March Sales Data Posted - Finally

Sorry for the delay this month in getting the Current Market Conditions report posted. While the March data is something I may want to forget (monthly closed sales were off 66% from March 2007), the delay wasn't due to any desire to postpone the delivery of bad news. Believe it or not, I've been backed-to-the-wall busy since mid-March with both clients here in Sullivan County and trying to get my new pied-a-terre in the city in shape. There's been a noticeable pickup in business the last 3 or 4 weeks, and I've been doing "real work" --- showing property, writing offers and negotiating deals. Check out this month's Current Market Conditions report and then drop on back here to post your thoughts and comments.

Comments

[CP]

So to summarize briefly - sales are off 70% from last yr, and the average and median prices have dropped precipitiously since last year, but David had a busy weekend.

With local investment funds locking up, at least 15 spec homes worth over $10m unsold, appraisal methodology tightening to an unworkable level, 10 foreclosures in the Town of Highland alone, Sullivan County is not showing any immunity to the bursting bubble, and considering its economy is very real estate and construction oriented, and driving distances so vast (gas prices) it might be a little ugly.

However, the good companies, be it construction or real estate etc..., are busy, and there are buyers buying, albiet very carefully.

David, any way of guessing the market stratification for primary and secondary homes sales?

[David Knudsen]

Chuck, don't be quite so glib. I said we're starting to see some light, and buyer interest has picked up somewhat from a relative standstill. What's generating interest, from what I'm seeing, is houses that have something special about them, particularly in terms of setting, and are well priced for what they offer. Dramatic price cuts on some properties, in the range of 10% to 20%, have helped. But there's still a way to go, particularly on the seller price expectation side. Dropping the price on a house from $399,000 to $389,000 doesn't do it.

Regarding those unsold spec homes, most, frankly, were ill conceived. Many won't likely find buyers without dramatic price reductions because they don't hit on all cylinders for what buyers are looking for at their price points. The most common "mistake" many of those spec builders made was building houses that are too large (and expensive) for the property they're on. Buyers looking in the upper ranges (above $500,000) want some fabulous setting feature, and a lot of those spec houses just don't have that.

There isn't a reliable way, from the data sources I have access to, to break out primary and second home sales.

[CP]

Sorry David - it's a bad habit. But you got to admit with sales down 40%-70% over the last 6 months, you can't blame people making their money in real estate if they sugarcoat a little, since a lot less money is being distributed.

The spec houses may have been ill-conceived and overpriced, but the appraisers found comps for the builder financing, the banks believed the business plans, and early on, buyers got the financing to purchase them. This area was not immune to 'rubber-stamping' financing, and both builders and homeowners will be on the hook for it.

[David Note: I removed reference here to specific properties that CP included here. I just don't want to start down the road of property-by-property discussions of price, value and saleability. DK]

If we all agree that appraisal underwriting became too loose, why would it's tightening be an issue, since it's exactly what we need to prevent another run-up of unsustainable pricing? I don't think it's fair to suggest that some buyers should help soften the price decline by paying more than appraisal, thus supporting other properties that would not appraise. A quick review of properties listed between $325k-$410k is an easy indicator of reality not yet sinking in. Moderately interesting architecture price 70% higher than 4 years ago. That's not the appraisers fault.

[Wally W. Woodchcuk]

Investing in local banks?

Let's see how they've done Chuck.

At:
http://finance.yahoo.com/q?s=JFBC

BUSINESS SUMMARY
Jeffersonville Bancorp operates as bank holding company for The First National Bank of Jeffersonville that provides community banking services to individuals, small businesses and local municipal governments in New York. It accepts demand deposit accounts, NOW and super NOW deposits, interest-bearing transaction accounts, savings accounts, money market accounts, time deposits in the form of certificates of deposit, and individual retirement accounts/KEOGH accounts. The company also offers residential and commercial real estate loans, commercial loans, and consumer and agricultural loans. As of May 9, 2007, it operated 10 branches located in Jeffersonville, Liberty, Monticello, Eldred, Loch Sheldrake, Livingston Manor, Narrowsburg, Callicoon, WalMart/Monticello, and Wurtsboro. The company was founded in 1913 and is headquartered in Jeffersonville, New York.

52 week range:
$11.00 (Low) - $19.00 (High)

Current price $11.50 - close to a five year low.

Yours,
Wally "Bag o" Nails" Woodchuck

[Bag O' Nails]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aLqmst6nAxmE&refer=home

Housing Starts in U.S. Dropped More Than Forecast in March

By Bob Willis

April 16 (Bloomberg) -- Housing starts in the U.S. dropped more than twice as much as forecast in March to a 17-year low, signaling that declining construction will keep eroding economic growth this year.

Work began on 947,000 homes at an annual rate, down 11.9 percent from February and the fewest since March 1991, the Commerce Department said today in Washington. Building permits, a gauge of future construction, fell to a 927,000 rate from 984,000 the prior month.

Foreclosures are pushing down property values by adding to the glut of unsold homes, prompting buyers to hold out for better bargains and undermining new construction. The Federal Reserve will probably lower the benchmark rate again at its meeting this month to cushion the economy against the housing-led slowdown.

``A nation in recession spells disaster for a housing market that is already in a rapid descent,'' Celia Chen, an economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report. ``Residential construction is in a free-fall.''

Starts were projected to fall 5.2 percent to a 1.01 million pace from an originally reported 1.065 million rate in February, according to the median forecast in a Bloomberg survey of 72 economists. Estimates ranged from 950,000 to 1.1 million.

Permits were forecast to drop to a 970,000 pace, according to the survey median.

Work on single-family homes decreased 5.7 percent to a 680,000 pace, Commerce said. Construction of multifamily homes, such as townhouses and apartment buildings, fell 25 percent to an annual rate of 267,000 in March.

All Regions Down

Starts dropped in all four regions, led by a 21 percent slump in the Midwest.

Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.

The National Association of Home Builders yesterday forecast housing starts would fall 30 percent this year, compared with a previously estimated 27 percent drop, as the credit crisis persists.

``It's now clear that we have entered what we anticipate will be a mild recession,'' David Seiders, chief economist for the homebuilders' group, said in a statement.

As property values tumble and adjustable-rate mortgages reset, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California- based RealtyTrac Inc., a seller of default data, said April 14 in a statement.

Bank Writedowns

JPMorgan Chase & Co., the third- biggest U.S. bank, said today that profit fell 50 percent in the first quarter after $5.1 billion of writedowns and provisions linked to subprime mortgages, bad home-equity loans and financing for leveraged buyouts. The company set aside $1.1 billion for future home-equity loan defaults, almost three times as much as in the fourth quarter.

The construction slump is causing job losses to mount and sales of building materials and appliances to drop. Falling home prices undermine consumer confidence and spending, which accounts for two-thirds of the economy.

Homebuilders are also pessimistic. The National Association of Homebuilders said yesterday its confidence index held near a record low this month.

KB Home, the fifth-largest U.S. homebuilder, last month reported a wider loss than analysts projected as the housing recession cut sales and led to land writedowns.

Lending Restrictions

``Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call March 28. ``Many are simply unable to qualify for financing given the more restrictive lending environment.''

Economists surveyed by Bloomberg this month forecast the economy will not grow at all in the first half of the year, the weakest performance since the 2001 downturn.

Fed policy makers are more focused on the threat of recession than inflation, believing that the economic slowdown already under way will help tame prices.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' according to the minutes of Fed's March 18 meeting released last week. While ``uncertainties about the outlook for inflation had risen,'' the minutes said, ``the Committee expected inflation to moderate in coming quarters.''

Investors project the central bank will lower the benchmark rate by at least a quarter point later this month.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: April 16, 2008 08:30 EDT

~
B.O. Nails

[CP]

One thing Jeff Bank did not do was contribute excessively to the area's bubble. Their conservative 80/20 LTV and underwriting criteria probably resulted in lost market share (lower share price) in the short-term, but they are still in the game, unlike many other lending institutions.

One thing is true for homeowners - it's a great time to renovate or tackle the long-planned project because lumber and building materials are at a record low, and the increased competition among contractors should result in much lower pricing for any project.

[Yerek]

I really do find the long-form commentary much more useful that the (overly) condensed version. The devil really is in the details when it comes to this market. Thank you, David.

I'm buying now and have looked at more than one of those spec houses. There's some baffling stuff out there.

[henry]

The following quote is wishful thinking: "Economists also have a couple of quarters of 'downturn data' under their belt, so they are able to make some reasonable predictions about where real estate is likely headed."

This is still an area of lively debate on the street. You could make a lot of money if you could answer this question, and the related questions of how severe the likely downturn in the economy will be and how soon the credit crunch will end.

The increasing write-offs from the major banks have demonstrate how far behind the curve the economists and banks have been.