Going, Going, Gone - Sub $250,000 is Moving

A few days ago I was making my set-up calls for some showings this weekend and for the coming week. Both parties I'm going out with are looking for that quiet and quaint country getaway — an older house with some charm, on a few acres, quiet country setting with 3 or more bedrooms priced around $250,000. For months, there have been a half dozen reliable standbys in this category to show clients, plus another another half dozen "second string" properties that are a bit quirkier. The market was so slow and these houses were so consistently available that sometimes I wondered why I even bothered to call to check.

So imagine my surprise, when calling to check on availability in the last week, to get the response on many of them that "There's an accepted offer." I was out with someone last Tuesday, and on the way to one of the houses (that had been on the market two years) I got a call from the listing agent saying that an offer had just come in, it was a good offer, but if my clients were interested in putting in an offer the seller would hold on accepting the offer on the table until the end of the day.

Rush to put in an offer? A possible bidding war? I checked my calendar. The year says "2009" not "2007".

But that's what's been happening recently in the sub-$250,000 range for houses with certain characteristics. Those characteristics? At least 3 bedrooms (smaller 2 bedroom places, even in good settings, are still lagging.) Classic or older style. On 3 or more acres with some privacy and not right on a major road. And generally more western county. (Here are 4 houses in this category that have recently gotten deals.)

The other common characteristics among those 4 houses is that they've been on the market for more than a year and started out with much higher asking prices. When their asking prices dropped into the "do a deal at less than $250K" hot zone, they started getting action.I have my eye on two others in this category that I expect will find buyers pretty soon (plus a couple that aren't in the MLS.)

As these houses move off-market, there hasn't been a lot of similar replacement inventory. Even moving into the low $300's, I'm not seeing much. Then there's a big leap to a selection of larger, more stylishly renovated farmhouses in the upper $300's to the low $500's. But most of the buyers I'm seeing have no interest in moving up to that price point. They're fine sticking with something modest as long as it fits within their $250,000 price point.

As a side note, I stopped in on Friday to visit with Chuck Petersheim of Catskill Farms (who builds those stylish repro farmhouses and cottages that start sub-$300K) He started 4 new houses in the last six weeks, and had just made a deal for the last one. He's now taking orders for future starts. We compared notes, and he's seeing the same pickup and buyer demographics — 30-somethings from the city looking for a moderately priced getaway with some charm and privacy.

This is a very interesting phenomenon. Sales right now in this range could probably be higher if there was more inventory. The interesting question is what impact this may have on prices. Will sub-$250K buyers (who generally present a pretty firm price ceiling) move up somewhat in price? And will a slightly higher price willingness among buyers eke out more inventory?

Comments

[ar]

These are phenomenal prices for the houses you linked to -- at least based on the internet photos (which you've often cautioned can be misleading). Painful for those of us who bought a couple of years ago, but great news for those looking now. I would note that in your relentless flogging of the Catskill Farms "McFarmhouse," when discussing price you don't point out that there is an enormous disparity in taxes between new construction and the existing houses that your post is about -- often thousands of dollars a year higher for the McFarmhouses or any other new construction, as a result of assessment policies/practices in Sullivan County towns.

[CF]

ar, your point is well-taken, although the analogy is off base - the concept of mass producing the exact same product over and over couldn't be further from what has spurred, inspired and informed our 55 original farmhouse and cottage designs.

It's not Sullivan County that has high new construction taxes, relative to the existing housing inventory- it's definitely across the state, if not across the country where property taxes are tied to paying for schools (with their runaway budgets). Check out all of Orange, Ulster and Dutchess counties for comparison.

What you fail to mention is any property owner that substantially improves the property/structure and draws a building permit will experience the same level of taxes as a new house - with the exception that new construction taxes can be predicted based on sales price - whereas an assessment based on a renovation is an unknown quantity until the assessment comes out the year following the improvement. I've seen a lot of shocked homeowners who bought a rundown farmhouse with $3000 annual taxes, do a gut renovation, and see their taxes jump to $10k or more at the completion of that perfect restoration.

I don't think there is an enormous disparity, especially in Towns like Highland or Lumberland that spent 5 years bringing the existing housing stock assessments up to fair market value. Now everyone pays high taxes in those towns, for better or worse.

One thing that is very true, - new expensive homes in Sullivan County can pay enormous taxes based on their sales price in every Sullivan County town- that's why we stopped building those 3 years ago.

Another thing that is exceedingly obvious is that everyone thinks their taxes are too high - I just met with a customer who owns a house and 100 acres and he wants to do a renovation and he was complaining about taxes so I asked him how much he was paying (expecting $12k, $15k, even $20k wouldn't have surprised me). He said $4000 - which to anyone who lives and owns a house here, is exceedingly low for 100 acres and a house.

[Dede]

Here's my exlanation and I'm just speaking for myself - but I'm sure it gels with others - but I'd like a bolthole if the s*it hits the fan. Somewhere I can own outright, with low property taxes (and these taxes can be a killer), cute, some land and a refuge for the next few years that you could live comfortably in (not that you would but you could). These houses in these price ranges fit the profile.

Its going to be fascinating how the internet shapes my age group (professionally made it, have some cash but far from enough to retire on and also longing for some balance). I think a lot more people are going to end out in the countryside with great big satellite links.

[Nick]

On the market for more than a year indeed. I believe that house with the star on the side is the first real estate showing I saw in Sullivan County. Was looking at old emails and that was 11/30/2007 it appears. Sadly I don't seem to have the asking price saved from that day... are you allowed to remind us what that house (now listed under a different MLS number of 26230) was asking for back in late 2007? I believe it was MLS #19810 back then if my old notes are right

[ar]

Dave -- another unremarked fact about the four houses you linked to with deals: one had vinyl siding and another aluminum siding. How dare these buyers breach the hipster "authentic" aesthetic!

[David Knudsen]

Nick, good catch. That house was first listed in April, 2007 for $225,000. And Ar, something with vinyl or aluminum siding will move at the right price.

[MI]

Has ar ever seen a glass that is not half empty? A rose without the thorn? A morsel without the rodent?

[Jeff]

Dave has frequently observed the lack of inventory in some desirable second-home categories. I first started looking in the early part of the decade and bought in 2004. What's striking to me when I look at listings now is how relatively few homes on the market have lake access. When I was following listings from 2001-2004, it seemed there was always a decent selection of 3-4 bedroom houses on 3-5 acres with lake rights. Now, even though overall inventory levels are much higher, it seems there aren't nearly as many on the market. (And the ones that are seem to have asking prices, even now, about 20% higher than five years ago.)

[marie]

Just curious, have you noticed any problems cropping up when it comes to getting appraisals/mortgages?

[David Knudsen]

I personally haven't had any financing problems on my deals this year. But I think a reason why is that how a house will finance is always on my mind through the offer process. When I'm negotiating an offer, I'm thinking about the comps and have said on more than one occasion to my clients this year "I don't see this financing at this price." I also VERY strongly recommend that my clients use a local bank rather than one of the big national lenders.

But I am hearing over and over about problems with financing. I've written about it in a few recent Market Conditions reports, as well as on this blog. The problems are two fold. One is much tighter underwriting standards among lenders, particularly the large nationals. (And for borrowers putting less than 20% down, the PMI underwriters have even tougher criteria.) A second contributing factor is Fannie Mae's Home Valuation Code of Conduct, a well intentioned effort to put distance between the loan originators (e.g. sales people) and the home valuation and underwriting side of the business to eliminate undue influence on the valuation process. In my opinion, the quality of appraisals is suffering as a result because the bigger lenders, to avoid any perception of influencing the appraisal process, are farming out appraisals to huge Appraisal Management Companies (AMC's) who, in turn, have a profit motive to give appraisal assignments to the lowest bidders (who sometimes know little to nothing about the local market.) And third, some houses in the current market are just not plain worth what the buyers have offered to pay for them.