or accept an offer lower than their expectations, sellers sometimes think that the agent is just trying to screw them out of money to make a quick sale. On the buyer side, people look to me for assurance about the value of a house, but I don't have a crystal ball to predict the future. I can't offer assurance that a house won't decline in value — but I can tell them if I think a house is a particularly good value in today's market. Or they fall in love with a house that doesn't ultimately appraise, and the seller won't budge ---  and the buyers end up walking away from something they've become emotionally attached to. (Some of you reading this are saying, "Well, the buyers could make up the appraisal gap." Get real. Would you pay 15% or 20% above appraised value in this market?)

The appraisers and lenders aren't in happy-happy land either. Everybody seems to be mad at the appraisers. But they're just doing their job, coming up with their best opinion of value. Its not their fault that the secondary mortgage markets have tightened, and investors are demanding much tighter appraisals.

Overall, the purpose of this whole process, at least in the second home getaway market that I deal with, is for buyers to find a lovely and relaxing getaway that becomes their own private 'antidote to civilization', to paraphrase the old Club Med commercial. But the process of getting there right now is anything but.

Rolling Back to '05?

We're heading into the last week of November, so its time to take a quick look at how the month is shaping up. The November median sales price (using the 3 month rolling measure to ensure sufficient sample size) will likely drop below $170,000, to around $165,000. The last time the median sales price was at that level was Mar./Apr. 2006, but that dip was likely a function of the typical mid-winter price slide in the annual sales cycle. We have to go back to August 2005 to find the median in the mid $160's during a 'regular' selling season. If November clocks in at $165,000, it will be about 10% below November, 2006, and 16% below the peak of $198,000 reached this past June. The average sales price is holding better, likely to come in around $206,000, or par with a year ago. There seems to be a fairly constant trickle of very upper end sales that supports the average sales price. It would be a mistake, though, to call the upper end 'robust' --- given the small sample size of sales here, a single $1M+ sale can add $7,000 or $8,000 to the average.

For the past 6 or 8 months, I've generally been targeting mid-2006 as the level prices would likely stabilize at. But I'm beginning to think that may be too optimistic.

On Tuesday, the National Association of Realtors released the Existing Home Sales report for September, and it confirmed that the real estate market nationwide continues to slide. Nationally, sales were down 19.1% from the previous year. The bright spot is that the drop in the northeast (13.5%) was smaller than any other region, and the median price, while down 4.2% year over year nationally, was actually up .5% in the northeast. But that slight year over year uptick doesn't paint quite an accurate picture. The northeast's $261,700 median for September was down 11% from the peak of $293,000 in July.

Rental Rate Barometer for Price Correction Potential

I've long thought there's a close relationship between rental rates and sales prices, kind of like the relationships between bonds and stocks. Today on Yahoo there was a great article from Fortune/CNN Money about that relationship, and using it to predict the possible rate of price correction in real estate sales prices. Which is what they did in a number of major markets. Click here to check it out.

The Appraisal Nightmare

In the last 10 days, I've become aware of 4 deals here where the bank-ordered appraisal for mortgage underwriting came in well below the agreed-upon sale price. In 3 of the cases, the appraisal was 9 to 14%. (In the 4th case, the house is very unique and presents somewhat different appraisal issues). A lot of people in the industry have laid the blame for this real estate and mortgage mess at the feet of the lenders, particularly with their lax standards, who were seemingly lending endless amounts of money on almost anything attached to a piece of dirt. There's been a widespread call for tighter lending standards, and that's just what the lenders are doing. One result is that appraisal standards are much tighter, and to underwrite a loan a lender is looking for rock-solid demonstrated value.

A lot more appraisals are coming up short compared to a year ago. During the go-go years, on those occasions when an appraisal came up short, a buyer was often willing to put in some additional cash to make up some or even all of the appraisal gap. After all, with the market surging ahead at 15% or more a year, you'd make up 5% or 10% in a few months. Today that's absolutely not the case. I'm hearing that even among buyers who have the extra cash, they're unwilling to pay anything above the appraised value.

More surprising, though, in this slowing market, is the unwillingness of many sellers to accept the reality of the appraised value. Some sellers, facing low appraisals, have made token reductions but are coming nowhere near to the appraised price (which is what the financing is based on.) One comment I heard 3rd hand was that the seller said, "Look, if they (the buyers) don't want to come up with extra cash, we'll just put the house back on the market and wait for someone who can afford it."

In my mind, that might have been a reasonable strategy a year ago, but it frankly seems foolish --- from a seller's perspective --- today. But it just hasn't sunk in with sellers yet that we're in a different market, and that the price expectations they may have had 6 or 12 months ago may not apply today.

November Current Market Conditions Report Posted

OK, all you data junkies. Its up. The November Market Conditions Report with October's sales data. Stop with the emails, "Where is it? When's it coming?"  It took a couple of extra days this month, because I kept rethinking and rewriting. The market is really tough to read right now, and I've posited an alternative scenario about our fall slowdown that I'd really like your thoughts on. Also, I'm putting out the idea of starting to price future risk into houses to make buyers more comfortable buying sooner rather than later.

As always, I look forward to your comments about all of this.

$200,000 Range is Hot - and Fun Again

I often talk about the 'sweet spot' of the second home market. It had quietly edged up over the last couple of years, from about $250,000 to around $325,000, but has remained pretty consistent in what folks in the second home mid range were looking for — a house with 3 bedrooms and some privacy in a nice setting on 5 acres or so. It could be a smaller renovated farmhouse, a vacation chalet 'contemporary' or a house with lake rights at a lake like York or Devenoge. Even though I tend to be known for working with higher end buyers, my bread and butter has been the $300,000 sweet spot.

In the last month or two, the demand curve has shifted decidedly downward. Most second home buyers I'm talking with are looking closer to $200,000 than $300,000. The most common thing I hear from potential buyers (who are typically younger than what I've seen in the last couple of years) is, "Our budget is $200,000, but if we saw something we really loved we'd consider going a little higher." I"m just not seeing $300,000 mid range, non waterfront buyers right now.

Now, I haven't worked a lot in the $200,000 range in a while. But I've been very pleasantly surprised with the inventory in that range I've been showing lately. (A year ago, a lot of houses that should have been priced around $200,000 were priced closer to $300,000, and at $300K I thought they were overpriced dogs.) Some houses have come down in price, and some other new listings have been put on the market at very attractive prices. The $200,000 range is actually starting to be fun again!

But that's also a function of the buyers in this range. Most seem to understand that there are trade-offs when they have a budget around $200,000. They're willing to consider ranch houses if they have nice, quiet settings. They're not looking for total seclusion, but something in a quiet location. If they want a classic old house with a lot of space, they may have to give some on location or setting. A number of folks I've been out with in the last few weeks have been delighted with what they saw that they can get for $200,000 here, even though they can't get everything on their wish list.

And I've been delighted with some of the houses I've seen, too. (Click here to see  6  houses in the $200K range that I think are just great for the money. Note: link will expire on Nov. 30.)  There's a ranch house in Hankins (MLS 21110) that has been renovated in a really cool style, with this great modern open kitchen, for $229,000. A small vacation chalet style house with a fireplace on White Roe Lake Road, in a private wooded setting (MLS 21834)  just came on the market at $229,000.  And there's this really  cute farmhouse on Midway Road in White Sulphur Springs (MLS 17978) just reduced to $185,000. (You can see all of these in the link above.)

While these haven't sold — yet — a lot of other houses in this range are in deals. I've called on half a dozen listings in the last couple of weeks in this price range, only to find out they have accepted offers on them or are going into contract.

There are a lot of houses right now lagging between $250,000 and $300,000 and not getting any action. But the action may be at a price point just below them. Its going to be interesting to see if some of them drop into the 'buy zone'.