Prospective Buyers Face Uphill Battle Amid Lack Of Affordable Housing

For renters, the affordable housing landscape on the East End can be described as grim, at best, between soaring prices, limited inventory and a rigorous market.

But when it comes to prospective homebuyers, they are up against an even higher set of hurdles.

For those who can’t come to the table with huge cash offers, or a timeline that matches the pace of supply and demand, or a budget that won’t stand a chance in a bidding war, buying an affordable home in the Hamptons can feel like running a gantlet, rather than taking a step toward the American Dream.

Just a decade ago, helping prospective buyers find housing that fit their budgets was Renee Gallanti’s goal as a licensed associate real estate broker: The same remains true today, she said, but the process and price point have shifted dramatically.

“When I first started, I was coming out of the restaurant business,” Gallanti, who landed at Saunders & Associates, said of entering real estate. “I was helping people who were my friends not have to move away, at a time where you could get a house for $400,000 or $500,000.

“That seemed so out of reach for anyone who was waiting tables, or cooking, or even managing these places,” she continued. “I think I was able to help them figure out that it wasn’t out of reach, or figure out why it was worth reaching.”

Today, the market is much tougher, Gallanti explained. Property values, given the cachet of the East End, have always been high, but they’ve been rising at a speedy clip — and the COVID-19 pandemic only exacerbated this.

According to a recent Saunders & Associates market report, the East End’s median sale price clocked in at $1.6 million in 2021, up 7 percent from 2020, while the average home value across New York State sits at just over $380,000, Zillow reported.

For someone working a full-time, minimum wage job — which pays $15 per hour and a gross annual salary of $31,200 — this puts homeownership on the East End far out of reach.

But prospective buyers face struggles beyond the sheer price point. First, there is the breakneck speed fueling the real estate market, Gallanti said.

“There’s a pace to the market right now, which is feverish and ferocious,” she said. “If there’s a house out there that you like, you don’t have time to think about it. You have to be extremely decisive and make extremely bold moves.”

Additionally, New York State requires a home inspection in the time between when the owner accepts an offer and closing day — but going through the process, and even spending money to do so, does not guarantee that the house is officially off the market.

“There are other markets where it’s different,” Gallanti explained. “You’d have an accepted offer and now you’re putting down a down payment, and you have a certain amount of time to do your due diligence. It’s not like that out here. Until the contracts are signed, the seller is not bound to you … There’s a chance of getting a phone call the next day that they’re selling to someone else.”

Potential buyers can find the process confusing, stressful and emotional, and pressure to make a huge decision in a short period of time can be difficult to manage. There can be an impulse to slow down, Gallanti said — but when this happens, another buyer often jumps in to take their place.

“You have to hit the gas as hard as you can,” she said.

But no amount of speed can beat out a cash offer. To a seller, a buyer who can put down more cash is a stronger candidate on paper than someone putting down less, Gallanti explained. Prior to the pandemic, it wasn’t unusual for a buyer to offer a 20 percent down payment, which “wasn’t always necessary,” she said.

“In other markets you could buy a house with 5 percent down — that was a goal that people could actually achieve,” she said. “The hard part, as the buyer’s broker, would be convincing a seller’s broker that it was a safe deal, because the reason why the seller’s broker doesn’t want to take a deal with 5 percent down was, historically, those mortgages didn’t come through, those people didn’t get approved.

“Even if I could get a buyer a bunch of tools to get into a house, I still had to sell the idea to the seller’s agent,” she continued, “and we still had to not get outbid.”

This competition has only become more pronounced in recent years, Gallanti said. “The issue now is everyone’s a cash buyer,” she explained, “so you are not only up against one or two people who, percentage-wise, are better candidates, you are now up against people who are just flat-out cash.”

Additionally, with low inventory, homes have generally gotten snapped up during the pandemic’s acceleration of the housing market, but it’s especially rapid for homes in the “affordable” bracket, which typically falls under $1 million.

A decade ago, that price point was closer to $400,000, Gallanti said.

“Now, when I say ‘affordable,’ I’m, like, ‘If I can find you something under $1 million, it’s going to sell so quickly,’” she said, noting that the bottom of the market is closer to $1.2 million. “If there’s a house for $800,000, it’s probably going to sell over — and it probably needs so much work that it winds up being $1.1 million, $1.2 million in the end.”

For those looking to enter the housing or rental market, Gallanti walked through five potential scenarios for different types of households at various income levels, digging into the obstacles they may face.

Even above $1 million, a home at this price point would be situated on a small lot that is not in a desirable location, and would likely need a fair amount of work, Gallanti said. And buyers would need to part with their dream to have a pool.

“There’s just so little. It’d probably be something very, very small,” she said, adding, “The last time there was something in that price point in Amagansett, it was like wetlands right up to the house.”

Outside of mirroring Scenario 1, “if something comes up, it’s going to sell in a minute,” Gallanti said. “It’s probably going to need a lot of work.”

And at this price, the “competition” becomes primarily builders and developers, she said.

“[The buyer] will probably be up against cash buyers, because $800,000 is starting to be land value,” she said, adding, “Chances are, there’s a builder out there who has cash from all the houses they’ve been selling — and they’re looking for somewhere to plant it. So it just depends on where you are in that cycle with the builders.”

As far as houses, very few options exist at this amount. “I think the last few houses even listed near that all sold in bidding wars,” Gallanti said.

By and large, this price bracket no longer exists on the East End, even for a starter home, Gallanti explained. “It’s just going to be tough,” she said.

“I think, recently, there were a very small handful of very small cottages in Springs that sold in that price point,” she said. “And, again, we’re in a hectic bidding war kind of situation.

“You’re talking about, maybe, a two-bedroom house on a quarter-acre — maybe,” she continued. “And there’s none out there. It’s just going to have to be something that comes up and you’re going to have to jump on it again.”

Prior to the pandemic, the bottom of the rental market hovered around $3,000 per month, Gallanti reported. She encouraged her clients to comb the newspapers, cast feelers by word of mouth, or even put signs in the windows of their cars.

“You have to tell everybody you’re looking and, if you find one, you just take it,” she said. “That was the story for a couple of years.”

But that picture has recently, and dramatically, changed.

“Now, I’d say the bottom of the market for a year-round rental is, I don’t know, $6,000 a month, if I can find it,” she said, adding, “I think if you’re going to find something less than that, it’s either going to be a friendly deal, or it’s probably not something that’s going to hit the real estate agencies.”

Gallanti explained that the root problem always comes back to property values.

“If you spend $1 million on a house, and you put 20 percent down, you had an $800,000 mortgage — your mortgage is going to be, like, $4,500 a month,” she said. “So if you’re renting it out to someone … you’d be losing money to rent it for less than that.”

Low inventory makes the issue worse — which is not a new phenomenon, by any means, Gallanti said, even if it feels more dramatic.

“Honestly, I’ve been saying this since I got my license: If we had the inventory of year-round rentals, I could make a living just doing your own rentals to my friends,” she said. “You wouldn’t even need to sell houses. But it’s been a problem for 10 years — and it was a problem before that.”

While the rent per person is down by a third, the bottom of the market doesn’t change — and, in some cases, homeowner anxiety only rises with more tenants.

“It’s tough. People are very nervous about share houses,” Gallanti said. “There are regulations for every town, every hamlet, that decide how many unrelated people can live together.”

Despite these difficulties, Gallanti said she has helped people buy homes who may not have been able to otherwise.

“I did pull off, in this past year, at least two deals where I was able to get mortgage contingencies accepted and keep local people in town,” Gallanti said. “I mean, it’s life-changing for anyone to buy a house, but to watch a local person who really wants their kids in a certain school district, or really wants to be able to stay here, it feels like it’s out of reach — and every news article is saying it’s out of reach, and the buzz is that it’s impossible to pull it off. It just feels so good.”