S&P Downgrade Felt In Hamptons Real Estate

August 5 was a day for the history books, financially speaking. In an unprecedented move, Standard & Poor’s downgraded the country’s credit rating to AA+, down a notch from the perfect AAA—a rating the United States has held for nearly a century—following much debate in Congress over raising the nation’s debt ceiling. The downgrading of Fannie Mae and Freddie Mac followed soon after.

While economists remain divided over the long-term effects of the downgrade, many East End real estate experts said last week they have realized the immediate impacts but are upbeat about future market trends.

“I think it was more of a political move rather than an actual reality move,” said Paul Brennan, a real estate agent with Prudential Douglas Elliman. “If S&P is doing it, why aren’t the other ones doing it?

“I think as far as the real estate industry is concerned, you have to be anxious because it’s yet another kick in the pants, if you will,” Mr. Brennan continued. “Another thing, another hurdle, you have to deal with as to why people should be wanting to buy. But the fear factor only lasts so long. It’s a reactionary response. It’s the swings that drive people crazy.”

A downgrade is a warning to federal bond and debt buyers that the chance they won’t get their money back has, in this case, slightly increased. Standard and Poor’s maintains that the difficult political climate in Washington, D.C. has had an adverse effect on fiscal decision making. Further, it said efforts to control the federal debt growth have been insufficient.

The hit came as a shock to many local real estate industry experts, including Andrew Saunders, founder of Saunders & Associates. It is a move he called “poorly timed and ill-advised.”

“Something like this could tip us over,” Mr. Saunders said. “The real question is whether this downgrade was appropriate. It’s just mind-boggling to me. It did come as a bit of a surprise to me because I feel it’s a little unpatriotic to do such a thing in the backdrop of a very challenging period.”

Mr. Brennan predicted that the real estate industry will experience a short-term paralysis.

“People will stop buying. They’ll stop,” he said. “Not that the money isn’t there, it’s just that it’s buried between this and the stock market going up and down vehemently. Everyone is just scared and stops.”

Mr. Saunders has already felt the immediate ramifications, he said. Even two or three weeks before the downgrade, Mr. Saunders said he saw business moderating and attributed it to the uncertainty coming out of the nation’s capital.

“We weren’t getting the clarity that we needed, that this would be resolved,” he said. “But they were incapable of doing so. And that was very unsettling to people who were poised to pull the trigger. They started pulling back, uncertain of what was going to happen. The downgrade reinforced the fears people already had. It all feeds on itself.”

Currently, the industry is in a period of “wait and see,” Mr. Saunders said, but he and other experts, including Aspascia Comnas of Brown Harris Stevens, said it will pass.

“Volatility on Wall Street lately has gotten some people a little bit nervous, but they’re realizing that real estate is a good investment by comparison because it’s real,” said Ms. Comnas, executive managing director of Brown Harris Stevens of the Hamptons. “It’s something you can stand on, something you can live in, something you can rent out if you hold it over time. Real estate isn’t as volatile as the stock market is showing itself to be.”

Because real estate is tangible, Ms. Comnas said she doesn’t anticipate that housing prices will plummet.

“Who knows what the future will hold, but currently, we’re not seeing huge price reductions,” she said. “Properties are still coming on the market that are aggressively priced. The value out here isn’t dropping, but some people are putting their houses on the market at too high a price and have to adjust to the current market. Now, there’s quite a few bargains. There’s a lot of owners who are realistic about the market.”

But if buyer reluctance and uncertainty continues, Mr. Brennan predicted that price tags will ultimately drop.

“If the fear factor continues, you’re going to have to lower your price to sell your house,” he said. “Will that happen? I don’t know. The market’s headed back up again. How long does it take for that confidence to kick back in and everyone starts to feel good about the economy? I think it’s going to happen between three and six months prior to the election. The economy is going to strengthen. Somebody wants to get reelected.”

Mr. Saunders emphasized that Hamptons real estate is a limited market and is not always impacted by the macro economy. He added that he doubts that the country’s debt is suddenly a risky asset—as suggested by the downgrade.

“Where else are you going to go with your money if you want the ultimate in safety? The U.S. isn’t going to default. This is all so ugly to watch,” Mr. Saunders said. “As far as Hamptons real estate goes, investing in that is a much, much safer play. But I think we’re clearly in a crossroads, clearly in a dangerous period. These guys need to get it right.”

But there are a few big real estate companies that are not talking about the downgrade at all right now.

When asked for a comment, Claudette Dixon, public relations specialist and training coordinator for the Corcoran Group here on the East End, wrote in an email: “Thank you for thinking of the Corcoran Group regarding this article. We will not be commenting at this time.”

At presstime, Town & Country Real Estate and Sotheby’s International Realty did not return calls for comment.