Current Market Conditions Posted with August Data

I just posted my Current Market Conditions Report, with sales data through August, 2008. The picture shows steady, if slow, improvement in sales. Although we're still well below the sales rate (and prices) of the boom years, we're up from the lows of this past winter and spring. Check out this month's report and drop on back here to post your thoughts on the current market and where we're headed.

Comments

[gerald]

DK:
"Even then, in the second home market (which is the sector I tend to focus on), houses that involve compromises aren't selling. I've actually been surprised that a number of properties that I consider pretty well priced and have 'country charm' haven't sold — because they're a little too close to a road or neighbors, pick up a little road noise, have a quirky layout or need a little work. I'm not talking about handyman fixers on Route 52 in Loch Sheldrake, but lovely little houses on secondary roads in Fremont or Delaware or Callicoon townships."
---------------

Anybody!

I want a house not near the road - or any people - but at the same time I want to walk to a small village!

The house I want should also be a move in with character (no ranch or split please - a farmhouse or cape is fine) and not a fixer upper.

I want a water view too - a small pond will work!

My budget is under $150,000.

Is this possible?

Gerald Ook

[bix]

No, not with all those criteria.

[---jawboned---]

Hey Bix!

Why not?

---jawboned---

"We continue to expect that strong Chinese buying will return to the market as China restocks after the Games," Goldman Sachs [GS 157.03 -0.56 (-0.36%) ] wrote. "For oil we continue to believe this will require (West Texas intermediate) crude oil prices to move back to $149/barrel by year end."

[bix]

I was house hunting earlier in the summer, and my experience was that such a house would be hard to come by even at a higher price. However, I wanted a substantial house.

Now, I should amend that. If he is looking for a little bungalow with two rooms and one bath, then I guess he might possibly be able to get something in that range.

There's no mystery about it, actually. If he looks in Realtor.com, or gets a good r.e. agent, he'll find out soon enough if such a house exists.

[henry]

"Current indications are that closed sales prices aren't heading further down from where they are now — in market segments with reasonable buyer demand (like moderately priced second homes or affordable-range primary homes.) So the rationale to delay a purchase to wait for further price declines may not hold the water it did at the beginning of the year."

I think that the above rationale still holds plenty of water. Sales volumes remain down 30-40% (suggesting a large bid/ask spread and a market that is still in adjustment mode), AND there is a supply of three years of inventory (significant even if you haircut it). Plenty of reason not to rush into a market that is still up more than 100% --far more than income growth-- in recent years. In addition, given the weakness in the economy, there is clearly the potential for significant further declines. Lastly, we are heading into the winter... with increased heating costs and less use of the property for most second home buyers. Why not be picky and give sellers time to adjust to the new reality? Why rush? Personally, I look forward to seeing what is available next year.

In certain submarkets, there are even stronger reasons to wait. For instance, in the 500K+ market, consider the recent events on wall street and that many of the announced layoffs will occur at year end (before bonuses are paid).

[DN]

What I find so unsettling is not so much bad news about the housing market and the financial markets, but the extreme uncertainty. If you get bad news, you deal with things the best you can and then move on with your life. In the current environment where Fannie Mae and Freddie Mac got bailed out last weekend, Lehman Brothers is fighting for survival, and now the stocks of AIG and Merrill Lynch are getting dumped, it's awfully hard to pull the trigger on the biggest financial purchase of most people's lives: buying a house. Until things settle down, I'm staying put in my current house.

[David Knudsen]

Henry, I think you just cut and pasted my post, without reading a very important part — "in market segments with reasonable buyer demand (like moderately priced second homes or affordable range primary homes." Those segments are doing pretty well. Also, in my Market Conditions report, I spent considerable time clarifying the three years of inventory. I do agree that the upper end faces the greatest challenge, and have been saying for months that the upper end of the market is very soft, for the very reasons you mention.

[henry]

David,

I read your full comment.

Admittedly, I focus on the upper end where my personal interest lies. Still, given the great magnitude of the market trends (30-40% decrease in sales volumes, significant inventory overhang even with necessary haircut, house price appreciation dramatically outpacing income in recent years, and the potential spillover from economic weakness), I strongly suspect that submarket data would show that my comments are applicable to the LARGE submarkets that you reference... though would welcome evidence to the contrary. Please note that I am not saying that a well-priced home will not sell.

Saying the same thing another way... I am interested in what you mean by your comment that the moderately priced second homes or affordable primary homes markets are "doing pretty well." Are you suggesting that sales volumes are not down dramatically for these submarkets? Is there a reasonable level of demand at current prices in these submarkets? It would be very interesting if sales volumes are flat or only down moderately in these submarkets (which comprise a large percentage of the market), while the volumes in the entire market are down 30-40%.

I agree with your premise that the inventory figure needs a haircut. On minor quibble: I would count much of the overpriced inventory as available inventory since I believe that, over a multi-year horizon, most of these unrealistic sellers will get to a market price and sell... one way or the other.

As always, I appreciate your local knowledge and welcome your thoughts.

[Mal]

Henry, I think it's worth considering sales volume from a perspective less wedded to the frenzied market that defined what is widely regarded as an unsustainable peak. Yes, the volume of sales across the county has declined appreciably (to about 50% of its sustained level during 04-06), but the current Sullivan county sales volume looks quite healthy compared with sales over the years preceding the peak of the bubble. It is even slightly higher than it was from 03-04, which were years of significant capital appreciation.

[noogle]

Mal's observation confirms that market bottom has a ways to go before we get to 2001 prices.
2003-2004 prices will not be the bottom of this market. Not when Sullivan's appreciation outpaced that of NYC Metro area.

[bix]

When I was house hunting a few months ago I got the impression that "I" was the market. In the subsegment where I was looking there was healthy competition. There were very few worthwhile houses that were sanely priced, and an amazing number just flat-out undesirable or flat-out overpriced.

I remember well going to one house that was priced at the high end of my range, which was crammed in on a suburban-style street with no privacy, was zero-prepped for sale, cluttered with stuff, had a scummy above-ground pool out back, and hearing the real estate agent say to my agent that the price was firm. I'll bet it still is firm and still on the market. I wouldn't want that house for even a lot less.

For a few thou more (a bit over our range), a house was available that was out in the country and gorgeous. I couldn't afford it but I heard there were multiple offers.

[henry]

Mal,

That is a good point. It is your view that we are at a normalized level of demand? How does the sales volume today compare with similar periods in 2003 or 2004? Do you have the data?

It is worth noting that we may need more than a normal level of demand to clear out some of the inventory overhang. This is especially true if we are heading toward a period of economic weakness.

[Mal]

Henry, the drop in sales volume from 2007-08 could be viewed as part of a sales volume correction that began in 2005. There were bubbles both in prices *and* sales, though they did not follow quite the same time course. Both began to rise above historical growth after 1999, but in 2004 sales jumped dramatically to a peak (a rise of more than 400%), and dropped each subsequent year. Meanwhile prices rose more steadily, peaking 2 years later. David's report of 116 closed sales from Jun-Aug 2008 is still slightly higher than the median closed sales in the same months during the 5 years from 1999-2003.

Your concerns about inventory are well-founded. Inventory remains historically high —  currently it's about 70% above the levels of 2003. (I don't have inventory numbers before 2003). Inventory tends to cycle annually with peaks varying from Aug-Oct. Annual peak inventory climbed about 7% in 2004, ~40% In 2005, ~15% in 2006, and ~3% in 2007, before dropping a bit this year. The dramatic rise after 2004 happened as sales volumes steadily dropped, and the stabilization since 2006 occurred as prices flattened and then began to fall. Inventory is falling slowly overall, but selectively more in some sub-markets, as David has explained. Many buyers and realtors report a remarkable range in value in the current inventory, and that is probably understandable given that many realtors have not previously had experience in a depressed market. It took a while for realtors to accept the reality of falling prices, and it is taking far longer for some sellers.

[henry]

Mal,

Very revealing. Thanks.