I first spoke with Oshrat about this piece in April. Since then numerous articles about how “The Hamptons Are Back” have surfaced because sales are up from the dismal 2009 levels.

Keep in mind that sales, in 2009, were down a whopping 75% from 2007 levels, which was the peak of the market coming out of a strong 2006 and sweeping into 2008, despite the first “credit bubble” of fall 2007.  So, doubling of 2009 sales still leaves us with sales down 50% from the peak, a steep grade to climb.

I see real estate during this upcoming decade (the 10’s) as being much like the 90’s, where there will be ups and downs, but little meaningful appreciation.  There is little to drive enthusiasm and still lots and lots of underwater inventory and “a new reality” that will drag on many for years to come.

Another thing to consider  is that, while the median and average sales prices are up, down and all around, while they are appearing to resemble times past, what is different is the homes that represent those figures. Homes that would have sold for $5,000,000 in 2007 are selling for $3,500,000 today. Sure there are exceptions, but that is the rule.

So numbers don’t lie, but those who interpolate them sometimes do…md

By Oshrat Carmiel – Aug 10, 2010 3:18 PM ET

Now’s the time to buy a beachfront home in New York’s wealthy enclave, where prices are down and inventory is up.

George Ross, an energy analyst at First Eagle Investment Management LLC in New York, made a deal in the Hamptons that would have been impossible just a few years ago. He bought a waterfront cottage for less than $1 million.

Ross, a triathlete who swam three-quarters of a mile (1.2 kilometers) around the Statue of Liberty in June, had a vision for the perfect vacation home in the Hamptons, the New York retreat where celebrities mingle with financiers. It had to have what he calls swim-ability. “I go out of my house without crossing the street and go swimming–and I don’t mean in some goofy creek,” Ross, 41, says. “I come out of the water, back on my own property, take an outdoor shower. To me, that sounds pretty great.”

So does the price that the analyst paid for his small but well- maintained wooden cottage in Westhampton Beach. The 640-square- foot (60-square-meter) house sits on a thin coastal strip, with the Atlantic Ocean on one side and Moriches Bay 50 feet (15 meters) away on the other. In February, Ross made an aggressive $830,000 bid for the house, which was listed at $889,000, before settling on $875,000. Three years earlier, the two-bedroom with a wraparound deck sold for $1.24 million.

Buyers have been snapping up vacation homes valued at about $1 million in the Hamptons. As of the second quarter, properties had lost about 24 percent of their value–a steeper decline than in Manhattan–since peaking above an average of $2 million in 2007. Owners who couldn’t sell in the past two years are trying again, keeping the sale inventory high. Some need to sell urgently. Default notices in the east end of Long Island rose 62 percent to 276 in the first quarter, according to Long Island Profiles, a real estate data service. Lenders have even become amenable to short sales, in which they accept less than the balance owed on a property.

“It is still a buyer’s market,” says Jan Robinson, president of Hampton Homes Inc., a broker in East Hampton. “There are some really good deals.”

In his one-year hunt in the Hamptons, Ross used StreetEasy.com and Redfin.com to track price cuts. As he looked for homes that had last changed hands during the peak years in the mid-2000s, Ross was keen to find out if, and by how much, the owners had dropped the price. “If you can identify the value of something in 2004, you can be pretty certain that that would be the value today,” says Michael Daly, founder of brokerage True North Realty Associates in North Haven and author of Hamptons Real Estate Blog.

City dwellers often make the mistake of valuing a waterfront property in the Hamptons much as they would their own apartment- -on a price-per-square-foot basis, says Deirdre DeVita, a broker at Brown Harris Stevens who helped Ross find his home. “That is not at all relevant here,” says DeVita. She says the land value is the most important factor, determining as much as 90 percent of a sale price.

Even rotting docks and seawalls–vestiges of a more permissive waterfront construction era–can add to the worth of the property. In the town of Southampton, which includes Westhampton Beach, docks built from scratch can be no longer than 100 feet, while the presence of an older dock grandfathers in the potential of building a bigger one. Seawalls along a property have been banned, while existing ones, like the 60-foot bulkhead on Ross’s property, can be refurbished. The tough restrictions convinced Ross to drop his idea of buying a fixer-upper and expanding it with a deck or extra bedroom. “Zoning is brutal,” he says. “You can’t do anything without going through huge numbers of hoops.”

Buyers also need to be aware of the presence of illegally installed amenities such as patios when purchasing a home. Local officials may require that the structures be removed before the property changes hands. “I’d see a house and say, ‘Is that deck going to have to come out?’” Ross says. “And they’d say, ‘Yeah.’”

Ross didn’t get everything he wanted, such as a second bathroom, but the cottage has what he desired most: a nearby saltwater workout. “For me, $875,000 is a very fair price for this property,” he says.

Oshrat Carmiel covers residential real estate at Bloomberg News in New York. ocarmiel1@bloomberg.net