Trapped in Their Homes

A commenter on the previous thread pointed out a good article in the Times' Long Island Edition, Trapped in Their Homes. The main focus of the article is homeowners who want or need to move on with their lives — trade up, move out of the area, retire and move into smaller digs, etc. — but are unable to find buyers for their houses. Of course, when sellers can't sell their current home, they can't buy the "downline" house, meaning there are no sales instead of the two that would have happened in more "normal" times.

The reporter makes raises some very good points. Buyers are bypassing houses with any "warts" — high tension wires nearby or a steep slope to the lake. I'm seeing the same thing here. Any significant negative factor moves a house into a buyer's "no" column — too close to the road, not private enough, low ceiling heights, vinyl siding (for city second homers who want 'authentic' and 'natural'). And some of the problem, of course, stems from sellers stubbornly holding to outdated price expectations and overpricing their houses.

But there are some systemic problems, not seller created, that contribute to the current house trap many sellers are facing. The biggest one is the difficulty buyers face in getting financing. I'm hearing more and more tales of deals falling apart because a buyer is unable to get financing, even when the buyer has very good credit. Appraisals continue to be a real conundrum, especially in low density areas like Sullivan with low sales volume. It's increasingly difficult to find responsive comps that meet lender's tightening underwriting standards. The deal price can be really good, but the house may not appraise because there haven't been 3 similar houses sold in the last 3 to 6 months. That's a big issue right now for lake houses, for example. Apart from the $1.75M lakefront sale at Chapin in January, there hasn't been a lakefront sale above $400,000 reported in the Sullivan MLS since last August.

Sometimes whether a house will comp or not is the luck of the draw. While I'd have trouble getting a $500,000 lakefront house at Swinging Bridge, Devenoge or Wolf to comp, an $800,000 non-lakefront house at Chapin wouldn't be much of a problem because there are some sales in that particular category.

Another direct impact on Sullivan stemming from those house-trapped Long Islanders is the downturn in the "retirement split" market. I often comment on this blog about the 30-something city renters driving much of the Sullivan second home market. But another very significant component has been empty nesters and retirees selling their now-too-large suburban homes, and making a lifestyle change to have a winter place in Florida and a summer place in the Catskills. If these potential buyers can't sell their primary homes, they can't double down and make the split. This isn't a major part of the winter market here, but the impact will be worth watching — particularly for retirement split magnets like Emerald Green — as the summer progresses.

All of these factors are contributing to a kind of freezing in the market, sort of like an ice dam on the Delaware. It does put one category of buyers in the catbird seat, those with excellent credit, lots of cash, and no need to sell or refinance an existing property to buy another.

Comments

[Rod]

A way around the appraisal/financing issue is to finance locally with Jeff Bank or Catskill Hudson. Their underwriting never loosened up too much during the boom, nor has it over-corrected in the bust. Rates are higher, but it's a solution to those who really do 'want that house'.

[b.]

Good morning all,
Since this thread is getting a little long in the tooth, I'd like to leave you with the following op-ed piece from Frank Rich in this morning's New York Times.

In reading the essay, I found that the theme of 'denial' runs through it and, in my humble opinion, is worth reading since that topic has come up in this thread and in previous posts - and will be a major part of real estate throughout Sullivan County (and elsewhere) in 2009.

For the others on this board that continually wave pom-poms or delight in wearing rose colored glasses with regards to the state of the local real estate market - this article is a... ahem... (to use the jargon) -"a must read".

B.

=========================================================
Frank Rich in today's New York Times:

"What We Don't Know Will Hurt Us"

click:

http://www.nytimes.com/2009/02/22/opinion/22rich.html?_r=1
==========================================================

[Reg]

I don't think there are any people who read this site that are deluded about the market--that is where you are wrong, B. (or whatever new nickname you've chosen for yourself among the dozens you use).

We're all adults, and we all know and understand the perspectives offered on this site come from someone who is in the business of selling real estate. That said, Dave is very clear and open about this. Readers come to this site for his perspective, not for yet-another-end-of-the-world post. I don't think there is a lot of delusion here, unless you count the idea that people are waving 'pom-poms'.

We all know what is going on in the market, thanks.

[MK]

I guess B. posted under both threads just so no one would miss his important pronouncements.

[cfranch]

Considering the hard economic data, the pending nationalization of big banks, the tanking stock market etc...I am surprised that there isn't more negativity on this board. Dave has repeatedly cited reasons why the market has slowed down in Sullivan(and everywhere). To me the most important reason is seller delusion. Same goes with the stock market and idiots like Suze Orman who constanly repeat the mantra of buy and hold. Until there is panic selling we will not hit bottom. Sentiment indicators have been very reliable at predicting market turns and right now things are still too bullish. So down we go, drip, drip, drip.

[Nick]

An advocate for panic selling. Interesting.

Ummmm...

[compo]

Cfranch,

What would you call the selling that occurred in the 4th quarter of 2008? There were days where the sellers outnumbered buyers 10 to 1. What about the volatility index hitting all time highes and staying there for a prolonged period? The VIX hit 50 in mid October and remained there until Mid December. Chart the VIX going back 5 years and you will really see panic in late 2009. Is the panic over, who knows.

I personally know individual investors who went to cash when the market broke through 8,000. There is nothing like being ahead of the crowd. Let's face it nobody can precict with any level of certainty where the stock market is going. I did not hear too many of the so called "experts" predicting the decline we just experienced until we were 75% through it.

[cfranch]

I wouldn't call it panic selling. We had one day, a friday I believe, where the market was going to open down 1000pts but managed only to close down 200+ points. Yes the VIX spiked but it has not been that reliable lately. I agree nobody can predict market tops and bottoms precisely but one can get a feel based on sentiment, price and volume to indicate direction.

[compo]

We had many days where the indices dropped 5%+. There were no buyers during that time period, only sellers. I agree we sit frozen. I thought Obama was going to be a better communicator but he seems to increase expectations only to fall short on delivery. I also agree, someone needs to bite the bullet on the banks. Someone has to take a haircut and there are pretty much 3 choices; taxpayers, investors, or the institutions. The problem is nobody wants to take the hit so we are all suffering. All this talk of at-risk tax payer money but has anyone looked at how much we are all losing while nothing is being done?

The forest grows thicker after a complete burning. Are we there yet, only time will tell? I hope it is only the underbrush that is burning now.