Sullivan County Real Estate

At Long Last, the Bethel Sewer Extension

If you've driven west on 17B from White Lake towards Fosterdale, you've probably noticed the stacks of blue plastic pipe alongside the road, and lots of excavating equipment clawing at the dirt. It's the long awaited sewer extention, connecting Bethel Woods to the Bethel sewer plant. (See the article on the 'groundbreaking' from the Mid Hudson News.) It will be interesting to see what, if any, impact there will be on future development along this stretch of 17B with the extension.

The Parsons Houses. Sullivan's Naples, FL?

In 2005/2006, three spec houses started rising on a hill south of Callicoon. (The local builder was Bob Parsons, which is how they became known collectively as 'The Parsons Houses' in the biz here.) The building sites had spectacular views, with one of the three enjoying a broad view of the Delaware River. Those views came at a price, though. The road cut into the hill to reach the building sites was tough, to be generous, particularly in the winter. When they were on the market (at prices in the $500K to $650K range) back then, I showed them a number of times. The big drawback among buyers was always the same — that road. The houses, even with their great views, didn't sell.

A local investment fund lent the money to build the houses. When the builder got into trouble, the investment fund foreclosed. Then shortly thereafter the investment fund went belly up. These three houses sat like lonely, vacant orphans on the top of the hill, weathering not just the seasons, but foreclosure and bankruptcy as well. In October, 2008, they were put back on the market at a fraction of their original prices — with asking prices of $329,000 each. Two have now closed — one at $220,000 and one at $255,000 — and the third is in contract. (Here's a link to the 3 houses.)

It's the kind of story one associates more with Naples, Florida or Las Vegas than here. True, it was a small subdivision, with only 3 houses, a local builder and a local investor, not a 300 house subdivision put up by a corporation and funded by mortgage backed securities arranged by a big investment bank. But the dynamics are similar, as is the impact on the local market.

I have to admit I was a bit surprised by the sales prices on the first two closed sales. The houses came on the market at a pretty dismal time — October. But they generated interest pretty quicky at those prices and I thought they might close somewhere closer to $300K. (The third house, not yet closed, is the largest of the 3. It will be interesting to see where its price comes in. Prices aren't public until a sale is actually closed.)

These 3 houses are going to present a real market challenge over the next few months. These houses were fire sale priced, the result of a perfect storm of not one, but two financial collapses. There isn't another situation quite like it, particularly in west county. But that doesn't mean other buyers won't have the expectation of finding a 2,200 sq. ft. new house on 7 acres with a view around Callicoon for $250,000. (Never mind the road access, which is still a challenge regardless of what you pay for the house.)

These houses also drop into the comp pool for appraisers. Yes, every local appraiser in this county knows the Parsons houses are distress properties, and can flag them as such when they use them as comps. But they can't ignore them. And out-of-area appraisers, who are often do appraisals for the big bank appraisal mills, likely won't have that knowledge and will use them as non-distress comps.

These 3 sales will also probably pose a major headache for the Delaware Township tax assessor. We're less than a month away from tax grievance day. And some of the most recent sales in the township are a 2,240 sq. footer on 18 acres at $255,000 and a 2,270 square footer on 7.2 acres for $220,000. It's going to be very interesting to see how this plays out, because I don't know how assessors factor in or adjust for distress sales.

Farmers Markets Return

This run of 80 degree + weather makes me want to run out and pick some fresh summer tomatoes. But August is still a few months away, and this weather — as lovely as it is running around in shorts and bare feet — is just a tease from God. (You know you're talking to a glass-half-full Sullivanite when they remind you, as you're sweating buckets, that "You know, we've been known to have a foot of snow in May.")

So a few days of shorts and t-shirt weather don't necessarily herald the arrival of summer. But the opening of the Sullivan County Farmers Markets surely do. The first market opens this comning Sunday, May 3rd in Callicoon, followed by Liberty on Friday May 8th and Roscoe on Sunday May 10th.  (Click here for the full schedule and times.) If you're new to Sullivan County, and haven't visited one of our markets, makre sure you do this spring and summer. They're one of the loveliest parts of living here, and will be sure to become a regular habit.

Northeast Worst Performing Region in Latest NAR Home Sales Report

NAR, the National Association of Realtors, released the March Existing Home Sales data yesterday. For the past year, as real estate sales and prices collapsed in parts of the county (particularly the Sunbelt states in the south and west, plus California), the northeast region always seemed to be a bright spot in an otherwise dismal data picture. While sales and prices were down in the Northeast as well, this region typically outperformed the south and west. If not in both the percentage of sales decline and price decline, at least in one of those two.

Not so this month. The real estate slowdown has caught up with the northeast. While year-over-year, seasonally adjusted March sales were off 7.1% from March 2008 nationwide, in the northeast they were off 22.5%. (The west marked a stellar performance in this event, with an 18.9% year over year gain!)

On the price side, nationally the median sales price was down 12.4%, while in the northeast, we saw an 18.4% drop off.

The results, while sobering, aren't that surprising. The south and west took the hit first, a result of rampant speculation and overbuilding that led to a record number of foreclosures. As those foreclosures hit the market, they pummeled prices but have had the effect of luring buyers back into the market. So in many ways, while the downturn has been very painful in those regions, they are probably further along in the recovery process.

Most states in the northeast, by contrast, have far longer foreclosure processes. (In New York, it's often bandied about that it takes about 22 months to foreclosure on a house.) So foreclosures are just starting to have an impact on the regional market. Also, the fact remains that the northeast has not been as ripe for speculative overbuilding, so inventory overall may be more in line with actual demand. While these factors may soften the regional fall in the northeast, we're not out of the woods yet. I anticipate that the northeast regional will exhibit the three P's — piss poor performance — over the next few months of the existing home sales reports.

About Cutting, Pasting and Copying

A commenter just posted a very long and thoughtful piece about the housing recovery and housing economics. It was so long and thoughtful that I questioned whether someone sitting at their computer typed it out in a response flurry. So I copied a paragraph into Google, and lo and behold, it was an article written by Charles Hughes Smith. Here's the link to it:

http://www.bearmarketinvestments.com/16253

I did not release the comment post on this blog because the poster didn't write it, he copied someone else's article without attribution. That's a copyright violation. Even with attribution, copying and posting a whole article without permission is still a copyright violation.

It's fine to link to another article, and even pull a quote or two to lead into the link. But please try to avoid copying whole articles into a post. Thanks.

Do Sellers and Buyers Need to "Age"?

I'm sending a curious phenomenon. I don't know if it's really true or not, because my sampling universe is small. It seems as though the deals that are being done, at least in the second home market where I tend to focus, are happening between sellers who've had their houses on the market for quite a while, and buyers who've been looking for a while as well.

As I mentioned in a previous post below, I've called on a number of houses in the past couple of weeks to arrange showings to find out they've recently gone into deals. Quite a few of those houses have been on the market a long time, some more than a year. Initial asking prices were often far higher than current asking prices, 60% higher in some cases. Many have had more than one listing agent in their time on market, indicating that the seller may have had the belief that the "problem" was their agent, and not their price. Over the course of their time on market, they've probably gotten feedback that their price was too high, and possibly also gotten a number of offers that telegraphed to them what buyers felt about their price.

Finally, they brought their price into a "recommended" range that appealed to buyers, and voila! They have an offer and make a deal. It can be long and arduous process, and along the way the sellers continue to write out big checks for property taxes, insurance, snow plowing, utilities and maintenance. In the end, the desire to just sell the house trumps holding out for a few extra thousand dollars.

New sellers, in contrast, have a very different mindset. They may have high price expectations that haven't been tempered by the hassle of having their house on the market, picking up and making the beds for weekend after weekend of showings. Or the brutal feedback that their house isn't even generating showings because of the price.

There's a mirror process on the buyer side. New buyers often come looking with very high house expectations (and, in this market, low price ones.) New buyers have a list of "must haves".  Among second home buyers that usually includes privacy, charm, views and water. Lakefront buyers, for example, almost all want that "On Golden Pond" lakefront setting, with privacy and woods along with lake. Yes, that's available here, but generally at higher price points. It can take shoppers a while of looking here and elsewhere to settle in to the trade offs involved between price and property.

New shoppers also have a tendency to view every property as overpriced. Part of that stems from internet shopping before actually going to look at houses. There are 3 or 4 older style "farmhouses" under $150,000 that look adorable on the web that I get asked about regularly. One is on a main road with the gas pipeline behind it, another is across from a town bar and a third is in such poor condition that there are cautions about walking in the house because of rotted floor supports. Buyers sometimes have to go through those houses to form their own opinion that they may not be the houses they've been dreaming about.

Likewise, new shoppers often believe that a lot of new inventory comes on the market every week. When I first start working with clients, they often want to come up every weekend or every other weekend to see what's new. They're surprised when sometimes I tell them there hasn't been anything new in the category they're looking at, and often there will be only one or two new listings of interest.

Over a period of time buyers start formulating a "mind map" of houses, prices and areas. They start to understand the relationship between distance (from the city) and price, and the impact that factors like privacy, house style, condition and area have on value. Often they ask about a house they saw earlier, and are stunned that it's sold or under contract.

Buyers who are further along in this shopping process are generally more ready to actually pull the trigger and buy. They have a better handle on relative values, and can spot a value to take advantage of it.

Negotiations between buyers and sellers who have "aged" have a different tone than Beaujolais nouveau buyers and sellers. The primary motivation for a seller who's had their house on the market for a while (and has indicated motivation by regularly lowering their asking price) is to sell the house. There's less ego involved with the price they get, and they've usually made piece with taking a smaller profit or even a loss. For buyers who've been looking for a while, their motivation is to buy a house. They're not as tied up with getting the deal of the century; they just want to get a good house at a good price.

Among "aged" buyers and sellers, there's flexibility to make the deal, and less gauntlet throwing and ultimatums. Brand new buyers, for example, often take a hard line stance, making a single low offer and telling the sellers it's 'take it or leave it'. If the seller doesn't take it, they're ready to move on to the next house, in the belief that there will be a next house that they like as well or better with a seller who will take their price.

Bottom?

The pall of doom and gloom that hung over real estate (and the stock, market, retailing and the economy overall) over the winter seems to be lifting a bit. Six weeks of generally positive stock market results, along with some glimmers in other sectors, may be having a positive impact on people's psyches. I'm sure you're noticing it among your friends too --- over cocktails or over dinner, the tone is more upbeat. There's a sense that "it's" working --- whatever that "it" is that the government is doing. Of course, some of it is the passing of time; we've officially been in a recession for 16 months, and the Lehman bankruptcy was seven months ago.

I'm starting to sense that we may have seen the real estate market bottom here, at least in some sectors. I've been following the median sales price for Sullivan County single family sales closely. At the end of March, the 3 month measure (Jan. 1 thorugh Mar. 31) stood at $132,000, the lowest I've seen since March 2004. I just pulled the data from Feb. 1 through Apr. 17, which is a good indicator of where the 3 month number is headed when I pull the next full period through April 30th, and the number is $138,000. That's up from the previous month, not a lot, but up and not down.

I've also been a bit surprised this week when I've been calling around to make appointments to show houses. A number of houses that I wanted to show --- and were available two or three weeks ago --- have deals on them. Now, a lot of the houses that make my "short list" to show prospective buyers tend to be attractive and pretty well priced, so it shouldn't come as a huge surprise that some of them are gone. But there are definitely folks out there buying. In the last 10 days, I've put together one deal and have another in negotiation, and one of my colleagues at Catskills Buyer Agency, Kathy Rieser, is in negotiation on two properties. That's more activity than we saw in a month over the winter.

Price wise, none of what I'm working on is upper end. The houses I'm finding out are in deals are in a solid bread-and-butter range from the mid-$100's to the upper $200's. That's definitely the sweet spot among folks who are calling. I'm not getting calls for big renovated farmhouses on acreage or lakefront houses above $500,000. I'm not complaining. I'm happy to see the activity.

Mohawks Revive Casino Talks

An article in yesterday's Sullivan County Democrat reports that thh St. Regis Mohawk tribe (which was the tribe involved with Empire Resorts for a casino at the Monticello Raceway) has approached the new Dept. of the Interior about reversing the prior administration's stand against off reservation casinos. If you've followed casino developments here in the Catskills, you know that Dick Kempthorne, the Bush Adminsitration's Secretary of the Interior, was very much against off reservation casinos, and squelched the St. regis Mohawk application. (The Dept. of Interior includes the Bureau of Indian Affairs, and they have to tak tribal lands in trust to enable off-reservation casinos.)

After Kempthorne killed the Catskills casinos, I wrote that I thought a change to a Democratic administration could likely revive them. It seems the door is open to doing just that. Of course, the current economic environment, with gaming revenues down, casino companies showing losses and credit for new projects tight, a Sullivan County casino is unlikely in the near future. But the economy and credit picture are likely to brighten, and a revived casino push could take some time to work through a renewed approval process.

Lotsa Lake

Chalk it up to the warm weather the last couple of weeks (forgetting about the last couple of days!) There's an outbreak of lake fever in the city and 'burbs. Over the last week, I've fielded a lot of new inquiries about lake properties here in Sullivan. The big problem, though, is that when I ask about price range, what buyers are saying they're looking to spend is way under the prices of available inventory. I feel like a matchmaker, with a stable of eager brides and no eligible bachelors. I dutifully email out the pictures and descriptions of the bachelors I do have, but the brides-to-be don't call back.

The kind of price ranges I'm hearing from buyers are around $200,000 to $250,000 for a small, cozier two bedroom lake cottage, $350,000 to maybe $400,000 for a 3 or 4 bedroom 'family sized' lake house. Edging above $400,000, buyers have an expectation they're going to find something with acreage and privacy, rather than just a lake house on a traditional-sized 70' wide, 1/4 acre lake parcel.

It's going to be interesting to see how the next few months plays out in this popular category. Good lake houses within a couple of hours of NYC are in pretty short supply. The supply of lake houses within a couple of hours of the Minneapolis Metro area (population about 3 million) is probably about the same as within a couple of hours of the NY Metro area (population 18 million.) If just 1/10th of 1% of New Yorkers dream about buying a lake house in any given year, that's a potential shopping market of 18,000. If 10% of that group are really serious, that leaves 1,800 really motivated buyers. Sullivan County is likely  one of the two densest lake counties within two hours of NYC (the other is probably Pike County, PA), and in any given year we have maybe 100 or 150 lakefront houses come to market.

While the pure demographics point to demand outstripping supply, that doesn't mean buyers will pay any price. In fact, buyers are just saying "No". They're giving pretty clear signals about how they value a lake house, and those signals, in many cases, are about 40% lower than where sellers are right now. Arguably, in the current economic conditions buyers may have overshot to the low side. But even if buyers bounce up a bit, it's going to be tough to make any marriages.

A note to buyers: the gap isn't universal. There are a handful of lake houses on the market that I consider interesting opportunities or good deals. Not a lot, but some.

Current Market Conditions Posted with March Data

I just posted the Current Market Conditions monthly column, with the latest quarterly single family sales data reported in the Sullivan MLS. Check it out and then come on back here and post your thoughts.