Sullivan County Real Estate

Some Real Numbers About the Runup - and Downturn

There have been a lot of numbers bandied about recently about the price run up on real estate here in Sullivan County — and the possible relationship between the steepness of the appreciation curve to the potential depth of a downturn. I've been collecting data now for over 5 years and decided to post the quarterly median sales price (for single family sales reported through the Sullivan County MLS) from the 1st quarter of 2002. If you're a regular reader of my "Current Market Conditions" monthly report, you know that I'm a staunch believer in looking at the median sales price (the price at which half of the properties sold for more, half for less) because it tends to be a more stable indicator of trends, and isn't as affected by a few large sales in a short period of time. The average is more volatile than the median, but over time has tracked at an 'average' of 21.5% above the median.

The 4th quarter 2007 data is preliminary, as we haven't closed out Dec. yet. But given that there's only 1 business day left in the year, I doubt we'll see much change in the $165,000 median sales number for the 4th quarter after the last sales are reported. If the number holds, the median sales price for the 4th quarter will come in 13.7% below the 4th quarter a year earlier, and down 17% below the peak of $198,000 in the 2nd quarter of 2007.

The 4th quarter 2007 downturn, though, needs to be qualified somewhat. The drop in prices can likely be partially attributed to buyers downshifting to lower priced properties, and not just an across the board 17% fall in property prices. I'm sure there's some type of statistical analysis that could eek out that answer, but we're burdened here by small sample sizes that make micro-analysis difficult to interpret. (A dream job for me would be to work for one of the real estate consulting firms or big brokerages in the city, and be able to data mine with thousands of data points.)

Note that this data only covers single family residential sales. There has been a lot of discussion on this blog about raw land prices, but I just haven't collected that data over time. Also, you may also notice that in the past few years there have been a few down quarters. But of the 4 single down quarters prior to mid-2007, 3 were the 1st quarter of the year, which traditionally has had lower closing prices due to more primary and less second home closing activity during mid-winter.a final point to consider is that the housing stock hasn't remained static since 2001. Particularly in the second home segment, its improved considerably. Dozens, if not hundreds, of old houses were renovated, updated and resold. There was considerable new construction, like the Catskills Farms farmhouses that weren't part of the inventory in 2001. Pundits and nay-sayers may counter, "Better inventory? You've got to be kidding." But as someone who was selling real estate here in 2001, I can assure you the inventory is MUCH better today.

The Two Year Breakeven

During 'normal' real estate times, when property appreciated at a rate slightly better than inflation, but not that the rapid rates we saw over the last few years, the general rule of thumb was that it took two years after buying a house to sell it and break even, given the costs of acquiring the house (mortgage app, title, legal fees) and selling it (commissions, legal fees, etc.) If someone bought a house and needed to sell it in less than two years, it was generally acknowledged that the seller would likely take some loss. During the run up of the past four or five years, that rule of thumb was thrown out the window. Sellers expected to make a profit if they only held a property for even less than a year.

That psychology is causing some problems right now. There are some houses on the market right now that were bought by the current owners within the past year. In most cases, these aren't investors looking to flip a house, but rather owners who's situations have changed --- moving, transfer, divorce or just simply not using the house. They've put them on the market, but at a price substantially higher than they paid (breakeven, with the expenses coming in and going out, is about 10% above their purchase price.) Sales prices are a matter of public record, and buyers are questioning why a house is worth more than it was 6, 9 or even 12 months ago, given the downward trend in the market. Its a good question, and one that appraisers ask as well. Appraisers are required to report on recent sales of the property being appraised as pt of he appraisal process

These "recently bought, now back on the market" properties are difficult to make a deal on, because sellers still harbor the idea that they'll never take a loss, but buyers are understandably hesitant to pay more for a house than it sold for six months ago. Its just another clog in making deals and getting the market moving.

The Stages of Loss

There's been a great discussion on the previous post, "When I Can't Support the Price." One regular visitor, Dan F., posted a comment that sellers may be going through stages similar to the stages of grieving described by Elizabeth Kubler-Ross:

"If anyone has ever read "On Death and Dying" by Elizabeth Kubler-Ross. You will see an uncanny parallel to selling a piece of real estate in a declining market. Based on seller behavior, it seems they are dealing with the declines the same way people are said to deal with death...Someone should do a study. Kubler Ross states the levels of people dealing with the death of a loved one is

1. Denial
2. Anger
3. Bargaining
4. Depression
5. Acceptance

Sadly, I think this could definitely apply to Real Estate !" --- Dan F.

I think Dan makes a great point, and it really helps me to understand the difficulty on making deals lately. Many sellers are clearly in denial that the market has changed, and that prices in many cases may be dropping. And they sure are angry. Rather than being appreciative that someone is interested enough in their house to make an offer, they're angry that the potential buyer's offer doesn't meet their expectation. Recently I've heard of a number of deals that have fallen apart with the seller and buyer just a few percentage points apart, either at the offer stage or at the appraisal stage when an appraisal comes in short and the seller is unwilling to renegotiate the price. In the case of an appraisal shortfall, I've heard of a couple of sellers saying essentially, "If they (the buyers) don't want to make up the difference (between the agreed upon selling price and the appraisal) in cash, we'll just put it back on the market and wait for someone who does."

Wow. Big time denial. Kind of like someone who lost a spouse sitting in a dark living room believing their dead spouse is coming back to make dinner. There's this magical belief that there's going to be a market turnaround in the spring, kind of like a collective real estate resurrection fantasy.

Its tough to make a deal with a seller stuck in the denial-anger stage. If I look back at the successful deals I've made in the last few months, all of the sellers had moved into the bargaining-acceptance stage. All of them, in one way or another, had the attitude "I want to move on with my life. Let's figure out how to make this deal happen." Now, those deals have not been at 'bargain hunting, bottom feeder' low ball prices, but at what I consider very realistic and supportable prices. But in situations where the seller is in the first stages of real estate 'grief', its not been possible to make the deal.

 

When I Can't Support the Price

The most common phrase I've used lately when showing property seems to be, "Its priced too high." When I talk to listing agents about one of their listings I want to show but think is priced to high, they often agree in a 'wink, wink, nod, nod' way. A telling question I often ask is, "Is this your price or the seller's price", and in almost every case its the seller's price. Another request, which is often telling about the listing agent support of the price, is to ask the listing agent for comps to support the price. For most of these overpriced listings, they can't.

Then they ALWAYS say, "Please show the house. Please bring an offer and I think we can make a deal."

So I show the overpriced house. The buyer falls in love with it. I bring an offer well within what I consider a supportable price range. Possibly at the low end of that range, so there's some room to move up. But certainly not in the 'bargain hunting, bottom feeding' category.

But no matter how much listing agents encourage offers, it just isn't working a lot of the time. In fact, its often backfiring. Sellers often get angry or offended at the 'low' offer, rather than being appreciative that there's a buyer interested in their property that's been on the market for 6 months or a year. Buyers are often frustrated and disappointed, because there's a house they like but they're loathe to pay over fair market or appraised value.

I feel like a killjoy or spoilsport because I'm the one often saying to the buyers, "I think the price is supportable in this range, but anything above that, I just don't see it." Buyers are in a difficult position. They're in a situation where the seller won't move below "X" dollars, but I'm telling them that I don't think the house is worth more than "Y" dollars.

This probably sums up one of the major differences between being a buyer agent and a more traditional seller's agent. I'll tell buyers my thoughts on price, share comps with them, and tell them - ahead of time, when we're in the bidding process, whether I think we might face an appraisal shortfall. Seller's agents, for the most part, don't. If they sense a house might appraise light, they don't typically bring that up to the buyer during the offer process. Buyer and seller agree on a price, and lo and behold, 6 or 8 weeks later when the appraisal is done it comes up short. Sometimes lately, WAY short. If the appraisal gap is less than 5%, buyers may be willing to bridge it. But if its more than 5%, in many cases they're not. Without a major price reduction from the sellers, the deal falls apart.

I'm very proud to say I haven't had one deal fall apart this year due to an appraisal shortfall. I've had a couple of short appraisals, but in those cases I had already prepped the buyers for that possibility, as well as told the seller's agent, from the get go, that we'll likely have an appraisal problem and to expect some price renegotiation in the event of a large shortfall.

I'm always struck at how often things come as a 'surprise' to sellers and their agents. In trial law, the common wisdom is that you never call a witness unless you know all the questions and the answers. No surprises on the witness stand. Yet houses are trotted out to market like unvetted witnesses. The buyer does a septic test and the septic fails. The buyer does a water test and the water fails. The real estate equivalent of "Duh" is the typical response from a seller or their agent. Why don't seller agents encourage sellers to vet their houses BEFORE putting them on the market — have the septic pumped, the water tested and any major repair items identified. Likewise, an unanticipated appraisal shortfall should be very rare.

I'm getting a little gun shy. And listing agent cries of "Show the house and bring an offer" are starting to sound a little like crying wolf. I particularly notice when a house has been on the market for longer than 6 months, and there have been no reductions in the asking price. That does not indicate a motivated seller. The possibility of being able to do a deal within a realistic range for a house may be little more than wishful thinking on the part of the seller's agent.

Pending Home Sales Data Encouraging

Today, the National Association of Realtors (NAR) released its Pending Home Sales Index for October. The PHSI is an interesting statistic, because its more forward leading because it tracks houses that went into contract during a period (which will, hopefully, show up as closed sales in the next 30 to 60 days) rather than more traditional closed sales statistics, which actually track buyer behavior 60 to 90 days back.

The PHSI showed an 0.6% uptick in October over September (although still 18.4% lower than October, 2006.) While ever so slight, the uptick reversed the downward trend that started in June. NAR breaks out its data regionally, and the most interesting note is that the Northeast region showed a 16% --- no, I didn't misplace a decimal point --- rise in pending home sales between September and October. That's still, regionally, 11.1% below a year before, but a huge improvement, and the best performance of any region nationally. That tends to support my general feeling that buyers ultimately want houses, and have started to jump back into the market.

Great Article - When the Price Isn't Right

In Sunday's (Dec. 9 ) NYTimes Week in Review Section there was a really good article, "When the Price Isn't Right" that hit the nail on the head --- about financial ambiguity that's choking markets, including real estate.

One quote: "The real estate market ... is locked up because few can agree on a fair price. Sellers cannot fathom how their homes could be worth so much less than a year ago...  Buyers have heard about plummeting prices and are holding out for some of that. The result: stalemate.:

The whole article is pretty interesting, about the difficulties in establishing values right now in a lot of markets, not just real estate. In reading through the article, I realized that a big part of what I'm sensing from potential buyers here isn't that they can't or don't want to spend, say, $400,000 on a farmhouse, nor are they mired in economic fear. They just don't know what the right price should be for what they want. Consider a hypothetical lakefront 5 acre lot at Chapin. 4 years ago it might have sold for $350,000. A year ago it might have sold for $650,000. So what's it worth today? $650,000? $550,000? $450,000? If this hypothetical lot is on the market, it might actually be listed for $750,000 (with the seller optimistically extrapolating an upward trend from last year's prices.)  The problem is when I have a buyer interested in buying a lakefront lot at Chapin, they don't have a good way to put a value on it. You just can't look at what a similar property sold for a year ago, because the market is very different today.

Current Market Conditions Report Posted with November Data

Sales are off 17% year over year, prices are down about 17-18% from their May/June peaks.   That's what the latest data is showing. So the market has definitely turned, even if sellers haven't gotten the memo yet. (The average and median asking prices have barely moved in months. There is some good news, though. It looks like prices may be hitting a more stable plateau over the next few months. Buyers I've been out with in the last month or so seem much more intent on finding a place to enjoy, rather than just park their money. They also seem more focused on finding fair value rather than bargain hunting.

I'm sure this month's report will generate a LOT of comments. Check out the Current Market Conditions Report and then come on back here and share your thoughts about what's happening.

Go Green with NYSEG "Voice Your Choice"

Very few people are aware that they have a choice in electricity supplier. In Sullivan County, your electricity deliverer is NYSEG (New York State Electric and Gas), but residential customers have a choice about where they buy that electricity that NYSEG delivers.

Most people just default to NYSEG as their supplier. But for a couple of years now, you've had an option. One of those options is ConEd Solutions Green Power. Its 100% renewable, with a mix of 35% wind and 65% small hydro. When I first signed up for it, the price differential between ConEd's Green power and NYSEG's fixed rate (conventional) plan was 2.5  cents per kWH. Then something interesting happened this year. My GreenPower rate under the fixed rate program with ConEd is actually dropping for 2008, from 10.8 cents per kwH this year to 10.1 cents next year, while the cost of conventional fixed rate plans have climbed. The differential is now down to about 1.5 cents per kWH. NYSEG Solutions (the electricity supply affiliate of NYSEG) also offers Green options, one with 100% green power and one with 50% green power. You can find out about "Voice Your Choice" as well as find links to ConEd Solutions and Nyseg Solutions, at NYSEG.com.