Third-quarter market reports issued by brokerages in the Hamptons uniformly indicate that average and median prices fell due to an increased demand for entry-level homes and decreased demand for luxury properties. However, the reports are contradictory with respect to whether total sales volume continued to increase, relative to the prior year quarter, as it did for the five prior consecutive quarters.
After reviewing all the reports issued by area brokerages—Brown Harris Stevens, The Corcoran Group, Prudential Douglas Elliman, and Town and Country Real Estate—the data appears to indicate a modest volume increase relative to the third quarter of 2009.
The reports summarize the state of the market based on closings that took place between July 1 and September 30 of this year. As always, the major brokerages define the geography of the Hamptons differently, which accounts for some of the variation in the reported data, which has been averaged for this analysis.
There were approximately 350 deed transfers (sales) on the East End of Long Island in the third quarter of 2010. Volume change relative to the third quarter of 2009 was reported by the major brokerages as somewhere between a 34-percent increase and a 4-decrease. The average of these contradictory volume findings is a modest, 11-percent increase, and assuming that is correct, this is the sixth quarter in a row to show volume increases compared to the prior year’s quarter.
During the prior five quarters, volume increases grew from single digits to 25 percent, to 75 percent to more than 110 percent twice in a row, and now, down to 11 percent. It was inevitable that the dramatic jumps in volume would end as we left the first quarter 2009 market bottom behind, and six consecutive quarters of volume increases vividly illustrate both the depths to which the market sank following the crash, and the resilience that it has shown over the last eighteen months.
The somewhat misleading average price statistic was $1.47 million this quarter, a 9-percent reduction from the summer of 2009. It is critical to keep in mind that this figure often tells us more about the average price of homes that sold in the quarter, than it does about whether prices are actually going up or down (in fact, prices in most market sectors are now stable). But it speaks loudly about the types of homes that are selling, and this quarter they were overwhelmingly entry-level homes priced under $1 million.
Typically, about 50 percent of homes in the Hamptons sell for under $1 million. But this quarter, that figure jumped to 67 percent, driving the median—or middle range—value of sold homes down 13 percent, to $749,000, meaning that fully half of properties traded for less than that amount.
While the low-end flourished, the luxury market languished, with only 11 sales at $5 million or above, an approximate 50-percent volume decrease at that level from both the prior quarter and the prior year quarter. The spike in low-end buying is easy to understand; with interest rates at 50-year lows and extremely competitive markets in entry-level neighborhoods far north of the highway, there is a historic opportunity for first-time buyers. But it remains to be seen whether the drop in high end buying is an anomaly, which is quite possible when dealing with statistics based upon 10 or 20 sales per quarter, or, more ominously, it represents fear or uncertainty on the part of those employed in finance who typically make such purchases.
While luxury level end-users may be hesitating about buying expensive new homes, developers and entrepreneurs are betting in earnest that there will be strong demand for such properties in the future. Land sales doubled in volume compared to the prior year quarter, and the land that sold did so at an average price of over $1 million—40 percent higher than last year. The average price of sold homes south of the highway dropped 21 percent, versus the prior year quarter, as forward- thinking builders scooped up tear-downs and renovation candidates.
The total inventory and listing discount data are encouraging as well. Real estate sales in the Hamptons are a seasonal business, with the second quarter—spring—traditionally the busiest season, as buyers rush to purchase before Memorial Day. The second quarter this year was the biggest, in terms of volume, since the first quarter of 2007, just before the crash. As a result, inventory is tightening, with the total number of homes for sale down 9 percent compared to the prior year quarter.
Of equal importance is that sellers are adjusting to the new reality that in many cases (but with important exceptions) their homes are worth approximately 30 percent less than before the crash. Because of more accurate pricing by sellers, the average number of days a home is on the market has dropped precipitously by about 20 percent compared to the same time last year. Buyers, many of whom still harbor unrealistic expectations about “stealing” distressed properties by making low-ball offers, should keep in mind that post-crash discounts have been built in to many asking prices. The average discount between listing and sales price is now only 8 percent, down more than 50 percent from the 19-percent listing discount common last summer before many sellers had accepted the reality of post-crash valuations.
What those of us in the brokerage field are seeing, time and again, is that accurately priced homes can—and do—sell quickly, and that such homes frequently generate bidding wars, to the astonishment of buyers who believe they are braving the market alone. We may have witnessed a national change in consciousness with respect to pricing, as everyone seems to be more attuned to obtaining a good value when they make a purchase. Sellers who offer a good value—or the perception of one—can expect to find a fairly robust market response, particularly at the low-end.
Barring another economic calamity, a new rush of high-end buying is likely this spring after Wall Street bonus season and before Memorial Day. In this low-end dominated market, many spectacular high-end properties remain. Prospective luxury buyers who are in a position to act now would be wise to play the contrarian and go to contract before their competitors follow.
on Nov 1, 2010