Second Quarter Analysis - 27 East

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Second Quarter Analysis

author on Aug 1, 2011

According to second-quarter reports issued by Brown Harris Stevens, Corcoran Group, Prudential Douglas Elliman and Town & Country Real Estate, brokerages in the Hamptons are reporting a significant increase in high-end sales. Less apparent, but also contained within the reports, are signs of continuing weakness in the low-end market.

The reports summarize the state of the market based upon closings that took place between April 1 and June 30 of 2011. As always, the major brokerages issuing reports define the geography of the Hamptons differently, which accounts for some of the variation in reported data, which has been averaged for this analysis.

Sales Volume

There were approximately 460 deed transfers (sales), according to the four agencies which issued reports, on the East End of Long Island in the second quarter of 2011. These 460 closings are almost exactly the same number that occurred during the same time period in 2010. The nominal 4-percent volume increase over last year represents a good indicator of the market’s steady improvement and overall stability.

For those who watch Hamptons real estate, the spring and fall are traditionally the busiest quarters of the year for sales.

Looking back at the 10-year data, prior to the crash in 2007, the average yearly sales volume in the Hamptons was approximately 2,000 closings, or 500 per quarter on a seasonally unadjusted basis. In 2008 and 2009, during the depths of the recession, volume was cut roughly in half to approximately 1,000 closings per year.

It is an open question as to when, or if, the Hamptons market will ever return to its pre-crash volume levels and whether it would be healthy for the market to do so, given that the 2,000-closings-per-year level occurred during a destructive housing bubble. But the fact that we are approaching 500 closings in one quarter, whether that goal is ever achieved, is an excellent sign of market recovery.

Prices

The average price this quarter was $1,760,000, a hefty 18-percent increase compared to the same time period in 2010. This jump in the average price calculation was influenced by a rush of ultra high-end buying, including 12 sales over $8 million, compared to three last spring.

High-end sales began strengthening more than a year ago, in the winter of 2010, when sales over $5 million increased 300 percent from the 2009 bottom. At that time, the highest 10 percent of all unit sales accounted for almost 50 percent of dollars transferred. It took courage to jump into the high-end market at that time, when there were so few post-crash luxury sales no one could say with any certainty what such houses were worth.

Since the winter of 2010, high-end buying has slowly increased. Just as sales volume overall is approaching pre-crash levels, this quarter the volume of sales over $5 million made up 4 percent of all sales, roughly the same proportion as prior to the credit crunch.

High-end inventory is being absorbed rapidly, with the number of listings offered for sale and priced in the top 10 percent of the market dropping 30 percent compared to last spring. If luxury inventory continues to disappear at this rate, price increases at the top of the market are inevitable.

On a gloomier note, entry-level home sales, which in the Hamptons are those that sell for under $1 million, continue to exhibit weakness. While luxury inventory is tightening, overall inventory in the Hamptons increased by 4 percent, driven by newly offered sub-$1 million homes, which typically make up approximately half of all sales. This increased inventory stretched the average days on market from last asking price to sale from 131 days in second quarter 2010 to 188 days this quarter..

Future Trends

For the last two quarters, I have concluded by predicting that the market throughout 2011 would be generally healthy and balanced, with lots of low-end inventory (and perhaps declining low-end prices) and increasing high-end activity (and perhaps increasing high-end prices). A close look at the market, divided into quintiles, clearly illustrates these trends.

The median price of the top 20 percent of sales this quarter was $3,605,000, an increase of 12 percent over the same quarter last year. The next 20 percent, with a median of price of $1,575,000, rose 9 percent. The middle 20 percent, priced at around $940,000, registered a slight increase of 4 percent. And the fourth 20 percent, priced around $600,000, fell slightly, by about 2 percent. The bottom 20-percent slice of the market, priced around $330,000, fell 6 percent.

To reference Charles Dickens, what is emerging in the Hamptons, and elsewhere in the U.S., is “A Tale of Two Markets.” Today the median price of houses located east of the Shinnecock Canal or south of the highway is approximately twice the median price of homes west of the Shinnecock Canal or north of the highway.

As high-end buyers flooded the market this quarter, the median price of houses that sold east of the Shinnecock Canal or south of the highway rose by 20 percent compared to the spring of 2010. At the same time, the median price of homes west of the Shinnecock or north of the highway fell by 6 percent.

As I have said before, the recession is over south of the highway and has been for some time, while it remains a buyer’s market far north of the highway and west of the canal, with high levels of inventory and significant numbers of distressed sellers. If these trends continue, and the “Tale of Two Markets” lengthens, it may become impossible to answer the question, “How’s the Hamptons real estate market?” without first asking, “Which one?”

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