Real Estate, Money and You

“Real Estate, Money and You,” a real estate investment seminar, was hosted by Douglas Elliman associate broker Patrick McLaughlin at LTV studios in East Hampton on a recent Friday night.

McLaughlin introduced Jonathan Miller of Miller Samuel Real Estate Appraisers as “the most trusted man in New York real estate” and “the big dog.”

Maggie Keats’s “client-first approach” has helped her sell $1 billion worth of property on Long Island’s North Shore, making her Douglas Elliman’s No. 9 top sales agent nationwide. “No small feat,” McLaughlin said.

Land use attorney Carl Benincasa and Rocco Carriero, a wealth consultant with Ameriprise Financial, both of Southampton, rounded out the panel.

You would never know it was Miller’s second seminar of the day. “The most important metric in housing today is inventory, or the lack of inventory,” he opened. The Federal Reserve kept rates too low for too long, during the dark days of COVID, essentially eviscerating the housing supply, which made housing more expensive and created “a massive distortion” in the market.

“Inventory is a living, breathing entity. It takes time to grow, based on the lives of the occupants of the house,” Miller said. “The problem is that when rates dropped so quickly, it was just wiped off the face of the Earth.”

Although the rate doubled, housing prices continue to rise, defying logic.

It all boils down to existing supply. New construction is only 10 percent of the housing inventory while 90 percent is existing homes. “Even if new building tripled right now it wouldn’t make a dent in the housing process,” Miller said. “People are locked into very low rates. If your mortgage rate is 3 percent, you don’t want to give that up.”

Having gone through the “steepest descent in mortgage rates in history,” the normal cycle of supply and demand was disrupted. Normally prices would adjust after sales fell and inventory surged. Except, inventory didn’t surge.

“Because the change from low rate to high rate was so immediate it caused homeowners to lock in,” Miller said. “That’s where we are, whether it’s the Hamptons or Long Island or virtually every market in America.”

On Long Island over 50 percent of the transactions that closed in the fourth quarter sold above the asking price, a clear sign there isn’t enough supply.

Panel members agreed, the East End is unique, being very much linked to financial markets in Manhattan.

“Wall Street had near-record profits this year,” Miller said. That translates into more demand for housing, meaning housing prices will continue to rise.

Inventory is also on the rise. Although still below long-term norms, it’s a good sign. Signs also point to lower rates on the way.

“Life sort of forces people to move on and not wait necessarily for low rates, Miller said. “But it’s continuing this distortion.”

“Everyone can agree there’s uncertainty in the market right now,” McLaughlin said. “No one knows what’s going on — tariffs, trade wars, the market is up and down.”

People are uncomfortable. Keats told a story about two sellers who planned to list this spring.

“Both of them are locked into very low interest rates but they were not concerned about losing those interest rates because they invested heavily in equity markets and had been very successful,” she said.

“They could put enough down to make up for rates, and payments would be about the same, but the volatility in the market is what’s prevented them from listing,” Keats said, clearly disappointed.

“Those people aren’t going to withdraw from the financial market. They’re going to shift from stocks to bonds,” Miller commented, “That’s going to raise bond prices which lower yields. Interest rates are tied to lower yields.”

Even cash buyers care about rates. Those who have the means to bypass interest rates still care. “They care less,” Miller said. It’s an indicator to how safe the current market is.

How safe is the market currently? “Our uncertainty has uncertainty,” Miller said.

Carriero looked at the Hamptons market specifically. The East End appreciated 7 to 8 percent, as opposed to the rest of Long Island, which appreciated at 4 percent.

“We are still seeing people buying and selling homes in the Hamptons,” Carriero said. “Hamptons prices don’t decrease. I don’t believe you’ll see any major price decreases even when supply goes up.”

“The market here has performed really terrific,” Carriero said. “It continues to be a solid market.”

Benincasa saw a lot more activity in the higher end, who are less dependent on a mortgage. “The mortgage dependent sector, $3 million and below,” he said, “it’s slow.”

“In that sector, there are a lot more requests for mortgage contingencies, which was not always the case out here,” he added. “And you actually see people not getting mortgages, which I hadn’t seen that often at all. … The high end is unaffected by market conditions and interest rates, because these people live in their own world. Where the rest of us live has certainly been a slow crawl.”

High interest rates, low inventory, the high cost of building, are all obstacles for real estate investors.

“New York City rents are the highest in history: one-bedroom apartments are $6,000,” Miller said. “The math doesn’t really match. Rents don’t support the financing or return on investment prepandemic.”

For landlords, plenty of pitfalls await in New York.

Benincasa noted that Southampton has a pretty rigorous process to get what’s required for a seasonal rental, or longer than a month. “East Hampton is a far less cumbersome process,” he said.

In either town, do not be tempted to skip over the permitting process, the experts warned.

“The real liability is not from the municipality,” Benincasa said. “It’s from your tenant.”

If they refuse to pay rent because their landlord didn’t have the correct permits, it is not an easy task to get them out.

“There’s better ways to make money off real estate,” Benincasa said.

As far as timing, the motto is: “It’s better to buy and wait than wait and buy.”

“I have a friend, who for the past 20 years has been waiting for the market to drop in Ditch Plains in Montauk,” Carriero said. “When is the right time to purchase real estate? When it’s the right time for you.”

Only time will tell how tariffs will affect the real estate market.

“I don’t have a crystal ball. I think for the next four to six months you may continue to see a lot of murkiness out there,” Miller said. “We’ll eventually get through it.”

Keats drove the point home. Among the uncertainty, there are always safe havens.

“The single-family home market is still a great place to invest, even though prices have become stratospheric,” she said. “If you can hold your breath and not bite your nails, you’re pretty good.”

“If you had to put money in real estate, or into your home, for investment purposes,” McLaughlin asked Keats, “where would you put it?

“You know where I’m putting my money,” she said. “I’m putting it in my mattress.”