Current Market Conditions Report Posted with February Data

My latest Sullivan County Real Estate Current Market Conditions Report is up with February's data. No way to sugar coat it, February was the pits. There were only 16 closed single family sales reported in the Sullivan MLS for the month. Now February is typically the lowest month of the year for closed sales, and I know a handful of closing were pushed back into early March because of the winter storms at the end of February. But the number still came as a shock. For the 3 month period ending Feb. 28th, there were 91 sales, statistically equivalent to the 89 sales for the same 3 month period a year earlier (Dec. 1, 2008 through Feb. 28, 2009), which was the first full 3 month "closing" period following the Lehman meltdown in Oct. 2008.

Prices are a mixed bag, with the 3  month median dropping from $132,000 for the 3 month period ending Jan. 31, 2010 to $120,000 (9%). The average also slid, but only 2.4%, from $162,123 to $158,293. In looking at the single month data, it semms like we're going to hover in the $120,000 median and $160,000 average range for closed sales prices for the next month or two.

Check out the latest Current Market Conditions Report and then drop on back here and post your own thoughts on the latest market trends.

Comments

[ar]

You frequently draw a distinction between "primary" and "second home" houses. Of the 16 sales in February, how many were in each category?

[Kevin Delmont]

This will persist for a very very long time. We are experiencing demand deflation. With wages falling and fundamentals so poor, even the bargain hunters are exiting the market. I know buyers who were looking for cheap bargains and some are no longer interested. Sellers have a HUGE task ahead in facing reality. GoodLuck to them.

[Nick Baily]

For those who know such things, is this situation where there's a wide gap between sellers and buyers -- an effective standoff -- correlated to any known part of the housing market curve? You could interpret it two ways, one is that this is the bottom, where there's no market clearing price, and the market becomes temporarily non-liquid. You see this in the labor market sometimes, where the bid-ask spread freezes everything up. In that case it's often quite a long lasting period of woe. The other interpretation is that this is a sign of eventual capitulation and further declines, that the market at root is demand driven, and demand governs, and with demand settling out permanently lower, sellers sooner or later will have to follow. Or maybe they're not correlated at all. Sure this must have happened before though...

[Ken]

You seem to always point the finger at sellers not doing the right thing - it's all their fault and they're the ones that need to turn this around. It's somewhere between difficult and impossible to get a bank loan these days. When your bank sends out an appraiser they take your nicely maintained house on a quiet side street and compare it to a rotted out dump on the highway that just got foreclosed. Maybe distress sales and foreclosures will be the long term norm which would justify this behavior but we're not in Florida or the midwest where this, unfortunately, is the norm. We're a few hours from NYC. SC is still the best deal for the money within a few hours of the city and sellers like me are not going to give their house away. As far as the carrying costs, my renters take care of that. They're getting a very fair deal on the rent and it more than covers the carrying costs so I don't really care if it takes 1 year or 10 years to turn things around. And if it does take another 10 years then the house will be completely paid for. The return I get on the rent is better than most stocks are doing right now so I can just wait a few decades if I want. It doesn't really matter.

It will be interesting to see how much longer it will take before this stalemate ends. I doubt it will happen this year. Maybe banks need to change the game and start comparing apples to apples. I would agree that most sellers have their places overpriced but I also think buyers are only looking for rock bottom steals. The right price is somewhere between the two.

[neville]

$120,000 for the current median price of a sold home in Sullivan?

I remember back in 2009 that somebody, possibly a few people, made such prognostications and they were taken to task with such pessimistic forecasts by a few of the chorus on this board.

However those 'gloom and doomers' were quite spot-on.

My! How times have changed.

Neville

[realistic buyer]

I am not surprised that the demand for properties in the $400,000 to $800,000 asking range is dead. The current ask – bid spreads are very wide - typical of housing during severe downturns and this one was a real doozy! Asking prices are 20% or more above fair market values! Sellers are either not serious or holding on in the vain hope that the market has stabilized. Government support may have averted a total calamity but it has also created a false sense of a bottom. Real stabilization will only occur when the market is no longer propped-up! Going forward, the historically low 30 year fixed mortgage bench rate will rise albeit in small amounts. Any increases would immediately impact prices negatively. Add the mortgage reset problems and you can forget about any ‘U’ shaped recovery in housing. At best, more like a shaky 'L' instead!

Sellers, especially those who have to move on because of changes in their personal circumstances, will need to adjust their expectations otherwise they will bleed more money. From an opportunity cost perspective, it doesn’t make sense for sellers to hold on, especially if the rent option doesn't cover costs and make a small return on risk. In fact, buyers might do better to rent in this market. Finally, just because people aren’t offering 85%-90% of asking prices doesn’t make them “cheap bargain" hunters.

[Jim Saunders]

Patience, Patience, Patience!

Remember the early 1990's? Sellers had the same stubborn metality from 1989 to 1993.It is a very slow process....true bargains weren't snatched until around 1995 to 1999. That was bottom-bouncing for Sullivan county and the surrounding catskills, including the Hudson Valley. I'd say 2010 is like 1992, the year after the recession. Assuming, we do not have a "double-dip", you won't see seller capitulation until 2012-2016, when they throw in the towel. Until then, it's all carrying costs and for-sale signs.

Realtor Jim

[David Knudsen]

Ken, I don't quite agree on banks and appraisals. I'm sure that is happening, using houses that aren't really comparable, in terms of condition or location, because the universe of comps can be so thin. But in my experience over the last 6 months is that the deal price just isn't supported, and the comps the appraiser used were pretty responsive.

[Second Home Owner]

I think a major reason, particularly with second home buyers, is the potential for gas drilling in the area. People looking for a country home are looking for a place to enjoy the beautiful surroundings, get away from the city and be in a peacefull environment. Why on earth would you buy a home where there is a very real potential for constant truck noise, drill pads being cleared, pipes being laid, air being polluted, etc. I believe that unless it is clear that drilling will not come to Sullivan County, second home owners will be looking elsewhere to spend their money.

[Ken]

Dave, I don't have any where near the experience and exposure to this as you do so I respect your opinion. I called a local bank, got the name of one of their appraisers and had him check things out. One comp was almost the identical house but it was about 20 feet off of Route 97. Don't trip when you're picking up your mail as you might get run over by a truck bombing by at 60 mph. The other comp was similar in terms of location and land but it had half the square footage. A friend of mine that bought last summer had to get the appraiser back there many, many times. The bank screwed up the paperwork, then the underwriter screwed up, then they went to a different underwriter, etc. It was unbelievable. As this thing dragged on for month after month, the bank said the house will be depreciated something like 2% or 3% per month which was one of the reasons to send the appraiser back again. Let's see how much it's gone down in value while we've tried to straighten out the paperwork. If you're giving a 20 year loan and you really believe it's going to depreciate at that rate, then why are you even thinking about approving the loan in the first place?????? The availability of comps has a whole lot to do with this and I get that. At some point it will get back to some degree of sanity.

[David Knudsen]

Ken, my experience is likely different because I found the big banks to be do unresponsive and dreadful that for at least a year now I've been STRONGLY encouraging my clients to use only local lenders like First Jeff or Ulster Savings. The use only local appraisers, and have underwriting standards that reflect the reality that we're a low density rural area with low sales volume.

Last week I got a call from an appraiser in New Jersey. NEW JERSEY!!! Not even the same STATE. She was asking me for comps for a piece of land, and what the per acre sales range was here for land. I asked her a bit about her knowledge of this market, which was zilch, and her access to local data sources, like the MLS (she didn't belong.) She must've caught me at the wrong time, because I then went at her about how she felt she could ethically perform an appraisal on property she had never walked i a county she had never personally visited and had no local market knowledge. She curtly told me she had access to data sources and I said, "What, Realquest? Our county doesn't report electronically, so that data is 2 to 3 months behind at best."

This is one of my soapbox issues, and I've written about it at length here. But your original point here was my blaming sellers for the current stall in the market, and saying it's the banks. But talk to any listing agent here, and they'll mostly agree that the lion's share of sellers are still in la-la land over prices. And the data generally supports that, with close to six months now of now marked noticeable downward movement in the average and median asking price. Listing agents are blue in the face, reviewing comps with sellers who still hold to the illusion that their house is somehow 'special' and worth $100,000 more than anything similar on the market.

[pa]

Neville

You will amazed by the percent declines that are still ahead of us. We are still two tax seasons away from the real reality. The pendulum swings from extreme to another.

[Mr. Schneidman]

thanks pa.

pa and dave -

If the median in Sullivan is currently at $120,000 - how low would you say the median will go?

And, when will prices bottom for good?

Mr. Schneidman.

[Bix]

@pa: Then you have what is known in investing as a "sure thing," and you can cash in by selling short REITS and financial companies.

The only problem is that there is no such thing as a "sure thing" in investing, as indicated by the people who bought real estate as an investment in 2007. So if I were you I wouldn't bet the farm.

[cfranch]

Ken:
You really think your house has appreciated more than the stock market? We've had a 60%+ run off the March '09 lows. We touched the yearly high today and probably blast through it tomorrow or next week. Little resistance on the stock charts back to pre-Lehman highs. This market has been drive by banks with trillions of liquidity sloshing around for decent returns. The small investor have largely sat out this historic rally. When they get religion the market will power higher. When too many get religion it will be again time to sell. Until that wealth effect takes hold buyers of SC real estate will remain bargain hunters. You probably have another 2 years before you start seeing bids close to what you want.

[Kevin Delmont]

Wealth effect takes hold?

Unfortunately, USA will be net-sellers in the coming decades as baby-boomers spend less, sell more and downsize. Who will replace their spending habits? Gen X? sorry too consumed with paying down college debt and mortgage payments. Mellenial Generation? Sorry, no jobs and they are happy with just ipods and iphones.

Wellcome to the NEW USA

[LongShort]

cfranch,

Welcome Back!

Correctomondo. Retail investor has not believed this market run up since March 2009 with gains of more than 50% in the benchmarks.

With good reason - they got stung when the market collapsed and pulled into cash by October 2008 - March 2009. Some ventured into bonds this past spring but alas, not a good place to be now with long bond rates going up in the fall plus yield spread between short term paper and 20 year bond at extreme levels.

The Feb/March 2010 pull back of about 9% was first correction since last March with smaller blips of 4% which were retraced in July and November.

They call it the most hated rally - with good reason - since many didn't believe it and up it went.

Looking forward to more of your comments.

LongShort

[Kevin Delmont]

“collateralized debt obligations, derivatives, sub-prime” was just the begining.

The real financial doomsday will be arrive in two year’s time. Headlines will speak of “maturity wall” “Corporate loans”, “junk bonds”.

GoodLuck to sellers.

[Ken]

Do I think my house has appreciated more than the stock market? I guess you can arbitrarily choose a time frame that suits your needs. The Dow Jones closed on March 15, 2000, at 10,131. It closed on March 15, 2010 at 10,642. So the answer is Yes, I think the house has appreciated more than the stock market. And as you might guess I'm not a day trader. I tend to go in for the long haul.