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.
One addendum comment. Here in Sullivan we've had very little spec house development. There been some primary home spec development in the more eastern parts of Sullivan — the Ronstein houses in Emerald Green, some D.R. Horton houses near Hurleyville, and some bi levels and colonials heading down into Forestburgh. And when I think back on what's been on the market in the last 5 or 6 years, there have been probably only 2 or 3 dozen second-home targeted spec houses total. Most of those sold; only a handful ended up in distress sale situations.
In contrast, there has been much more high stakes gambling in land speculation and development. There's a lot of unsold inventory. While it's difficult to say what are actual 'distress' situations, since there haven't necessarily been a rash of foreclosures on developer property, there's been a lot of heavy discounting.
Posted by: David Knudsen | April 28, 2009 at 06:23 PM
Dave,
Why are most raw land sellers still holding onto their unused abandoned land?
Most SC realtors confirm with me that large parcels (40+ acres) are not selling past 2800 per acre. Only the occassional hunter is in search for some land.
Sellers seem to think their raw land is worth trillions when in reality offers on raw land are very far and very few.
It appears as if SC raw land parallels the toxic assets on banks' balance sheets.
Marked to market and buyers want it for very cheap. In the meantime, nothing sells.
Stagnant market for SC land.
Posted by: Baysider | April 28, 2009 at 07:43 PM
I'm struggling to understand the "distress" analysis and its implicit message that these Parsons sales are somehow not fair reflections of the market. These houses apparently were on the market for a long time before they were sold at the prices noted in your posts. All that time, nobody was offering to pay more for them, right? Let me suggest that a seller who can last that long is not selling in "distress" -- his ability to hold out that long demonstrates his LACK of distress, and the price he is selling at merely reflects the fact that after extensive marketing time, that's the most the market will pay for what he's selling. What reason is there to think that if he waited another two years, he'd get significantly more (versus losing the only sale he had in hand)? The "distress" analysis may comfort owners, sellers and commissioned real estate brokers who can readily extrapolate what $220,000 for one of these houses means for that "adorable favorite" offered for $179,000 and consisting of 25-year-old log-sided ranch on less than 2 acres without view and pinkish carpeting in the living room. But it seems to me that when you are talking about houses like the "Parsons" houses that have been marketed for a long time, and this is all you can get for them, the "comfort" is dilusional, and the only "distress" is the reality that the SC second-home market is in a depression in relation to boom levels.
Posted by: ar | April 28, 2009 at 08:05 PM
ar, your comment implies that there was "a" seller. Because of all the financial maneauverings over these houses, there have probably been three or four different owners over the past few years, depending on who took title to the properties following the various financial debacles. There has not been a single "he" here, who has regularly lowered prices until the houses found a market.
And before you're too quick to wonder why these didn't sell at higher prices, drive up the LONG steep drive to the houses and think about driving up on an icy Friday night in February. That was probably the biggest contributor to the fact that the houses didn't sell before, or at least generate much interest. Sometimes a builder just makes the wrong bet, and something they put up doesn't click with buyers. Sort of like a fashion buyer at a department store. They order a lot of sweaters in a color that just doesn't hit, and those sweaters have to be heavily discounted or jobbed out to find buyers.
Posted by: David Knudsen | April 28, 2009 at 09:15 PM
David - you forgot to mention the power line easement and the gas lines run right through them, and since all were either in contract or sold prior to the NYRI's decision to withdraw their application, one can only speculate what the sales agents disclosed about the properties.
As you mentioned, the road is an issue regardless of price. And Barriger, the local investment fund that is the subject of multiple lawsuits, is illiquid and has a non-performing loan portfolio that would amaze even those who don't care about such things.
Barriger is unloading all its properties at prices buyers will pay NOW. They are actively lowering the price until they find buyers, on properties through Sullivan County (and the country). They seem to have one goal - liquidate properties and raise cash, regardless of amount of loss. Since very few contractors, suppliers, or vendors ever got paid for their work at those properties (and their invoices wiped out with Parson's bankruptcy), Barriger will escape with losses of 40% instead of exceeding 100%.
It's a continuation of a pretty bleak story, and a disaster could not be better defined, but to think that these will now set the bar for comps is probably pretty misleading.
And either way, it brings the median up.
Posted by: Rod | April 28, 2009 at 09:20 PM
Rod, the NYRI route around Callicoon was moved a bit further east sometime in the application process last year. It moved off the pipeline route in this area, to run just above Hortonville and cross the Callicoon Creek around Hortonville. So NYRI relative to these properties may have been moot before the current sales.
The gas pipeline does run through two of the three parcels. I was not involved in the transactions, so don't know what was disclosed or wasn't disclosed. However, the pipeline is somewhat separate from the gas drilling issue (although they are connected), and the pipeline right of way is in title. I'm no expert on drilling equipment, but I would be surprised if the areas right around these houses are prime drilling territory because I can't see lots of heavy drilling equipment clambering up the road.
But your point is well taken, that there may have been other factors, besides access, that could have adversely affected the marketability of those properties.
I don't think that these sales will necessarily set an immovable bar for comps. But they will certainly have an impact, particularly because of this move by big banks to use large regional appraisal services that send out appraisers from two or three counties away who have little or no local market knowledge.
Posted by: David Knudsen | April 28, 2009 at 10:00 PM
Dave, you seem to be mixing ideas here -- it's one thing to say they were "distress" sales; it's something quite different to say they sold low because of property characteristics like the road. If the latter is the reason, then any "distress" analysis is irrelevant because the property could not command a higher price regardless of the presence or absence of seller "distress", since the road is the road is the road. I was addressing the "distress" point, which seemed to be the dominant point in your post. (Actually I've been on the road (Froehlich Road) and seen the houses; I believe there is at least one other house on Froehlich that has been occupied for a long time, and that owner presumably comes home on winter Friday nights.)
It is not clear to me how the number of owner/sellers over time explains the inability of any of these sellers to attract higher bids. Nor does the potential of serial owners change the fact that the houses WERE on the market for a long time, regardless of who the seller(s) was/were during that period. You refer to "all the financial maneuverings over these houses", but I haven't a clue what that phrase means. What do those "maneuverings" -- whatever that means -- have to do with the an inability to get a higher price? The houses are new and beautiful, with acreage and extraordinary views, and two minutes from Callicoon; they were marketed for a long time -- perhaps by multiple sellers over time -- and yet the market would not pay up. I think that in trying to portray these sales as aberrational rather than valid reflections of the state of the market, thou doth protest too much.
Posted by: ar | April 28, 2009 at 10:02 PM
ar, we're not at odds. It's a combination of the saleability of the houses and the distress of the current or previous owner. I use the term 'maneauverings' because I don't know exactly what's happened in the Barriger mess, e.g. is Barriger bankrupt or illiquid, were the houses owned the builder or some LLC, who was the party foreclosed on, etc.
The investor ended up holding title to property that was ill-conceived and ill-timed. I forgot the NYRI issue that Rod mentioned, and I'm sure that also had a negative impact during a prime marketing period. But the 'distress' part comes from the other point Rod made, that Barriger or it's offshoots that hold title need to turn their illiquid assets into cash NOW. That's pretty much the definition of a seller under distress.
So there are a confluence of factors impacting the prices for these houses --- the road, NYRI, the gas pipeline, and the seller's need to raise cash. (I believe that the house further back is only used in the warmer months; I don't believe the owners live their year round.) True, these were the prices buyers were willing to pay for these houses, and this seller was willing to sell them for that. Two similar sized new construction houses on 4 to 5 acres (without the negative road, powerline or gas line issues) sold outside of Jeffersonville in Nov/Dec for $412,500 each, and there are a couple of other new construction houses in deals in the $300K range (again, without seller distress or significant negative impacts).
I was talking with a friend last evening about these sales, and he had an interesting perspective on the road. He said the road is only a major issue if you want to come up and use the house a lot in the winter. But if you don't, it's a great deal on an 8 month house that because of the views and proximity to Callicoon also has great seasonal rental potential.
These sales absolutely do reflect part of the market, what buyers are willing to pay for houses that involve compromises. It clearly shows that there is a price to move every house, or to move a house quickly.
Posted by: David Knudsen | April 29, 2009 at 07:06 AM
I think the two somewhat different perspectives here between Rod and ar hit the nail on the head about properties that are quote 'distress' unquote. Do they define market value, or are something different than 'market value'? How do they impact comps, appraisals and buyer expectations? Do distress properties have to reach a critical mass as a percentage of overall sales to assume the power to define the market?
I don't have answers to those questions. I have a few friends who are Realtors in Florida (one of the nation's distress sale hotspots). They've been struggling with this for the last year or two. On one side you've got lenders who may bad decisions and are now sitting on foreclosed assets they need to convert to cash. On the other, you have 'regular' sellers who've been doing what they're supposed to do, paying their mortgages, and if they want to sell, have to compete with the foreclosure and short sale prices. You've got buyers who are only interested in distress-priced property because there's lots of it.
In the middle of it all are the appraisers, whose job ultimately is to determine 'market value', which is really just what recent buyers are willing to pay for a certain type of house. Appraisers are there to essentially protect the investor in the new mortgage. If some houses similar to the Parsons houses that aren't distressed sell at higher prices, then the appraiser can make the case for higher market value. If we don't, then these sales will likely play a more prominent role. (And there have been some recent non-distress sales that balance these distress sales.)
This is a complex issue. The Parsons sales can't be ignored; they're a part of the market. But the impact could vary substantially. These houses could play a significant role in an appraisal for a new construction house with similar specs in the Callicoon / Jeffersonville area over the next few months, but might only be a footnote in an appraisal further away, in Barryville or Grahamsville — especially if there have been other responsive sales in a closer geographic circle.
Posted by: David Knudsen | April 29, 2009 at 08:58 AM
I think you'll find that the sales volume continues to be anemic and - has been stated before - the less amount of closings - the median price (as does the average price) gets skewed.
Also, as Dave has stated - early winter - can be a busy time(?) - so this doesn't bode well for the amount of deals getting done with a three month pipeline of acceptance of offer to closing.
Closings in say - April - were in contract in the November through January time period.
But it is what it is. Take a look.
For example:
========================
CLOSED SALES - SULLIVAN COUNTY - MONTHLY - APRIL - BY YEAR
April 2009: 23
April 2008: 26
April 2007: 49
April 2006: 65
========================
That's a decrease of *64%* in the volume of sales from the volume high in 2006 to now.
Barry in Barryville
Posted by: Barry in Barryville | April 29, 2009 at 09:34 AM
Agreed, the sales volume sucks. What we're seeing close this month is probably deals done Dec. through Feb. Oh, how short thy memory. Think back just a couple of months. Most of us were afraid to buy a new pen until our old one ran out of ink. You can argue back and forth about the economic fundamentals (and there are some commenters on here who will always take the position that the black hole of a depression is just around the corner. Beware!) But I think that the general economic outlook has improved over the last few months. The big psychological boost was the DOW moving back up to the 8,000 range and not continuing a slide into the 5,000's. And consumer confidence is up. These metrics are nowhere near where they were during the go-go years, but the fact that they're moving up and not down is giving some people the confidence to dip their toe back into real estate.
Just as an aside. These sales haven't had much of an impact on the median. For the 3 months ending April 30th, it looks like we'll end up around $135K. Last month, the 3 month median was about $132K, and the month before that it was around $137K. It just feels like we're treading water, price wise, right now, hovering right around that $135K median.
Posted by: David Knudsen | April 29, 2009 at 10:40 AM
Are these the houses at the end of viaduct road? If so I remember looking at them when they weren't finished and the nails heads were rusting off etc. I would be concerned about the underlying structures if corrective actions were taken.
Posted by: Rob D | April 29, 2009 at 11:49 AM
re Baysider's comment on raw land: I did a bit of scouting for a friend who was interested in buying raw land. If indeed you are correct that 40+ acres of land does not generally sell for over $2800 an acre, than the asking prices of raw land are way out of whack.
Posted by: Bix | April 29, 2009 at 12:37 PM
Dave, Why do I get the feeling that seller agents are just giving up?
They lack motivation to show properties, to relay offers, call back on inquiries, etc...
It appears that many agents are either not realtors any longer or just do it on a part-time basis. It's amazing what a few years has turned into.
Posted by: Jackie | April 29, 2009 at 10:38 PM
Jackie, I don't think agents are giving up. It may just be some particular agents you're dealing with. And even during the boom, there were brokerages and agents that were more responsive and others that weren't. However, I am finding that 'contact turnaround' seems a little longer. That's like a function of two factors. First, with fewer incoming cold calls, I'm finding that many agents are spending less 'up time' in their offices, so when I try to reach an agent at an office, their often not there and I have to leave a message. Second, some brokerages have cut back on their support staff or open office hours. For example, on Sundays I could usually reach a receptionist at an office to help arrange a showing. Now I often get voice mail. (This is not universal, and most of the larger brokerages, and some of the smaller ones, have kept their staffing and hours up.)
But there probably is some truth to your perception. I do think there is some fatigue in the business stemming from the fact that many of us are putting out much more effort for much less, if any, return. Sellers are touchy and angry that their houses are worth less than they thought. Buyers are often disappointed and sometimes angry that they can't get the house they want at the price they want to pay for it. You go through all the steps (and there are usually a lot more of them per sale now) and then either you can't put the deal together because the parties stalemate, or you put a deal together and it falls apart, often because of financing or appraisal issues.
Working in this business right now I'm sure is frustrating and disconcerting to many, particularly if they're not seeing a paycheck at the end of the rainbow. We're definitely seeing a drop off in agents, and I'm noticing some tough-love toughening among the more successful ones who remain.
Posted by: David Knudsen | April 30, 2009 at 07:31 AM
To Baysider,
Raw land sellers are probably waiting to see the outcome of the gas drilling, which could bring them more money on raw land (for 20 years)than an immediate sale.
The regulations on drilling are being put in place in 2009, with drilling due to start in 2010. At least, that's the scoop at the moment.
Posted by: mary ellen | April 30, 2009 at 08:51 AM
Dave's last post about deals falling through reminds me of something curious that I've recently observed. There is a renovated ranch in Hortonville -- they re-sided it with logs, put a deck on it, re-did the fireplace, but it still sits on less than an acre without any privacy in that crowded sort of Hortonville setting. The house started out with Klimchock at $199,000, languished forever, gradually went through price drops until finally winding up with Freda with a $120,000 asking price. Then a couple months ago, the Freda web site shows the house "in contract" or "sale pending". Presumably there was an accepted offer at something less than the $120K asking price. Time went by, and now the same house is shown as "available" on the Freda web site for $145,000. Presumably the seller is hoping to attract a buyer who will be ignorant of the acceptance of an offer south of $120,000. But what I find curious is the price increase -- it didn't get a deal previously until it was dropped to $120,000, and yet now the seller is back at $145,000. I don't get it.
Posted by: ar | April 30, 2009 at 08:51 AM
ar, whatever the seller did, it worked (changing agents, maybe sprucing up the house, whatever). The house closed this week. It isn't multiple-listed, so I don't have the sales price. But it sold.
Posted by: David Knudsen | April 30, 2009 at 04:00 PM
mary ellen, I'm not sure gas drilling is affecting the price of raw land. I found, when I was scouting raw land for my friend last year, that even small parcels had very high asking prices. It's as if every seller feels that his stretch of dirt is precious, and evidently feels no great interest in selling. Eventually my guy just gave up. He was willing to pay in CASH.
Posted by: Bix | April 30, 2009 at 06:14 PM
By the way, \to address a point that is sometimes raised here, about buyers not putting in offers they feel are fair on properties with high asking prices:
I wasn't doing the actual buying, in this case, but it was my feeling (as I felt when I was house hunting myself) that high asking prices were a sign of an unreasonable seller, and that it would be a waste of time to put in an offer that is, say, 10% of the asking price for lots that seemed grossly overpriced (such as, in one extreme case, the undistinguished FOUR-acre lot in Bethel where the asking price was about 240K).
That's what was going through my mind, and that is why sellers have to lower they prices if they want to sell.
Posted by: Bix | April 30, 2009 at 06:21 PM
Gas drilling isn't coming back anytime soon - if you held out 'for more', you are not getting much this generation.
Posted by: MI | April 30, 2009 at 07:25 PM
Yes, I think you may be right.
Posted by: Bix | May 01, 2009 at 10:16 AM
I may have spoken too soon. Note this article in the Wall Street Journal today (subscription may be required to read this) http://online.wsj.com/article/SB124104549891270585.html
Posted by: Bix | May 01, 2009 at 10:19 AM
Great article Bix.
This will save Sullivan county and PA from being "ground zero" in the quest for natural gas. The LA shale has diverted oilers away from the northeast and concentrated attention towards the south. This is a HUGE reserve as many sources suggest. The marchellus shale doesn't even compare as a drop in the bucket. The lax environmental laws rubbing off from Texas will help LA state. Meanwhile our laws here in NY become more stringent as momentum for the marchellus has evaporated in Sullivan, Delaware and Broome counties.
Posted by: Baysider | May 01, 2009 at 12:55 PM
I don't quite read the article that way but I hope you're right. I'd be interested to hear what others think.
By the way, if this seems to be drifting off topic (or not) don't forget that there is a lovely unmoderated Sullivan County Bulletin Board which has a currently dormant gas drilling section. http://sullivancountybbs.proboards.com/index.cgi
Posted by: Bix | May 01, 2009 at 05:08 PM
I agree that other states could be more lax, but NY state politicians may be looking at drilling as a jobs program in a weak economic environment with a growing state budget deficit. Given the watershed issues in Sullivan County and the potential for water contamination from the drilling process (not to mention the increased traffic and noise pollution and of course the use of billions of gallons of water - a scarce resource that people seem to ignore when factoring in the costs of gas drilling), I believe it would be a disaster for the area. Natural gas prices will not stay at these depressed levels in the long run, and the proximity to major end user markets still make the area an attractive target for energy companies. I hope the threat to the area passes, but those who are against drilling should still contact their local representatives. Links to some good articles are available at www.damascuscitizens.org
Brad
Posted by: brad | May 01, 2009 at 11:28 PM
There was a bill passed in NY (A10526) to ammend past regulations regarding gas well spacing and setback distances, etc. in preparation for drilling. I think Sullivan will see some drilling in 2010, but certainly not the frenzy it was at last year. The economy has sobered everyone up. I've also read that a local committee has been formed to create Sullivan guidelines for gas drilling. I guess we'll have to wait and see, but it seems that some quiet preparations are going on.
Posted by: mary ellen | May 02, 2009 at 12:06 PM