What a year, or really two years, we have had.

The second home market in our area began its slow-down in 2007 and the decline in the number of transactions continued throughout 2008. This was thought to be a natural breather after an over-heated market with rapid appreciation in the previous 6 years. This might have been the case, but the recovery after the breather has not happened yet as we experienced a once-in-a-century banking crises leading to the recession and the market crash in late 2008 which caught everybody by surprise.

What happened is becoming clearer as we gain distance to these events and we will leave the details to others. In general, mortgages were re-bundled, resold, traded, insured which generated quick profits based on the assumption that these were sound investments and the housing market would just go up and up with no thought given to what-if-not. But what-if-not did happen

During the much published housing bubble, builders could not keep up with the demand as individuals bought not just their home to live in, but also two or three additional units as an investment or to flip. When the bubble burst, builders and investors were sitting on unsold inventory. Existing houses actually lost value, often sinking "under water" below the mortgaged amount. The housing bubble was fueled by easy to obtain mortgages and consequently turned into a mortgage bubble and it burst. The big banks - who were all relying on the same investment model - sustained monstrous losses and had to be bailed out. You know how bad it is when the Wall Street Journal calls the behavior of the big banks greedy, stupid and arrogant.

The reaction of the big banks - as early as the summer of 2008 - was to re-write underwriting guidelines for issuing mortgages, often re-writing them multiple times within a two or three month period. This had the effect of basically stopping all lending as sometimes the rules changed while a transaction was under way. Some of these banks left the mortgage business altogether. Earlier issued mortgage commitments were revoked and every transaction was in jeopardy until the actual closing. Not even buyers with stellar credit were assured a smooth transaction. Suddenly a strong relationship with the local small bank was the trump card for getting a mortgage. The real estate market contracted further, as the lack of financing excluded many potential buyers.

Credit overall became tight, fueled by a near frantic big bank activity of revoking credit of all kinds, from lowering available balance on personal credit cards to canceling commercial lines of credit, often without any advance notice. The new administration took action to protect the consumer with new credit card legislation, but in the short term that only intensified the cutting back by big banks to beat the deadline for the new credit legislation.

The overall mood of the country began to reflect the economic news: personal consumption expenditure decreased, jobs were lost and the unemployment rate worsened. Consumer confidence remained low and began to shift from a mostly positive outlook of the future to one where one stays put, acts cautiously and expects the worst

The Central Catskills real estate market is obviously affected by the tightening of credit and the contraction of the economy, but there are noteworthy differences from what is portrayed in the media at large as the "national" housing market: - foreclosures, or bank owned properties are not a substantial part of the market, as most of the properties here are second homes and their owners usually are not leveraged to the max; - property prices have continued to level out for the third year in a row and in some cases have declined, but rarely as much as 15%.

As a matter of fact there some developments in this area that will ensure its continued attractiveness as a second home area while at the same time create jobs that will help support the full time population here:
- The Water Discovery Center, an educational facility to be built outside of Arkville has recruited Robert F. Kennedy Jr. as the main fundraiser;
- Main Street in Margaretville is attracting more shops and has turned into an albeit small but smart shopping destination;
- An E-Center is being established on Main Street in Margaretville to help start-up business.

Many times already the market has been pronounced at having bottomed out this year. Whether that is the case or whether we have to wait to the end of the year or longer to make this pronouncement is uncertain. As the key to buying a house is the ability of getting a mortgage we will not be able to state a turn-around for certain until the banks are lending again. Once they do, the notoriously low inventory in our area will not meet the demand of an ever growing buyer group composed of baby boomers and their offspring, the echo boomers, who have started to enter the housing market which will send prices upwards.

Make sure your timing is good and - see you in Delaware County!