Real estate is about a lot more than numbers — or is it? The COVID-19 pandemic combined with low mortgage rates, a work-from-home movement and low unemployment rates created a dynamic never before seen in the U.S. economy. Going behind the numbers, however, local real estate professionals describe a changing marketplace.
The second quarter of 2023 saw a continuation of Q1 2023 according to the Hamptons Home Sales Report from Bridgehampton-headquartered Town & Country Real Estate. The second-quarter report cites “significant declines” in the number of home sales, describing its current status as “repositioning to a more typical market.”
The $10 million to $19.99 million price category sank 60 percent, and the $20 million and up group saw half the number of homes change hands than the same period a year ago.
“The uber high end has slowed,” noted Town & Country founder Judi Desiderio. Sales for the $20 million-plus category dropped from six to close 2022’s second quarter to three for Q2 2023. Sales below $500,000 also halved from 24 in Q2 2022 to 12 for the same period this year. Other categories saw similar patterns.
The median home sales price in Southampton is $1,420,000 ($719/sq. ft.). That’s a $30,000 drop (-2.1 percent) from June 2022 according to Rocket Homes (rockethomes.com) which classifies the town as a “buyers market.” In June 2022 it took 70 days to sell a Southampton home. One year later that’s roughly doubled to 143 days.
“This is a dynamic market,” said Ed Gaetjens, an agent at Saunders & Associates in Bridgehampton. “Inventory is down by about two-thirds from 2019, from about 3,500 listings to somewhere between 1,200 to 1,400. Along with higher rates this is now normal.”
While Hamptons real estate represents a unique market, lately such local trends may be aligned with national real estate activity. The Mortgage Bankers Association (mba.org) reports in its Builder Application Survey data for May 2023 that new-home mortgage applications increased 16.6 percent compared to a year ago.
“Mortgage money is available and we’re as busy as ever, but the customer has changed. We’re back to the prepandemic vacation buyer compared to those seeking refuge from COVID,” Gaetjens said. Compared to April 2023, applications increased nationally by 8 percent before decreasing 4.4 percent for the last week of June 2023. Nationwide, three U.S. regions posted monthly losses, while sales in the Northeast surged; however, all four regions saw year-over-year transaction declines.
It’s All About Rates
There have been three rate hikes so far in 2023 and nine since March 2022. The first for 2023 occurred in February, when the Federal Reserve raised the rate by 25 basis points, or 0.25 percent, bringing the target range to 4.50 to 4.75 percent. Additional hikes of 0.25 percent occurred again in both March and May 2023, ultimately bringing the federal funds rate to a target range of 5 to 5.25 percent. This has caused interest rates on loans, including mortgages, to rise. Historically, when it costs more to borrow money a decrease in housing demand follows. There may be another rate increase when the Federal Reserve meets from July 25 to 26. At its last meeting it took a wait-and-see position. It is impossible to forecast how this will impact Hamptons real estate.
“Thirty-year jumbo mortgages are common,” said Bill Wright, a co-owner of PAR East Mortgage in Southampton. “It’s taken some time, but people have now digested the rate increases and have come to terms with them. Many are opting for a five- to 10-year adjustable mortgage. People do not necessarily want to tie up all of their cash in a home purchase.”
The daily average 30-year fixed mortgage rate was 7.08 percent on July 5, down just slightly from a half-year high of 7.14 percent a month earlier. For the week ending June 29, the average 30-year fixed mortgage rate was 6.71 percent, up slightly from the week earlier, but down slightly from the eight-month high of 6.79 percent hit at the beginning of the month.
“A Hamptons home is a luxury item for most, not a necessity,” Desiderio said. “The driver for acceleration is when there are financial gains and the spirit is fat and happy. In times of financial concern buyers pump the breaks.”
Broadly speaking, economist Ed Yardeni told CNBC that the U.S. economy has shifted from a “rolling recession” to a “rolling recovery” while adding that headwinds are building for the housing sector. “Clearly, there’s going to be a recession in commercial real estate over the next year or two. But I don’t think that sector is big enough to take the economy down.”
Some economists continue to see trouble brewing, arguing that manufacturing is contracting and the recent interest rate rise, which is expected to continue, will push the economy into recession. How that may impact the Hamptons real estate market is anyone’s guess.
“The Hamptons is a special market but there are similarities [to the national market]. Rates will come down one day,” Wright said. “Not to 2 percent, but when they do, people will refinance. At the end of the day everyone is rate sensitive.”
