Hamptons Real Estate Market Is Pivoting, Analyst Says

There is a change in the Hamptons real estate market being felt right now, as housing supply that had dwindled to historic lows is beginning to rebound, the pandemic-driven urgency among homebuyers has faded, and economic uncertainty has caused some to pause.

It’s still a seller’s market — but not quite as lopsided as it’s been for the past two years. Buyers have a few more choices available as the market becomes more balanced, and prices may have already peaked. That doesn’t mean prices will plummet, but the unprecedented year-over-year increases could be tamed.

“We’re in a pivot,” market watcher Jonathan Miller of the real estate appraisal and consulting firm Miller Samuel Inc. said in an interview at the start of the month. He explains that, on one hand, Hamptons real estate is seeing all-time-high pricing, the highest market share of bidding wars, and the highest market share of sales above $5 million. “It’s a laundry list of price records,” he said.

But on the other hand, he noted, sales activity is falling and inventory is rising.

One of the ways that Miller keeps tabs on the market is by recording the number of homes that go on the market each month versus the homes that enter into sales contracts. Houses in contract haven’t sold yet, and it can take months in some cases for deals to close, but while they are in contract or pending sale, they are off the table for buyers who are on the hunt. So watching the difference between the number of homes being added to the inventory and the number entering contract is a good way to get an idea of the market’s direction.

He prepares his monthly new signed contracts reports for Douglas Elliman in many markets, including Manhattan, Long Island, the Hamptons and the North Fork.

Miller found that the Hamptons market peaked in March in terms of number of sales. “Then much of the second-quarter activity, instead of rising each month, was sliding,” he said. He attributed the slide to uncertainty and the Federal Reserve raising interest rates.

“Before the Fed moves, we already had a market that is seeing astronomical price growth, combined with concerns about inflation, volatility in the financial markets, and then, ultimately, a spike in mortgage rates,” he said.

He pointed out that many high-income buyers pay cash. That means mortgage rates are not a concern for them. But that doesn’t mean the Fed rate doesn’t matter to them at all.

“They also watch the financial markets, which are also being impacted by Fed policy,” Miller said. “And so I just think the intensity in the market has cooled.”

During the second quarter of 2022, both the median and the average sales prices locally reached the highest levels ever recorded: $1.6 million and $2.91 million, respectively.

“But if you compare the second-quarter median price of $1.6 million against the median price in the second quarter of 2019, which would be the last second quarter before the pandemic, the median price is up 88.2 percent,” Miller said. “So there has been this substantial shift to a combination of rising prices and a shift in the mix toward higher-end properties.”

He said what he finds quite interesting about this “whole phenomenon” is that inventory in the first quarter fell to the lowest it has ever been since he started tracking it in 2006, at 671 homes for sale — but the number jumped to 896 in the second quarter, still the third-lowest in history but a 33.5 percent increase. In the previous five years, the jump in inventory between the first and second quarters was 2 percent on average.

“At 896, listing inventory is still 65 percent below prepandemic levels,” Miller continued.

Inventory peaked in the third quarter of 2019 with an all-time high of 2,571.

“Inventory during the pandemic era was obliterated,” Miller said. “It didn’t decline — it was obliterated. Because it was no match for the insatiable demand coming out of the city, the concerns about safety, the flexibility that remote [work] had, especially skewing toward the wealthier cohort of the population.”

He said activity on the ground has now cooled, which is shown to a limited degree in the second-quarter data and will show a lot more in the third-quarter data.

On a year-over-year basis, new signed contracts activity was 43 percent lower in June and 41 percent lower in July. That slowdown will be apparent in the third quarter report.

“So we’re definitely seeing a market that’s pivoting,” Miller said.

If potential buyers are thinking about holding off until they can get a better deal on a home, he thinks they will have to be fairly patient.

“What’s happening in the Hamptons, dare I say, is happening everywhere else where we’re seeing the second quarter show record prices but we’re seeing transactions cool,” he said. “And that’s largely because of what happened at the end of the first quarter, with rate activity.

“And the other characteristic in almost every housing market, arguably, except Manhattan, is that inventory is at record or near-record lows. So there’s a pretty firm underpinning in terms of supply with market prices. And part of the big price growth that we’ve seen in the Hamptons is not necessarily exclusive to just individual units appreciating but a broad shift in the mix.”

High-income buyers have more mobility than others, he noted, adding that this pandemic era has been marked by second-home purchases for the purpose of having another primary home rather than a vacation getaway. He doesn’t see that changing.

What Miller does expect to happen next is moderation in price growth and an expansion in inventory, largely due to the Fed rate hike.

He said that many people “over-interpret” what happens in a market pivot. The notion is that an external event like a rate hike occurs, sales cool, inventory rises and prices immediately fall. In reality, according to Miller, there is a long lag in time before that third step.

“There’s a saying: ‘Home prices are sticky on the downside,’” he said. That means that sellers who don’t have to sell won’t sell if they can’t get the price they want.

“What is unusual is that, going into this pivot, inventory was historically low instead of historically high, which is an extremely different scenario,” he said.

He later observed: “Let’s not forget that the economy is so strong right now that the Fed is literally beating it with a baseball bat trying to damage it, trying to create problems, trying to create unemployment, trying to create things to curtail inflation, and it’s had mixed results so far.” Though mortgage rates have essentially doubled since January, the economy is still chugging along, he said.

The Elliman Report for the second quarter also found that bidding wars were involved in 36.1 percent of homes sales — another all-time high.

“To have one out of three purchases sell for higher than the asking price is not a sustainable market condition,” Miller said.

Another big reason he sees for fewer sales happening lately and going forward is that in the last two years the market was “poaching from the future.” That is to say, sales accelerated, and deals that would have been made over a number of years were compacted into a shorter time frame. Buyers who could have been expected to purchase homes in 2022 and 2023 purchased them in 2020 and 2021 instead because the pandemic moved up their plans.

Now that the future’s here, those buyers are out of the mix.