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Feb 13, 2017 1:04 PMPublication: The East Hampton Press & The Southampton Press

Hamptons Real Estate Market Dip May Not Be Cause For Worry

Most agree that the election played a key role in encouraging home buyers to “pause” in an uncertain future financial climate. DANA SHAW
Feb 13, 2017 1:23 PM

Whether it is looked at as a growing trend or merely a blip on the overall landscape, real estate brokers and experts in the field see the downward turn of the real estate market at the end of 2016 as part political, part uncertainty—and mostly just temporary. According to the Long Island Real Estate Report, fourth-quarter residential sales in the Hamptons numbered 669 in 2013, rose to 706 in 2014, fell to 624 in 2015 and ended 2016 at 396.

Most agree that the election played a key role in encouraging buyers to “pause” in an uncertain future financial climate. Most find reasons for optimism moving into the first quarter of 2017—and there are signs that sales are already picking up.

When asked about the downward turn of the real estate market locally, Kevin Luss, a certified financial planner and the owner of the Luss Group, said he was “not surprised.”

“This is a trend that has been continuing for a while now. I did see it coming,” said Mr. Luss from his office in Southampton. He attributed it to the economy.

“Despite what you hear in the media, the economy is not strong. If you ask 10 people why they think high-end sales are down, I think you could very well hear 10 different answers. But it all boils down to uncertainty, headwinds in several different asset classes on Wall Street, smaller bonuses and, oddly enough, a falling out of the sales of retail home goods and furniture, which is often a lagging indicator of future home sales.”

Citing the recent election of Donald Trump, and the polarization of the country as a result, Mr. Luss continued, “When 60 percent of the nation thinks it is heading in the wrong direction and consumer confidence is low, one would expect to see that reflected in the continuation of downward pressure on luxury home sales.”

Looking at the global political stage in the context of the past few years, Mr. Luss added factors that contribute to the luxury sales in the Hamptons in general as relying on the strength of foreign financial markets.

“Since a material percentage of homes purchased in the Hamptons are purchased by foreign buyers, when Brexit occurs and Germany has financial jitters, along with other parts of Europe, I think it’s fair to expect to see that manifest itself in a downturn here.”

Tim Davis, a top broker at the Corcoran Group in Southampton, concurs.

“The buyers were focused on world events such as Brexit, the sluggish financial markets and the pending presidential election. ‘Uncertainty’ often causes buyers to pause,” said Mr. Davis. He also cites inventory as a contributing factor.

“Our business is closely tied to what is happening in the financial markets. Also the amount of available inventory—we are at an all-time low for available inventory in our market, particularly on the high end,” he said. “In 2013, 2014 and 2015 we sold off quite a bit of inventory which has not been replenished. This included dozens of transactions in certain sectors of the market and at big prices. This can often skew the ‘average’ price and create the wrong impression.”

Pam Jackson, a licensed real estate salesperson, also at Corcoran in Southampton, cites a few factors that affect the Hamptons market overall: “Wall Street, elections, consumer confidence.”

However, she sees an upswing since the beginning of the year.

“There is a lot of optimism for 2017,” Ms. Jackson said.

A licensed real estate salesperson at Douglas Elliman, Andrew Azoulay, is also feeling optimistic.

“City sales in the high-end luxury sector have picked up significantly and the Hamptons always follow suit,” he said.

“While I wouldn’t say Trump per se has affected the market, certainly this election took buyers’ focus away for a good part of last year,” he said from his office in Manhattan. “The fourth quarter, we saw a bit of a lull, but people were looking—they may not be transacting—but they are looking.”

Mr. Azoulay, whose practice puts him in Tribeca as well as Bridgehampton, said that traditionally, the winter months are always slower. Once people start coming out east, when the weather turns, sales pick up.

“I see this as more about a pause with people stepping back and thinking, ‘Do I want to do this now?’” Mr. Azoulay said. “There was so much focus on the election, it took people away from a sense of urgency in the fourth quarter. People buy second homes and vacation homes in the Hamptons. It’s an emotional decision. Buyers think, ‘If I don’t do it now, will it still be there? And if it is not, maybe it wasn’t meant to be?’”

“You’re going to need value to trade at these high numbers—the days of putting something up because it’s big doesn’t work anymore,” Mr. Azoulay said. “People want new homes with great guesthouses, amazing basements and movie theaters and they feel that if they are spending $14 million to $17 million in March, they want to be in there by Memorial Day. They want turnkey and they want service.”

He also feels that in terms of Wall Street, it’s always give and take, with a steady inventory of buyers at hand.

“If one guy loses money, another guy makes money,” he said. “There is always someone waiting to buy. The inventory of high-net-worth individuals gives us unique positioning in Manhattan and in the Hamptons.”

James McLauchlen IV, of the McLauchlen Group real estate firm in Southampton, agrees that the downward turn is a blip, not a trend. The McLauchlens own an appraisal business, Hamptons Appraisal Service, and have been doing business locally since 1973. Appraisers are required to monitor market trends and conditions.

“Just like every other market, the real estate market will go through the ‘bumps in the road,’” Mr. McLauchlen said. “We expect this will be a bump and if the economy in the United States and the world improve, so will our market here in the Hamptons.”

His father, James McLauchlen III, added: “There were numerous factors at play in 2016 as to why the high-end market was slower than the years prior, especially 2014. “The fact that it was an election year played a significant role in market activity and buyers were hesitant to make long-term commitments based on an uncertain political and economic atmosphere. This was not surprising as we could see a slowing down in the market at the end of 2015 with the impending election year ahead.”

He, too, sees the road ahead as optimistic.

“Buyers were going to wait to see the election results … they wanted to have a sense of certainty as to what the future would hold, whichever candidate they were voting for.”

Mr. McLauchlen IV went on to note that vacant land sales are an indicator of spikes and dips in the market.

“Vacant land sales are harbingers of the future prospects for new construction of spec and custom homes in the market,” said the younger Mr. McLauchlen. “In early 2015, we began to notice a trend in declining land sales. For instance, in the entire Town of Southampton in 2014 there were 227 vacant lot sales. In 2015, there were 184. And in 2016, there were only 154.

“In the Town of East Hampton, a similar trend was noted: 2014—170 lot sales; 2015—172 and in 2016—104 vacant lot sales. Coupled with this trend, time on market for new homes and inventory [existing homes] both began to increase. The market was not in balance with abundant supply and moderate demand.”

Southampton Town Supervisor Jay Schneiderman said he is optimistic overall—in fact, he said, he is not sure there is a downturn. There has been a “surge of recent activity” after the first of the year, he said, adding that a recent Moody’s report noted that property values were up 5 percent. He said his administration is working to keep those values rising by addressing quality-of-life issues like code enforcement and park facilities.

“We do our best to make sure people want to spend here, whether it’s for a year-round residence or a second home,” the supervisor said.

He said that transactions may have dropped slightly but that could have been due to a lot of different factors. “Wall Street is rallying and those bonuses often find their way into the high-end real estate market on the East End,” Mr. Schneiderman said.

He also sees a very strong revitalization in Flanders and Hampton Bays, which could lead to an increase in property values in that area.

Andrew C. Spieler, a professor of finance at Hofstra University, said that all of the above could be reasons for the downward turn, but that none are literally responsible for it. “When I think of the Hamptons’ high-end real estate, I think of the market for sports cars: When the economy is good you sell more sports cars and vice versa,” Dr. Spieler said.

“But I am very cautious about interpreting any trend from very limited data,” he continued.

In other words, a fourth-quarter dip in sales is not enough to determine whether this is indicative of a downward trajectory. Mr. Spieler said that watching a few more quarters is necessary before extrapolating any real sign—one way or the other—about where the luxury house market is going in the Hamptons.

Any one quarter, he said, was not enough to draw conclusions from. He reiterated that whenever one is interpreting data, the outliers—a single extremely high-end sale, for example—can skew impressions.

“At the end of the day, this is a relatively small sample and could have many factors contributing to the decline, which could also be the result of a few outliers,” the professor said. “Time will tell.”

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Prices are simply too inflated in the area. New construction will drown out resale. Just wait, a correction is coming.
By Mouthampton (392), Southampton on Feb 15, 17 4:05 PM