A disappointing streak for South Fork real estate continued in the third quarter of 2019.
The number of home sales has declined for the seventh straight quarter while the median sales price has stagnated, according to the Elliman Report for the Hamptons market. It was also the lowest number of third quarter sales in eight years.
The optimism for the future that many industry insiders expressed after a lackluster second quarter largely proved to be premature. While a turnaround was anticipated in the third quarter, sales statistics did not bear that out. Rather, July, August and September delivered more of the same.
Miller Samuel, a Manhattan-based real estate appraisal and consulting firm, prepares the Elliman Report for Douglas Elliman Real Estate. President and CEO Jonathan Miller last week explained why the optimism some had three months ago did not bear out and why he thinks it’s too early to be discussing a turnaround.
Optimism on the East End in the second quarter was fueled by activity in Manhattan, and that activity was attributed to New York City’s new “mansion tax,” Mr. Miller said. The progressive tax starts at 1.25 percent for home purchases in the city over $2 million and tops out at 3.9 percent for purchases of $25 million or more.
“You had a surge in sales in the spring that were people trying to move their closing to before July 1 when the mansion tax kicked in,” Mr. Miller said. “We saw some pretty strong numbers in the context of sales activity. And because the East End — the Hamptons, specifically — is joined at the hip with Manhattan, I think that spilled over. And the third quarter ended up being disappointing.”
The Federal Reserve cut interest rates twice in the third quarter, which may have stimulated the market somewhat.
“The results could have been weaker if not for the sharp drop in mortgage rates over the past year,” Mr. Miller said.
Price-wise, there has been remarkable stability, he said. “The last three quarters in the Hamptons, the median price had been nearly identical every quarter, right around $850,000. And the year-to-date Hamptons number showed $850,000 for the first three quarters of 2019, and that’s identical to the first three quarters of 2018 — no change.”
Mr. Miller also noted that the average listing discount — the difference between the last asking price and the final sales price — was 12.3 percent. “It’s not a record, but it’s the highest we’ve seen since the first quarter of 18,” he said.
The inventory of single-family homes and condominiums on the market in the Hamptons was 2,571 at the end of the third quarter of 2019, up 76.9 percent from a year prior, according to the Elliman Report. The months of supply — the number of months it would take to sell everything currently on the market, based on the current pace of sales — rose to 19.2, up 108.7 percent.
According to Miller Samuel, the months of supply in the Hamptons residential market peaked at nearly 35 in the first quarter of 2009, at the height of the housing crisis.
A seller’s market typically has fewer than six months of supply while a buyer’s market has more. However, that six-month figure doesn’t necessarily hold true in a second-home luxury market such as the Hamptons. In fact, in the last 10 years the months of supply dipped below six months only in the fourth quarter of 2012.
According to the Elliman Report for Long Island, which excludes the North and South Forks, the months of supply in that region is 4.7, up 11.9 percent from the third quarter of 2018. Inventory is 13,244, up 13.7 percent, and the median sales price is $469,000, up 4.2 percent.
On Suffolk County’s north shore, excluding the North Fork, the months of supply is 2.3, unchanged from a year earlier, while on the south shore, excluding the Hamptons, the supply is 3.2 months, down 8.6 percent.
Another factor cited for the state of Hamptons real estate is the new cap to the State and Local Income Tax deduction, known as SALT. Under the 2017 Tax Cut and Jobs Act, homeowners may write off only the first $10,000 of local property taxes and income taxes that they pay when they file their federal tax returns. Previously, there was no cap, and that made owning a home — or multiple homes — in high-tax states such as New York more affordable.
Prices are in the process of adjusting in response to the new cap, Mr. Miller said. “Once prices adjust to the new level with the SALT fully factoring in, that’s it. It’s not a headwind to the market anymore. We’re still in, what I would call, a grind.”
“The SALT tax made everybody sit back for a second and wait till things shake out,” said Todd Bourgard, Douglas Elliman’s senior executive regional manager of sales for the Hamptons.
The lowering of interest rates “helped our cause a great deal,” he added.
More than anything, according to Mr. Bourgard, what’s driving sales right now is price.
“It’s all about pricing now,” he said. “The new listings we’re putting up are really priced well. And the people that we have been dealing with for a year or two are now coming down to fair market value as far as pricing is concerned. It’s a huge part of what’s going on out here, and that’s at every level.”
It has taken some sellers a long time to realize that buyers are more educated than ever before, Mr. Bourgard said. Buyers now have access on the internet to what’s sold, what’s for sale and what’s under contract, and they also know what to ask their real estate agents, he explained. “They are very willing to pay fair market value, but they’re not going to pay over,” he said.
Judging by the number of contracts signed in the last month — more than he’s seen in a one-month period in a long time and many at full asking price or above — Mr. Bourgard expressed optimism. “We have, in my opinion, turned that corner and are headed toward a very good fourth quarter and what I believe will be a very robust first quarter,” he said.
The Corcoran Report, released by the Corcoran Group, found that the number of sales was down 27 percent — the largest decrease in nearly 10 years — while the sales volume in dollars dropped 25 percent to $801.31 million. East Hampton Village and Amagansett had the roughest go of it in the third quarter, with sales down more than half and 43 percent, respectively.
The average price ticked up 2 percent, year over year, to $1.84 million, according to the Corcoran Report, which also found that the median price stayed flat at $995,000.
In the luxury market — the top 10 percent of sales by price — the median price dropped 16 percent, to $4.6 million. The Corcoran Report attributes the slide in median price to the fact that the number of sales for between $6 million and $15 million more than doubled.
Ernest Cervi, Corcoran’s regional senior vice president for the East End, attributed the third quarter numbers to some of the same factors that suppressed sales during the second quarter.
“Prices were just about the same, and I don’t think it was surprising because we saw the activity that was taking place in the second quarter,” Mr. Cervi said. “If you look back to the second quarter, there was some fluctuations in the stock market which caused people to pause and also trade deals that may have upset a few people. So people were sort of sitting on the sidelines. I think we saw some of that spilling over into the third quarter.”
However, he said agents who he’s discussed the report with are surprised, based on the activity of late. “There’s a healthy amount of activity now that’s going to show up in the fourth quarter that shows that we’ve come into a buyer’s market and people are buying,” he said.
Mr. Cervi pointed to three or four deals for luxury homes at Corcoran that have closed in the last four weeks and will be reported in the fourth quarter Corcoran Report or in the first quarter 2020 report if they are late to be recorded. “A lot of times, they take a while to get recorded,” he said of luxury home sales.
Mr. Cervi had a familiar message on pricing: “If you had the listing on the market for three months and it hasn’t sold, you need to get your seller to reduce their price. And that’s going to attract buyers that have been sitting on the sidelines. It’s really going to be about value — the market is about value.”
He personally would suggest reducing the price within just 30 days if there are no offers. “If you have showings and no offers, it usually tells you that it’s overpriced,” he said.
Also speaking to the state of the East End real estate market, State Assemblyman Fred W. Thiele Jr. released the year-to-date totals of Peconic Bay Region Community Preservation Fund revenue. Each of the five East End towns maintains a CPF that is funded by a 2 percent real estate transfer tax, so watching CPF revenue is one way to judge the market’s performance.
The Town of East Hampton saw a 27.9 percent decrease in CPF revenue in the first nine months of 2019, compared to the same period last year. Revenue for 2019 so far amounts to $17.38 million.
The Town of Southampton faired better, but still saw a steep decline. Revenue slid by 19.2 percent to $31.54 million.
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