A year ago, recession warnings were on everyone’s lips, the mortgage crisis was clotheslining the national real estate market, and there was not the slightest inkling that the government was thinking about stepping in to help.
In the Hamptons, the talk was not of looming disaster but of how the high end of the real estate market was carrying onward and upward, dragging the median price of East End homes up despite slightly fewer sales, and how the local market, as a whole, seemed to be muddling through the tough times and even showing signs of a possible upswing.
Then September happened. The stock market’s nosedive, viral international economic turmoil, the Lehman Brothers collapse and seemingly endless rounds of layoffs since have reduced the torrent of money that had been deluging the East End for years to a trickle. By the end of 2008, almost every region of the East End and every sector of the market had seen precipitous drops, in both volume of sales and dollars that changed hands through real estate dealings.
And as the real estate season gets swinging for 2009 with the coming holiday weekend, there is little question that the housing market on the East End has finally been knocked off its high horse.
But for how long?
There are signs of life. With the vast supplies of wealth in the metropolitan area, even in tough times there are people with a lot of money around. Some professions, like doctors and lawyers, have not been hit by the financial tumult and that $18 billion in Wall Street bonuses, even if it is the last of the booty for a while, is going to land somewhere.
With most second-home and investment markets in collapse and prices around the country withered, the sharks are smelling blood in the water. Bargain hunters who still have liquid assets are on the prowl in the Hamptons.
“It’s not like everyone is completely bankrupt. There are people looking to buy,” said Stuart Epstein, owner of Devlin McNiff in East Hampton. “Our office is busy showing properties. There is still a lot of hesitation when it comes to making offers—things tend to stall out—but it’s the first step toward something happening.”
Nearly every broker, agent or market watcher interviewed in the last week said that they or their colleagues have been increasingly busy in recent weeks showing houses—not closing deals, but showing houses.
The hitch is still in the asking prices. By most accounts, the owners of the inventory—houses for sale—have still not lowered their asking prices to the point that the bargain hunters are jumping to close deals.
After years of atmospheric market growth, expectations among sellers are for high price points and big profits, even as the number of sales has fallen off. Most brokers say that only those who are truly under the gun to sell have lowered their prices. Others are standing firm.
“There’s a standoff right now between sellers who want to believe that their houses are worth what they were at the height of the market, and buyers who don’t want to pay those prices,” said Jay Flagg, vice president and managing broker of Prudential Douglas Elliman’s Southampton office. “The buyers right now are bottom fishers, vultures coming in with very lowball offers. They both have to come toward each other somewhat and when they do, we’ll see things start selling again.”
“I think sellers are finally beginning to realize that if they want to sell their house, they need to make a drastic price reduction,” said Morley Quatroche, owner of the Morley Agency in Southampton. “If they do that, there are buyers looking. My wife has had a listing for a week at $2.5 million and she had two showings the first day and four or five more this weekend.”
Rick Hoffman, regional vice president for the Corcoran Group, said the inventory of houses for sale on the East End is higher than it has ever been and is increasing every month.
In 2008, the inventory of houses for sale in the Hamptons rose 11 percent, according to the OREX shared listings system. The total inventory rose by more than 1 percent in January alone. Such a trend demands that prices will come down.
“It used to be location—the adage of what’s the most important thing in real estate—now it’s value,” Mr. Hoffman said. “It’s the psyche of the buyer. They read about the market and they think prices should be way down. It’s the psyche of the buyers in everything now: Bergdorf’s, car dealerships, everything. They want a good deal.”
History dictates that in a market that is due for a correction, good deals should be on the horizon. Over long periods of time, 20 years or more, house prices on the East End have increased an average of about 10 percent a year, according to market watchers. From 2003 through 2005, the median prices in East Hampton and Southampton towns grew 17 to 25 percent per year. The prices leveled off in 2006, growing by only 4 to 8 percent, before jumping again in 2007 by about 20 percent.
In 2008, the median price dipped 9.5 percent in Southampton Town and 13.5 percent in East Hampton Town. The latest figures show a decrease, but still leave the median in both towns about 40 percent higher than they were in 2003. And that leaves a lot of correcting still to be had.
The past year was a bad one for the East End in terms of real estate sales. It had been more than 15 years since there had been a down year in the local real estate market—and 2008 was a very down year.
“Everything fell apart in 2008,” says George Simpson, owner of Suffolk Research Inc., which compiles statistics on real estate sales in Suffolk County. “We became like the rest of the country.”
The number of homes sold on the East End fell by some 31 percent across the five East End towns in 2008, compared to 2007 figures.
In East Hampton Town the number of properties sold dropped more than 38 percent, from 648 in 2007 (about even with 2006) to just 396 in 2008. The total dollar value of those sales—which had climbed 32 percent in 2007, despite flat volume, thanks to the sale of several extremely expensive properties—plummeted 46 percent, a loss of more than $575 million. The median price of a home sold in East Hampton dropped 9.5 percent in 2008, back below $1 million from its 2007 high of $1.1 million.
Having lost some of its momentum already in 2007, the Southampton Town sales market saw slightly smaller declines last year. Volume of sales declined 33 percent in Southampton Town, from 1,329 in 2007 (off about 10 percent from 2006 highs) to 882 in 2008. The total value of the homes sold in Southampton during 2008 also dropped 33 percent, or more than $770 million, and the median value fell to just under $800,000, down 13.5 percent from its 2007 high—though the median still remained higher than the 2006 median.
Even the most desirable locations were not immune, as they had been, to the stumbling sales volume. Water Mill sales were off by 54 percent, Southampton Village was off 45 percent and Sagaponack, Sag Harbor and West Hampton Dunes all saw sales volume drop by at least 30 percent. East Hampton Village volume dropped 25 percent. Only tiny Wainscott, most of which lies south of the highway, did not have a decline in sales volume—the 21 sales there were the same as in 2007, though that year was down 47 percent from 2006.
In areas that had been bolstered through the beginnings of the sales slump last year, thanks largely to the high end of the market, the dollar values of sales in 2008 saw huge drops. Some of the smallest markets, like Eastport and Northwest, dropped more than 75 percent. In the busiest markets, like Southampton Village, the declines were more tempered in relation to the year before, 33 percent, but enormous in the dollar figures lost: $170 million.
Across the East End, the total value of residential real estate sales declined by nearly $1.5 billion in 2008, from $4.18 billion in 2007 to $2.69 billion last year.
The early months of 2009 seem to be continuing the downward trend and the enormous losses have hit the real estate industry hard. With a billion and a half fewer dollars moving through the industry last year, more than $60 million in commissions would also have disappeared from the bottom lines of East End real estate companies, brokers and agents.
Regardless of optimism, real or affected, such losses are hitting the budgets of real estate agencies hard. Predictably, most are playing their financial cards close to the vest. Corcoran has closed two South Fork offices recently, one in Hampton Bays and one of the two the company operated in Sag Harbor. Corcoran still operates two offices in both East Hampton and Southampton villages, and has no plans to close any more offices in the near future, according to Mr. Hoffman.
Sources say that some have cut their advertising budgets for 2009 by 60 to 80 percent or more, and that other cost-saving measures might be needed to keep things going if the market does not turn around quickly.
“There are different business models—yes, you make cuts on staff and advertising,” said Mr. Flagg, of Prudential, though he would not offer specifics of either in Prudential’s case. “Right now we’re still advertising, but not as much and maybe we’re being more selective about the periodicals we use. Some companies are in dire straights and are cutting back more than us.”
Gary DePersia, a vice president at Corcoran and one of the East End’s biggest individual real estate advertisers, said he has cut his ad budget for the coming year—he would not give exact figures either—and is evaluating where and how he will put the money he does spend.
“I’m reexamining where I’m spending my money,” he said. “We want to use it more wisely rather than just the scatter gun approach.”
Every broker interviewed said their offices and agents are putting more emphasis on the use of their company websites as a cost-saving way to drum up business in lean times.
Homes of the Hamptons publisher Kathy Silvanovich said that her real estate magazine, which is comprised primarily of advertisements for homes for sale or for rent, is seeing drastic cutbacks in the amount of advertising coming from all the major brokerages.
“This year we’re 62 pages for our January issue, last year we were 104,” Ms. Silvanovich said of the bi-monthly listings magazine. “Last summer we were 112 pages when we’d been over 200 pages in good years. If brokers aren’t making any money, they don’t have money to spend on advertising.”
Ms. Silvanovich said that many brokers have not dialed back advertising as much as might be expected in relation to their losses in income because, even in lean times, they want to keep their names and faces in the public eye in hopes that a turnaround will bring buyers to their door.
Paul Conroy, advertising manager for The Press News Group, which owns The Southampton Press and The East Hampton Press, acknowledged the drop off in advertising as well.
“They’re all keeping a real close eye on their budgets,” Mr. Conroy said of the real estate companies that advertise with his papers. “They are still advertising. It’s not at the pace that it was before, but they’re advertising.”
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