Higher Rates Make Their Presense Known on the South Fork

Not even South Fork real estate is completely immune to the far-reaching effects of inflation, the economic word of the season.

Mortgage rates recently broke the 6 percent barrier. The 30-year fixed mortgage rate climbed to 6.02 percent from 5.89 percent, according to the Federal Home Loan Mortgage Corporation (Freddie Mac). The average rate is now 2.80 percentage points higher than in January and about double what it was this time last year. While in some parts of the country this is stoking real estate “affordability concerns” many will say the South Fork is different. In some ways it is, in others it is not, as inflation’s long-reaching tentacles have numerous ramifications.

It is true that many of those shopping for a second home on the South Fork often do not get a mortgage and instead buy for cash or use a form of private or alternative lending. While that removes the interest rate concern from the equation, other factors are still at play.

“I’ve been tracking some homes on Eastern Long Island on the South and North forks over the past few months,” said Rocco Carriero, a wealth manager in Southampton. “Zillow is starting to show multiple price cuts. One property I’m watching is down 15 percent. Today’s market is very different than the post-COVID real estate world. In 2019 properties were not selling and inventory was building. Inventory is down and there is still activity, but people are not acting as quickly these days.”

The number of South Fork home sales fell by 27 percent year-over-year from 1,919 in 2021 to 1,400 in 2022 — a nearly 15 percent volume drop. Sales volume may be dropping, but prices generally have not dropped. The median home sales price remained unchanged at $1.6 million according to the Hamptons Mid-Year Home Sales Report by Town & Country Real Estate. East Hampton Village posted a median home sales price of $6.25 million — a 62.3 percent increase from the same period the prior year. While sales volume has dropped, the median home sales price increased over 18 percent to $1.65 million. Sag Harbor Village was the only local market to have a median home sales price decline at — 14.74 percent. Homes there averaged $2.34 million in 2021 and $2 million in 2022. All other area markets experienced median home sales price increases.

“Our clients are typically motivated more by the behavior of the stock market than by interest rate movement,” says Judi Desiderio, Town & Country’s founder and CEO. “Many of the sales are in cash and often used as a hedge. They tend to look past immediate events.”

Hamptons real estate inventory has returned to roughly normal levels with about 1,300 homes presently for sale. And while Hamptons homeowners typically do not need to sell and often can afford to wait for their price, buyers may no longer be in a hurry to close a sale.

“We’re transitioning to more of a buyer’s market. What’s happening in the Hamptons seems to be happening around the country,” Carriero said. “Inventory is set to rise. There will be more homes coming onto the market and as they do sellers are going to need to have to work with the buyers to make a deal.”

Higher rates have removed marginal players while keeping some properties on the market longer than they might have been in the recent past. Some of those with cash and good credit are making offers after having patiently watched the vacation-home market. The few who remain in the market are using their newfound bargaining power to leverage pricing or repairs, further diminishing seller confidence.

When using a mortgage, consider that for each half-percent rise in interest rates, a homebuyer’s purchasing power drops by about 5 percent. If a borrower was preapproved for a $350,000 property and the interest rate went up by a half-percent, a buyer now can expect the buying power to drop by $17,500.

“The 30-year fixed mortgage rate hit the 6 percent mark for the first time since 2008, essentially double what it was a year ago,” said Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting. “Higher mortgage rates have contributed to more homebuyers staying on the sidelines.”

A Hamptons fixer-upper with great ocean views recently sold for $1.9 million. The home had been on the market for a few months and the owner dropped the asking price a little to make the sale happen. The new owner is now spending weekends supervising the renovation, which includes a new roof, painting and finishing the basement.

“The market could slide further before it stabilizes,” Carriero warned. “Sellers need to stop looking at top-of-the-market prices when setting the price of their home. Buyers need to know that they will pay more per month due to higher rates, which translates to higher monthly payments.”

Joseph Finora Jr. is a freelance business writer in Laurel. jfinora@optonline.net