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Real Estate In The Hamptons: ...A Repeat of the 1993-94 Market?

By
Real Estate Agent with Douglas Elliman Real Estate 30HA0800896

 

Real Estate in The Hamptons: ...A repeat of the 1993-94 Market?  Hampton's real estate (Suffolk County, East of the Shinnecock Canal) is not the same as many other markets--it is a market driven almost entirely from the stock market and it's related financial businesses.  But, ask most homeowners who bought in the early nineties and they all say there is a similarity now that is hard to ignore. 1993-94 was the beginning of a real estate market that launched a historical housing boom....and a record housing crisis in 2008-'09!

THE KEY TO HOMEOWNERSHIP: LOW RATES, LOW PRICES, WLLING INVESTORS!

THE KEY TO OWNING A HOME NOW: LOW RATES, PRICES

Similar circumstances to the late '87 stock market crash  and the resulting dive in home values gives many in-the-know a sense that we may be on the threshold of a period of escalating home prices--but it is only the threshold!!! If you go back and look, it took a good 3-4 years of slow growth to reach the beginning of the up-swing of prices in '93-'94.  So, it is too soon to toot the horn of celebration--we have a long way to go and it may be longer than the 3-4 years that it took in the 90's---speculation has it that there will be a good 10 years between the current housing crash/bottom and the next up swing in home prices.

With interest rates at record lows and prices at the level of 2006, buyers are not apt to walk away from buying in fact they are apt to step up to the plate and take the plunge, regardless of no longer having the benefit of the $8K price break from the government...the undeniable value of buying NOW is evident to those of us who remember the 1993-1994 market when interest rates were very high. Rates are low as are prices now--we may not see these 4.5%-5% interest rates again for a very long time. In a recent article in the newsletter from Http://Knowledge.wharton.upenn.edu/article.cfm?   "Drowning or Hedging? The Risks and Rewards of Owning a Home"  shows how the purchase of a home now can be a hedge against volitile prices for shelter in the future. Being priced out of the Hamptons housing market has been a real concern to those who find themselves ready to sell their current home without knowing what they will find on the other side of the sale...the big fear is that they will not be able to afford the upscale neighborhood and will find themselves priced out of the market entirely.

YEAR ROUND VERSUS SUMMER RESIDENTS

"WHO LIVES HERE YEAR ROUND, ANYWAY?"  is a question that I have been asked ever since I moved to the Hamptons, from New York City in 1997. It was a frequently asked question because no one I knew from the city had ever contemplated living in the Hamptons on a year round basis.

Jobs are not something easily found in the Hamptons

Most Southamptonites are not year round residents; most are here in the summer and gone elsewhere in the winter. The population that lives here year round has gone through a fundamental change and is now making up a larger percentage of the community as a whole. It was at one time considered "de rigueur" to live in the Hamptons off season-that has changed as the population ages and as the area becomes an obvious place for retirement. New York City is the source of these retirees and since they still want to be near their families, the year round population in the Hamptons has expanded. Because of the lack of jobs for mid level executives the population growth has come primarily from young families and retirees. Right after the events of 9/11 we saw a population bubble of young families as they made the Hamptons their year round domicile. Demographics are difficult to come by, since the fluctuation in population changes from one season to the next; but on average, we have seen a year round population level rise SIGNIFICANTLY since 2001.

There are very vague numbers available right now because it is hard to determine just how many people have moved into their existing second homes on a year round basis. So an educated guess of how many people are now living in the Hamptons year round would only be verifiable through a carefully researched census. That figure should be available after the 2010 census.

70-80% OF HOMEOWNERS RELY ON RENTAL INCOME

SALES VERSUS RENTALS

Historically, when sales are strong here, rentals take a nose-dive. Not so this year; 2010 had a healthy increase in sales in Q1 while rentals came in very early and very strong....then came to a complete standstill, as sales drifted to a slower pace as well. Consistant with the sales market of the early 90's, rentals were seeing the first real spurt of a healthy revival and rental prices soared as homeowners caught on to the willingness of the city dweller to pay a premium for a stylish, clean and roomy home to spend summer weekends.....RENTING OUT YOUR HOME PRODUCES ADDITIONAL INCOME 

Summer rentals are a source of income for most homeowners in the Hamptons

Southampton North Rental

A good 70 to 80% of the private homes in the Hamptons are now available for rent for a period of time during the Summer season. This number has increased this year as owners are finding themselves in a bit of a pinch financially and renting their homes out for some income has become very tempting to those who have the stomach for it. So for the foreseeable future we see the following influences on the rental segment of the housing market here in the Hamptons:

  • The number of houses available for rent has increased substantially.
  • The number of people looking to rent has decreased due to lack of disposable income.
  • Shorter-term rentals are the order of the day as renters look for a less expensive way to enjoy their summer months.
  • High end rentals ($150,000 and up) were gone months ago and were rented within 10% of the asking price.
  • The rental market has now slowed to a crawl and people who are looking to rent for the balance of the season--through September 7th --are making offers at the level of 1/2 the asking price...or even less.
  • During this time, people looking to buy have decided to rent a place; they want to be here in the event the sales prices start to decline again...this is an indication that a tentative stabilization is in question by many potential buyers.

The homes that are sitting and waiting for tenants are the tired, worn, and unkempt houses. These are the homes that have been rented every season without putting the pre-requizite 10% back into them to keep them maintained for future seasons. This year there are a record number of these houses and along with the unsettled feeling about the economy and other critical concerns of the day, these are AN IDEA OF WHAT A TENAT WANTS TO  FIND IN A RENTALdefinitive contributions to the malaise that has set in on the rental market in the Hamptons.

2010 will likely end up to be a much better year in real estate in the Hamptons than in 2009. With luck, the rental and the sales market will have ....THINGS TENANTS LOOK FORmade a turn around that can be measured by the end of October 2010. In many ways, we are adjusting to a new economy as well as a new way of life in the Hamptons; many have said that the real estate market would never take the downturn that it took in the fall of 2008.

 

 

 

 

 

A POOL HOUSE ALWAYS HELP WITH A GUEST OVERLOAD

 

 

 

 

Now that we have seen it with our own eyes, we can go forward with a clearer understanding of just how fragile the housing market can be, especially in the afterglow of a major housing market bubble!

 

Comments (25)

Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Jackie: Thank you for the nice comment! I have found that the Hamptons' market may vary in many ways but one thing is always true--the psychological makeup is identical as a "microcosm of the macrocosm" and those of us who live here need to recognize that. We are affected just as any other market to the vagaries of real estate; and even though all real estate is local, every market can benefit from information that is sourced from all the other markets that makeup this great country. 

Jun 20, 2010 01:13 AM
Pippa Mac
Chevaux Group Realtor, The Woodlands and Spring - The Woodlands, TX
The Woodlands TX Real Estate

Paula, best of luck in The Hamptons this next year!  pippa

Jun 20, 2010 02:12 AM
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

We've got a strong seller's market here in the East Bay area of San Francisco. We've been on an uptick for about 13 months.

Jun 20, 2010 03:32 AM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Pippa: Thank you and I hope you success as well---hope this anaylsis helps!

Vickie: Sounds like the East BAy area is similar to this market--is it a resort area or just a neighborhood? It could be interesting to do a post on resort/waterfront communities and try to determine who they are doing in this weird economy.....thanks for your comment. 

Jun 20, 2010 04:03 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

I loved reading this insightful local analysis of an area which most of us in the mid-west hear about primarily on TV. :)  I just saw a statistic that according to a recent Gallup Poll, 72 % of Americans now consider it a good time to INVEST in a home.  It's interesting to hear that sentiment echoed in your blog.  Home prices have fallen to record lows and combined with low interest rates and this is causing many to reconsider the investment value of owning real estate in their financial portfolio.  It will be interesting to see how things play out in the next few years in the Hamptons and elsewhere.

Jun 20, 2010 06:20 AM
Nate Gerard
Keller Williams Premier - Stillwater, MN
CDPE, East Metro Twin Cities Realtor

I Always love your analysis Paula. This is somewhat similar to our cabin/lake rental situation in Northern MN. Some live there all year and many just come for the summer or rent during the summer. They are still weathering the worst decline in our lifetime though since there was less of a decline in the late 80's.

Without creative finacing options I fear this downturn will perpetuate itself, with even more people eith defaulting due to hardship or choosing to default strategically since it may take them ten years to get back to break even and if they're cash negative every month they may not be interested in doing that. You may not have such a problem in the Hamptons. I'd be curious to know your thoughts in that direction, however.

Jun 20, 2010 08:02 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

There will also be areas which 'draw' -- and the good deals in the Hamptons make people that always wanted to buy get off the fence, and march into your office.  I don't know your market at all, but can venture a guess that it's different. 

Jun 20, 2010 08:05 AM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Hi Lola: Thank you for reading and making your observation about the investing in real estate factor; it is interesting that the rates and the prices are down at a record number and at the same time! It is another interesting factoid, that the Wharton report points out also: the idea that the time frame is crucial to those who may be priced out of a market if they wait---a fact that has also scared the wits out of those who live here now and if they sell will have to go elsewhere.

Nate: Believe it or not--we are having the same problems here as there!...all of them and more! The idea that a percentage of the people who feel the need to sell to get out from under their debt-load will never be able to buy again is a huge factor. It might be a good time to point out, however, that homeownership is the only investment of it's kind: You can live in this investment; you can improve the value of the investment simply by maintaining it properly; you can rent out this investment when you may not be using it yourself; you can liquidate this investment at any practical time and expect to NOT lose money (with this time as one exception) .....Feel free to use this with your buyers if you  choose!:)

Jun 20, 2010 08:40 AM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Hi Carla: It's not so different--the housing recession was a "great equalizer" in more ways than one! I have discovered that the same things that effect the larger picture do effect us also...the differences are not as great as one would think. Maybe in a healthy robust housing market it tends to make things less obvious. As a homeowner myself, I know the feeling of being overwhelmed by the costs of a home; the feeling of being caught short by the downturn. Now as we go forward I have a new appreciation of the things that affect the midwest, as an example. It did not matter to me in the past; now it does! Thanks for taking the time to read and comment.....

Jun 20, 2010 08:48 AM
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Paula,

I really enjoy reading your posts.  You are excellent at presenting your case and dissecting your market.  Thanks for sharing your findings with us, it is inspiring.

Jun 20, 2010 09:26 AM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Ron and Alexandra: Thank you so much for reading the post...it is one of those topics that I find we need to cover--but it has to be as accurate and full of detail as possible---I love doing that so it became a real labor of love!

Jun 20, 2010 10:01 AM
Marcie Purcell Associate Broker
Better Homes and Gardens Real Estate Cassidon Realty - Quakertown, PA
Realtor, Bucks & Montgomery Co PA

Paula,
Thanks so much for this post. It's very helpful to read about the market in past years. I have been in real estate since 2003 and like to read about different markets before  the craziness of the highs and lows.

Jun 20, 2010 10:55 AM
Chris deLambert
Sanford, NC

That's astute analysis.  I wish we all were as in tune and up to speed on our markets.

Jun 20, 2010 11:35 AM
Juliet Johnson
Vizzitopia - St Johns, FL
Jacksonville Photography & Digital Marketing

This is great news for those of us in Myrtle Beach - most of our buyers are from the North East.  Our fortunes are tied to yours quite closely.  We have spectacular homes in all price points at the moment, thanks to a crazy overbuild.  Our absorption is running at around 27 months.... a daunting number, for sure.

Thanks for the analytical post; great reading and good encouragement.

Jun 20, 2010 11:56 AM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Marcie: ..not so different huh? I find it really important to read everything I can get my hands on regarding real estate. I found that joining the newsletter at Knowledge@Wharton very helpful and informative from a very select group of experts. Thanks for commenting.

Chris: I think if you start to talk and listen to/with others in your business you will find that there is a fountain of information available to all of us--it just takes someone to sit down and basically analyze everything, put it down in an understandable and easy  way, then sahre it with as many people who will listen. I always send out my gathered information to my current and former clients/customers and I always hear back from them...Thanks for your comment.

Juliet: It has been a tough slog though; and I think there may even be more before it improves entirley....we need to get our "groove" back in this country--right now we are all feeling less prosperous then we were and that makes a huge difference! thanks for reading and commenting.

Jun 20, 2010 01:23 PM
Marcy Moyer
eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales - Mountain View, CA
Probate, Trust, and Investment Specialist

Paula,

I am in Palo Alto, and along with a few surrounding cities like Menlo Park, Atherton, Los Altos, Woodside, Portola Valley, we represent an area with many homes over $1,000,000 and going up to $25,000,000, occasionally. We have seen an upswing that has reached the 2.5 million mark, but the really high end properties, over $5 million are still harder to sell.

Marcy

Jun 20, 2010 04:47 PM
Frank Castaldini
Compass - San Francisco, CA
Realtor - Homes for Sale in San Francisco

Very interesting observations.  It would seem clear that it's a great time to accumulate.  Rates being low mean someone can pick up properties and have lower payments over a longer period.  That's great news.  And stock market success is clearly key in your area.  I used to work in the Hamptons.  I know the crowd and the mentality.  Totally stock market connected.

Jun 20, 2010 06:00 PM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Marcy--the high end has been hit hard here--the $1mil properties are almost all sold so very few to pick from and now the $1.2 to $1.5 are the very "hot" properties. We are waiting for the hedge fund guys to re-appear after they re-establish themselves to jump-start the high end again. New builds are the order of the day if anything is selling in the $3 to $5Mil. Thanks for commenting.

Frank: So you know how it goes here! It is different and yet it isn't---we have been hit very hard here and prices are now so "affordable" that the wise thing to do if one is in the market to buy a home, a second home in particular--is to buy now!....this is the place. Thanks for commenting.

Jun 21, 2010 12:44 AM
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Paula - great post to inform prospective buyers about property in the Hamptons!

Jun 23, 2010 03:12 AM
Paula Hathaway, REALTOR, LBA
Douglas Elliman Real Estate - Southampton, NY
...A Local Expert in all The Hamptons

Barbara: I always like to hear from you! I appreciate your reading my posts and commenting....

Jun 23, 2010 12:59 PM