Sullivan County Real Estate

Lending Changes of Note

I try to keep up on changes in the lending arena, and was chatting yesterday with a loan officer at one of the local banks yesterday. She mentioned a couple of recent changes that I hadn't been aware of. These changes will likely have a significant impact, particularly on second home buyers who are looking to purchase with less than a 20% down payment. First, Fannie Mae, the large purchaser/underwriter of mortgage loans (I'm never sure quite how to refer to Fannie; maybe I should just say the big gorilla in the room) is increasing the minimum down payment for second/vacation home purchases to 15%. A 15% down payment is still less than the conventional/conforming 20% minimum, so those loans would still carry PMI, private mortgage insurance. And there's the second rub. One of the large PMI insurers is now requesting that 2 of the 3 appraisal comps used to demonstrate have sale dates within 90 days.

The low sales volume over the past 3 months, combined with the skewing over that time frame to very low priced and foreclosure properties, is going to make it very challenging to meet that 2 comp requirement for moderate priced or better properties. It's important to keep in mind that these two factors — higher down payment requirements combined with tighter PMI guidelines — only affect second home buyers looking to make less than a 20% down payment. Primary home buyers have the FHA loan programs available to them, which permit a down payment as low as 3.5%.

While most second home buyers I work with have a 20% or higher down payment and qualify for conventional/conforming loans without PMI, there is still a sizeable group of second home shoppers, particularly younger buyers in their 30's, who are looking to purchase with 10% or 15% down. Some of these buyers may need to downshift their price range to be able to make a 20% down payment. The availability of 90 day comps may also become a key factor in whether a house is purchaseable or not.

We may also start seeing more creative deal terms to help buyers who are, say, in the 15% down payment range get to that magic 20% number to qualify for a conventional loan without PMI. This could possibly take the form of a seller concession towards closing costs, or waiving the buyer reimbursement of seller-paid property taxes to leave a little more cash on the buyer side of the ledger to be applied to the down payment. I don't know what's possible in this arena yet, because it's new territory for me. Lenders have percentage limits for seller concessions, and I don't know how something like a waiver of property tax reimbursement would be treated on a settlement statement.

It's also important to keep in mind that the lending landscape keeps changing. There are a number of PMI insurers, for example, and one of them may be amenable to a wider comp window in a low density rural area. Likewise, Fannie can change it's requirements on a dime, and not all loans go through Fannie. This isn't to say that a second home buyer with great credit but only 10% down won't be able to get financing. But you'll likely have to shop harder for the money.

NAR Data Points to Price as Upturn Key

The National Association of Realtors released the Existing Home Sales data for December, showing an unexpected 6.5% rise nationally in the annual rate of sales over November. The most interesting aspect of the data is the regional breakdown, particularly as it relates to price. The biggest sales uptick occurred in the western region, where sales gained 13.6% over November and were up a whopping 31.6% over December, 2007. (In comparison, the northeast lagged with a 1.4% drop from November to December, with sales off 14.3% from a year earlier.) The western region, however, also recorded the largest drop in prices, with the median sales price down 31.5% from a year earlier, and 38% from the peak year of 2006. What bthe data seems to be implying is that the large price drops in the western region have had the effect of restimulating buyer demand. Or to put it another way, prices have started to reach a level to "clear the market."

In the northeast, by comparison, the median price is down only 7.8% from a year earlier, and off only 12% from the peak in March, 2008. The housing downturn started earlier and has run further in the west, and the west had one major price factor — a huge amount of development and speculative overbuilding — that isn't as applicable in the northeast. But none-the-less, it appears from the data that a significant price drop is the secret sauce needed to whet buyer appetites.

Support Rural Broadband Push

Surprisingly to many city folks who take broadband access for granted, Sullivan County, like many rural parts of America, does not have universal high speed broadband access. There are hundreds of households here still relying on dial-up. Satellite internet is an option, but has technical limitations. Time Warner only runs cable along roads with a minimum number of houses, leaving many roads throughout the county without cable. Verizon has yet to upgrade its switching equipment to enable widespread DSL deployment in the lower density western areas of Sullivan. (The smaller phone company, Frontier, does offer DSL, but its service areas are limited to the far southwest and northwest parts of the county.)

Over the past few years, a number of state and federal bills subsidies to expand broadband  in underserved areas, but they've all been killed. Now it seem there is new hope. The House Committee on Energy and Commerce has included $2.8 billion for wireless and wired broadband in the economy recovery package. President Obama included the statement "It means expanding broadband access to millions of Americans, so businesses can compete on a level-playing field, wherever they're located," in his Saturday radio address.

So Federal support for rural broadband expansion is finally gaining traction. (The players have stopped short of calling for 'universal broadband access', similar to the Depression-era commitment to rural electrification, but it's a start.) But there are a lot of speed bumps along the way before a Federal commitment to broadband expansion becomes law.

The next step is that the Economic Recovery Act that passed out of the house committee has to be voted on by the entire house. Then a similar plan has to be voted on by the Senate, and in an attempt to trim the costs of the package, the broadband plan could be cut.

So now's the time to write our Congressperson, Maurice Hinchey,and our two Senators, Charles Schumer and Kirsten Gillibrand (the link is only to her House website. Her Senate site isn't up yet) to encourage their support for rural broadband access and the broadband provisions of the economic recovery act. It also wouldn't hurt to email Dr. William Pammer, the director of the Sullivan County Division of Planning and Environmental Management to encourage the county to weigh in on the importance of universal rural broadband.

Sullivan County Second Homeowner Forum

Bix, a regular visitor to this blog, has set up a Sullivan County Message Board primarily targeted to second home owners, to exchange information on contractors, weather and traffic, local politics, gas drillings, real estate, etc. It's a great idea, and I'm glad that Bix took the initiative to get it going. Any new forum or blog needs to get some traffic and generate posts to gain traction and become a reliable reference. So please drop on by and give the board a boost at http://sullivancountybbs.proboards.com/index.cgi.

Resetting, Not Recession?

Yesterday, Microsoft CEO Steve Ballmer made a notable statement when announcing the software giant's first mass layoffs in history. He said that the economy isn't really in a recession — there's a resetting in the economy to a "lower level of business and consumer spending" based largely on reduced leverage in the economy. Now, Ballmer's statements have p.r. flack spin written all over them. And whatever "R" word you use — resetting or recession — the economy is still in a world of hurt. But Ballmer's statement really stuck with me and got me thinking about how it applies to real estate here.

Eight years ago, when I started selling real estate here, Sullivan County seemed like a veritable bargain bin of real estate. I paid cash for the 18 acres of view property I bought in the Beechwoods to build my house for $30,000. Folks looking for a charming little farmhouse on a few acres to update could easily find something for $150,000. A nicer or larger farmhouse, or with more acres, could regularly be had in the mid $200's. In 2002, my highest sale was a house on the Delaware River just north of Callicoon for $312,000 (that resold in 2007 for $525,000.) In 2002/2003, a Smallwood year rounder would typically change hands around $100,000, and a modest 3 bedroom lakefront house was around $250,000 to $300,000.

I could go on and on with other examples. But the common element is that 5 or 6 years ago, it just didn't seem that expensive or extravagant for middle class New Yorkers to buy a country getaway here. Purchases also weren't fueled by the "wealth effect." Middle class folks looked at their income, their assets and the expenses associated with carrying a second home and made a decision about what they could afford. Buyers, for the most part, weren't tapping the equity in their appreciated NYC apartments, churning bonuses into real estate, or highly leveraging themselves with interest-only mortgages in hopes of future returns.

That started to change in 2004 and accelerated in 2005. Real estate was the hot asset category. Everyone wanted in. There seemed to be rivers of cash, either from Wall Streeters with bonuses, or homeowners tapping their appreciated equity. That cash enabled some buyers to pay above appraised value for the best properties. 2005 through 2007 was a buying frenzy with sharply rising prices, a combination of wealth effect and leverage. I remember commenting a number of times that buying a country place now involved "real money". When you rephrase $500,000 as a half a million, or $250,000 as a quarter of a million, it seems even more "real."

And here's where I come back to Steve Ballmer's comment about resetting. Real estate prices here are clearly resetting. The issue right now for everyone — buyers, sellers, brokers and lenders — is that it's difficult to know where prices are resetting to, particularly in market segments with few or no sales. It may be a while before sales volume picks up and those price points begin to redfine themselves.

In the meantime, it may be helpful to look at perceptions and attitudes related to prices. What's the price where buyers again have the perception that Sullivan County is a good value, a place where they can comfortably afford a getaway without a lot of stretching or financial maneuvering. The price where the annual costs are palatable, without relying on dangerous leverage or betting on future appreciation to make the numbers add up.

In terms of kick starting the market, most sellers and brokers are looking at pricing from the wrong end — working down in mostly baby steps from the pre-recession, high leverage, high "wealth perception" era that has disappeared. But we need to look at pricing from the other end, from the buyer's perspective about what they see as affordable. It's easy to write off buyers with low price expectations as unrealistic, and they may well be, at this moment in time. If someone calls and asks about finding a 3 bedroom lakefront house under $300,000, or a farmhouse on 5 acres under $175,000, I probably can't make it happen at this point in time in the market. But those buyers are providing valuable information that we need to pay attention to. They're telling us that a $300,000 lake house or a $175,000 farmhouse fits their vision of what's affordable and achieveable.

Snow Surprise!!!

Woke up to a surprise snowfall this morning. Only 1 to 3" was forecast, but a ruler stuck into the snow on my car hood showed 8", and its still snowing at 9AM. That's my dog, Kumba, in the snow. She's a 55 pounder and it's up to her belly.

The snow is light, fluffy and perfect for cross country skiing or snowshoeing. I know a number of folks didn't come up to their houses this weekend because it was so awful cold on Saturday. But it's much warmer today with a high predicted in the upper 20's with only light wind. So if you're a snow enthusiast but hesitated to come up this weekend, you may want to rethink. For cross country, this is just perfect.

Latest Current Market Conditions Posted

The latest Current Market Conditions report is up, with sales through Dec. '08. The picture is far from rosy, with annual single family home sales volume in the Sullivan MLS running at about a 400 rate and closed sales prices hovering right around late 2004 levels. There is some good news — asking prices are finally dropping, many sellers seem more flexible, and there has been some pick-up in buyer interest, particularly in "good value" properties.

I Know I'm Late

I know I'm delinquent in posting the Jan. Market Conditions Report with the Dec. sales figures. But hard as it may seem to some of the mudslinging pundits on here, I've been slammed-to-the-wall busy for the last week. And as much as I love this blog — and the, shall we say, 'frisky' debate — my clients get first dibs on my time. I've been working off and on for the last few days on the latest market conditions report, but to quote Santa (given the intense scrutiny on anything I post now), I'm "making my list and checking it twice."

By the way, as much as I might fuss over the comments posted, all of the folks that come by here make this a pretty unique and amazing real estate blog. This blog has generated intense interest from real estate folks around the country, because of the passionate visitor involvement.

I hope to have the latest figures up by Wed.

Power Outage Info

Today's "major ice storm" kind of fizzled — it takes a very particular set of circumstances to result in an ice storm. But, nonetheless, lots of folks may get worried in the middle of winter that their power might be out. The worry isn't unfounded. Loss of power --> heating system not working --> add in freezing temps for a day or so --> burst pipes. Every time an ice storm is predicted, I get a few calls or emails asking "How bad is it? Is the power out?"

Now I've joined the legions of "from a distance" potential worrywarts, since I'm often in my apartment in the Bronx during mid week in the winter. There used to be a tried and true method of knowing if your power was out. You called your number, and if the answering machine didn't pick up, you knew your power was out. But I don't have an answering machine anymore; I have voicemail. I called a few friends today who are in the general area to ask "How bad is it? Is the power out?" Even though they had power, it wasn't necessarily a reliable indicator for my particular road.

So I checked the NYSEG site, where NYSEG has an Outage Central section, where they list power outages by township and specific road. I've gone on and on in earlier posts about NYSEG's great Service Interruption phone line, that gives you updates about when service is expected to be restored. Their Outage Central online system is an extension of that, and can provide peace of mind to homeowners who are away from their house.

Who'd ever thunk that anyone would ever say that they love their electric company. But I gotta say, I love NYSEG. Whoever designed this power interruption reporting and information system deserves a BIG promotion.

Buyers Back?

Being quoted in last Friday's NY Times article on Catskills home prices led to a surge in calls and email inquiries over the weekend from potential buyers. I'm not about to make a statement that the market is rebounding because I experienced a surge in interest following a Times mention.

The folks that called and emailed were mostly asking about vacation homes, in a range of prices, settings and styles — from under $100,000 up a about a million. I've been busy the last few days, emailing out listings, discussing them on the phone and setting up appointments. I've been making a lot of calls to other agents to check on the status of listings, and that's where the big surprise came.

A lot of the houses I called about, even though they may still show as "Active" in the MLS, have deals on them. Not just one or two, but at least a dozen, including 2 of the 3 lake rights houses at Lake Devenoge, two farmhouses on acreage near Callicoon and even a lakefront house at Chapin listed at $1.9M. The houses in deals weren't all low end by any means. Most of these deals happened in just the last couple of weeks.

Of course, this is a very unscientific sample — its just houses I called about to check on status. And a dozen houses does not a market resurgency make. But it's very different than just a month or two ago, when it seemed like every house I checked on or wanted to show was still available.