Michael Daly
Many have been trying to put on the best face possible about Hamptons Real Estate for the past couple of years;
“Oh, it’s a little slow, but it will come back” or ” I’m busy, aren’t you?”…yeah, right.
Sure, a handful of agents have done well to ok during this economic downturn and, if getting listings is a measure of success, then some are doing great! But if selling those listings is important (and isn’t it?), then very few are thriving.
Sales are down +50% from the peak and values are down 25-33%, and even as much as 50% on some properties that happened to get caught up in the frenzy of ”The Roaring 00″s”. Just recently, B of A sent a value statement from an off site appraisal company to a homeowner stating their property in Sag Harbor was valued at $660,000. In November of 2006, that same property was appraised for $1,200,000. How do I know? That homeowner is me.
The realities of The New Reality are staggering. Many are still in denial about the value of their property. On Long Island as a whole, it appears that about 25% – 1 in 4 – of the listings are priced within 10% of fair market value, which is the same price it was valued at in 2004. In the Hamptons, that figure appears to be even less. The rest of the properties just sit and get stale. many of them don’t even get shown because the asking price is so far off the market value no one wants to see it.
The Ebb & Flow of Hamptons Real Estate
Many of those who had been standing on the sidelines with cash to take advantage of the reduction in values did just that in The Hamptons in late 2009-early 2010 ( flow), but once word got out that sales were brisk, sellers got emboldened and started raising their prices or put their houses on the market for ridiculous prices and buyers backed off (ebb). The uncertainty around the economy and the upcoming elections all contribute to the stalemate and the ebb.
Conventional wisdom would say that once the elections are over and there is a clearer picture of what the make-up of the congress will be, that confidence will start to come back and sales should pick up. Also, word has it that Wall Street Bonuses will be healthy for 2010 and, as they start rolling out in these next few months, that should contribute to brisker sales in Manhattan and The Hamptons as well. That being said, while money is no object to some, many don’t want to be in the position of reaching for a falling knife.
My belief is that Hamptons Real Estate will maintain +or- 5% of 2004 values for the remainder of 2010 & 11, and that we are in for a similar market as the 1990′s when values pretty much held for much of the decade until the banking industry woes worked out and economic and demographic forces came together to create The Roaring 00′s.
That’s not from my crystal ball, that’s from my head and my gut. I threw out my crystal ball in 2008 after it cost me pretty much all I had. Onward and upward…
Some recent articles about The New Reality:
| Hamptons Home Prices Fall as Buyers Seek Budget Retreats: Video Washington Post Oct. 21 (Bloomberg) — Home prices in New York’s Hamptons, the beachside resort towns in Long Island swelled by summering Manhattanites, dropped 14 percent … …………………………….. The Hamptons Home Sales Down 19% Quarter-over Quarter in Q-3 …………………………………. ‘Affordable’ Sales Dominate Hamptons Real Estate |
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| Hamptons Go South Wall Street Journal By SHELLY BANJO Even though Hamptons publisher Richard Ekstract dropped the price of his eight-bedroom Bridgehampton mansion to $7.99 million from its … ……………………………………………………….. |
| Hamptons Home Prices Fall as Buyers Seek Lower-Priced Retreats Bloomberg By Oshrat Carmiel – Thu Oct 21 04:00:01 GMT 2010 A for sale sign hangs in front of a property inEast Hampton, New York. Photographer: Jin Lee/Bloomberg … |
10 comments
October 25, 2010 at 6:23 pm
Gerry
I am surprised the prices are still as high as they are. No matter how you measure value (price to rent, price to median income, etc..) the Hamptons real estate market appears overvalued.
October 25, 2010 at 6:51 pm
Michael Daly
Gerry,
That is, perhaps, if you compare it to some other traditional or less desirable resort markets. In comparison to other specialty markets, The Hamptons appear undervalued.
Proximity to Manhattan, a finite amount of property and strong demographics are what help keep the values where they are.
October 28, 2010 at 9:14 pm
Gerry
Michael,
Markets (stocks, bonds, commodities, real estate, art, etc…) become over and undervalued – sometimes to extremes. And when they do we rationalize why (“it’s a specialty market”). But value like gravity brings us back to earth.
I can (and have) rented in the Hamptons for less than 1/2 the price of ownership. The value is not in ownership. The pendulum swings and it will not stop at fair value but under valuation. As a buyers rep I suggest you tell your clients to rent till they can buy at equal or better value.
October 28, 2010 at 9:52 pm
Michael Daly
Gerry, I can’t argue with your point that the pendulum swings and cuts deep.
And just like some values, underwriting for mortgages has become so difficult, many qualified buyers are being scrutinized beyond reason, often required to jump through hoops that didn’t even exist a year ago.
There are some buyers out there that do want to buy now. They have the funds and are satisfied with the drop in values this past 24 months.
My advice to them is clear and consistent: don’t buy now unless you find something you truly love, because values are not likely to rise significantly in the next 2-3, perhaps as many as 5 years. In fact, values may even drop more, depending on financial and geopolitical events.
Patience is good in a market like this.
October 26, 2010 at 9:27 pm
Joe
Michael,
Like it, or not, spot on.
However, how do you support your claims in para 5?
October 26, 2010 at 9:37 pm
Michael Daly
Joe-
para 5 is anecdotal. Since Hampton’s sales slowed way down and I launched Redfin in Nassau and Suffolk, we’ve sold nearly 50 homes in the past year from all areas of LI. We’re finding that the same homes keep coming up in tour requests from our buyers, while the rest of the market just sits until they finally reduce their asking price.
I’ve noticed the sharp increase in Hamptons listings since word spread that “sales had improved” 6 or so months ago. It’s clear that many of these new listings about 4 of 5 are “Hail Mary” listings from those hoping, wishing and praying that Hamptons Lightening will strike and someone will pay them 2006/7 values instead of what their home is really worth…
Wish I could be more scientific…open to debate and other facts if available…m
October 28, 2010 at 4:46 pm
Property Investment Queensland
Great Read!Valued information as the same situation happening in Australia.
I’ll keep reading.Thanks
October 31, 2010 at 6:09 pm
Alex Cortez
Aloha Michael,
Being involved in a niche/specialty location (Maui), I can wholeheartedly agree with your post. A couple of points, if I may:
* For those who ‘invest’ expecting appreciation, it will be a long, uncertain road ahead of you. Basing investment projections on factors with uncertain predictability can (and most often will) result in disappointment.
* Assessed values (for tax purposes) can often be VERY far removed from current fair market values. I know in my market, it is based on the previous fiscal year (i.e. 2010 assessed values are based on FYI09, which ran from Jul08 to Jun09). Can any reasonable seller say that their property value is the same today as it was on July of 2008? Basing asking/listing price on this can lead to unrealistic expectations.
Nevertheless, I enjoyed your post and will be subscribing to your blog, Michael.
November 1, 2010 at 11:35 am
Michael Daly
Good points, Alex. Assessed values are often very different from market values, especially in falling markets where municipalities are trying to maintain their tax income without raising the “rate”.
October 31, 2010 at 6:11 pm
Alex Cortez
Oh, I forgot to mention, although I practice real estate in Maui now, I am formerly from NYC/NJ. Hence my interest in the The Hamptons (and by extension, its real estate market) is based on genuine fondness for the area.