Sullivan County Real Estate

Will Mortgage Rate Drop Stimulate the Market?

Mortgage rates have been all over the map for the past week, since the Fed's .75% drop in the Fed funds rate. Today, I checked mortgage rates at Schwab (yes, Schwab Bank does mortgages). The 30 year fixed conforming (less than $417,000) was 5.596% and the 15 year fixed conforming was below 5%, at 4.943% with 0 points. (Note: these are rates, not APRs that take into account application fees. I tend to look at Schwab for rates, because they're one of the few lenders online that quote rates without points, even though almost all lenders offer 0 point loans.)

Market watchers anticipate that the Fed will cut interest rates again at its meeting this week, which could translate into even lower mortgage rates. (Note that the Fed rate cuts apply to short term rates, and mortgage rates are tied more closely to the 10 year Treasury, so a half point Fed cut doesn't mean there will be a half point drop in mortgage rates, but a Fed cut will likely mean some drop in mortgage rates.) Its possible that we could see the 30 year fixed conforming rate drop into the 5 1/4 to 5 3/8 range in the very near future, with the 15 year falling below 4 3/4%.

Its going to be interesting to see if lower rates will stimulate the real estate market. One thing I've been seeing lately is negotiations for homes here stalemating with relatively small gaps between buyers and sellers. If money is 10% or 15% cheaper than a month or two ago, which translates into lower carrying costs, will that motivate buyers to 'bite the bullet' and make the deal, even if its a little more than they were hoping to pay?

As an aside, I'm buying a studio coop in the Bronx. I went into contract for it about 6 weeks ago and went the route of a studio rather than a one bedroom because I was nervous about the market, didn't want to spend a lot, and decided to pay cash. But I have to say that if mortgage rates had been down around 5%, rather than above 6%, I probably would have sprung for a larger, more expensive apartment and gotten a mortgage. There are two important cost factors in real estate --- the cost of the real estate itself, and the cost of the money to buy it. Buyers have been focused on the real estate side, holding out for bargains. But the big bargain may be on the money side.

Buyers Suing Their Agent in CA, Coming Trend?

On Tuesday, a front page article in the New York Times, "Feeling Misled on Home Price, Buyers Sue Agent" has sure got tongues wagging in this business. On Friday, the buyers, Marty and Vernon Ummel of San Diego, landed on the Today Show and the story went national. In a nutshell, the Ummel's contend that they were misled into overpaying for their house --- they paid $1.2M, at just about the same time houses they contend are similar sold for $105,000 and $175,000 less. And now, in the declining California market, their houses is worth much less than the $1.2M they paid.

The case is interesting because the buyers were represented in the transaction by a buyer agent. They contend that it was the responsibility of the agent to provide adequate due diligence, and to provide them with the information that the houses nearby sold for less. (There are a lot of timing issues here that aren't clear in the news articles that are relevant, like whether the houses were already in contract when the Hummel's were looking, and therefore not available to be shown to them, as well as the listing prices for those houses and whether the agent had knowledge of the actual selling prices. In California during the boom, homes frequently sold for above their asking prices, and actual sales prices are not a matter of public record until a house is sold.)

Legal pundits commenting on the case seem to feel that the Ummel's will not prevail in court. But it raises very interesting questions, especially about the information that agents are expected to provide to their principals, and who ultimately is responsible for providing due diligence on value. The case may be more clear cut in California, and tip in favor of the buyer agent, because real estate sales information is more readily available to the public online, and in a timely manner. But here in Sullivan County, it isn't. There is no public website here providing timely information on closed real estate sales. (Realtors have access to data on properties sold through the MLS, but that doesn't provide a total picture, either.)

At the end of the day, however, I can't quite see the sinister money motivations that the Ummel's seem to be attributing to their agent. If, in fact, the agent was working as a buyers agent, then this house wasn't his own listing and he wouldn't have the motivation to sell this particular house over another one to 'double dip' on the commission. The Ummel's contend that the agent didn't show them the other houses because it may have jeopardized the $30,000 commission on the house they bought, but if they ended up buying one of the other houses rather than the one they bought, the 'loss' would have only been the co-broke commission on the difference, not the loss of the whole amount. The buyer agent also works for Remax, which has a 'rent a desk' compensation model for agents, so there probably wasn't some extra incentive for him to sell an in-house rather than out-of-house listing.

We're the other houses listed properties? For sale by owner properties? Did they come on the market after the Ummel's were in contract for their house? Did they have features that the agent deduced the Ummel's would have rejected?

Like they say in the movies, follow the money. And I gotta say that --- without really knowing the facts --- that I'm not seeing a huge incentive here that would cause the agent to breach his fiduciary duty.

The outcome of this is going to very interesting to follow, and I hope more specific details will come out, particularly about when the listings came on, when they were sold, if there was a big commission gap or financial incentive for the agent.

 

Definitely Busier - All Booked This Weekend

Buyer interest definitely picked in the first few weeks of January. I think most of us in the business here were holding out breath after the New Year, waiting to see if the typical mid-winter market developed or fizzled. This weekend (a 3 day holiday weekend), I'm booked every day and so are my 2 colleagues at CBA. On Friday, I had to turn a couple of folks away who wanted to out and see property this weekend, and I've had a number of people already request appointments as far as mid-February.

There are some differences, though, between this winter spurt and last year. Almost everyone I'm seeing looking for a vacation home is shopping at a moderate price point, between $200,000 and $300,000. I'm seeing very, very few requests above that. There's tremendous pressure on the inventory priced below $300,000 and its leading to a real inventory shortage of attractive properties in that range. (A number of favorites in this price range that have been on the market for months now have deals on them.) There's quite a bit of attractive inventory priced around $400,000, but I'm just not seeing many buyers at that price point, and definitely not seeing the $300K buyer willing to stretch or even look into the upper $300's and low $400's.

The other BIG difference I'm noticing this year is that I'm not seeing Wall Street people at all. In the past few years, 30-something financial industry people comprised the lion's share of my upper end business.

Kempthorne Rejects Casino Apps, Gaming Looks Dead for Now

Last Friday, Dick Kempthorne, the U.S. Secretary of the Interior, rejected the applications from 2 tribes to locate casinos in Sullivan County — the St. Regis Mohawk tribe at the Monticello Raceway and the Stockbridge-Munsee tribe elsewhere in the Town of Thompson. Kempthorne, indicated that the proposed locations were too far from the tribes' existing reservations to justify approval.

The rejection was not unexpected, given Kempthorne's long-documented opposition to off-reservation casinos, but it still dealt a blow to casino proponents. The only possibility for approval will rest with a new administration and new Secretary of Interior in 2009, who can take up the issue again. For now, at least, it appears that casinos are dead.

There will likely be a lot of speculation on this blog about what this may mean for property values here in Sullivan County. Here are my thoughts. Over the past few years there has been a lot of investor speculation in anticipation of casino approvals in 2 property categories --- larger tracts of vacant land (either in close proximity to the casino for commercial development, or in the surrounding areas for construction of worker housing), as well as homes and apartments in the mid-county area that could be rented or flipped profitable to meet the demand for workforce housing. I think it quite likely that some of the investors may now try to get out of their investments, which could drive down prices for those types of properties.

The impact on the overall second home market will likely be minimal. I don't think the potential of casinos has had much impact on overall second home demand, and in some cases, the sceptre of casino development has been a negative. On the other hand, many sellers have had visions of gold and sugarplums in their eyes, thinking their houses are worth a lot more than they are because 'casinos are coming.' This latest setback may bring them back to earth. I don't think anyone in their right mind can now say, "Casinos ARE coming" and price their property accordingly. Sure, they MAY come, but there's not clear path to that outcome in the near term.

Personally, I think one of the biggest losers in this will be Bethel Woods. I've long felt (and written about on this blog) that the long term success of Bethel Woods will depend on renewed resort and hotel development in Sullivan County. Face it, we just don't have many hotel rooms for weekend guests, and we're pretty much down to one resort, the Villa Roma. A lot of potential hotel developers I've talked to over the past few years (even before the real estate downturn) considered at least one casino to be key to making the investment work here and extending the season. Without a casino on the horizon, we likely won't see much happening on the resort development front, with the exception of some small, niche properties.

January Market Conditions Report Posted

Happy New Year, everybody. I just finished the January Current Market Conditions report, which includes the year-end Dec. 2007 data for Sullivan County sales. Its a very interesting picture. Sales are down 22% year over year and the average sales price slipped below $200,000 for the first time since March. 2006. But the median sales price, at $165,000, showed a slight pick-up from November's $160,000 mark, and is likely to tick up to $170,000 next month. That's great news, since my fear was that the median would continue down. While the average is dropping, that's more of an indicator of softness in the upper end of the market, and not the bread-and-butter middle.

I'm sure some of the conclusions I'm drawing this month, particularly the differentiation between Wall-Street buyers and non-Wall Street buyers, will generate some controversy on here. That's always welcome. Please check out my Current Market Conditions Report and drop on back to add your comments.