For almost two years now we have watched our collective normal get turned upside down. What was a ‘buyer’s market’ turned quickly, almost brutally. We all know the story of the migration out of the city to points, well everywhere. The Hamptons and Miami were the biggest draws for city folk.
Post-Labor Day we have seen traffic dwindle a bit and the locals are getting a little breather it seems. The rental market is no longer overheated and homes are available again albeit at higher prices still from the summer of 2019.
One sad ramification from the 30% plus a spike in home prices is that many of the local tradesmen who were renters have been displaced by their landlords selling into strength. Throughout Covid, there have been staffing issues but this has complicated things a bit more. A number of restaurants have changed hands but things now seem to be stabilizing rapidly.
The time of sales being done completely over the video is gone.
The market has evolved. Demand seems to be fueled by a few things: First of all, interest rates. While the Fed has started the next move is up, this has not happened at this point. ‘Smart money continues to buy out East predominantly with all-cash deals then refinancing on the backend with 30-year mortgages between 2.25 and 3%.
The liquidity gets quickly invested in an S&P Index fund and they enjoy the spread for years to come. Annual fluctuations in the price of the underlying real estate are damned! The second obvious statement would seem to be the work from home talking point. I am on the fence with this however as we have seen a number of firms re-opening in the city and requiring some presence at the water cooler. While midtown is hovering around 30-35% of pre-pandemic levels it has been consistently improving. The Upper East Side where I split my time (family and clients) is busier than ever. I don’t believe this is sustainable. Call me old-fashioned, but getting a proper promotion requires face time with the boss. Lastly, I believe there will be some buyer's remorse. The elementary school population in Amagansett exploded last year and has since dwindled by about half according to my secret sources. It’s a big step to move full-time out of the city and we are hearing more and more about buyer’s remorse in Miami.
This may sound cheesy, but I tell my sellers and buyers the same thing. It’s a great time to transact. If you are a seller and you want to take risks off the table, I would think you would look at this price spike as that opportunity. Period. Historical graphs of real estate all look to me like we have blown through any of the normal metrics. Buyers on the contrary can still enjoy remarkably low rates. I have seen a number of clients purchase additional homes that they rent out. Strange but true the Hamptons remains one of the few markets where you can buy a property and rent it out and be cash-flow positive still.
While we have all heard that they are not creating any more oceanfront, the real indicator that sticks out in my mind for long-term investment is a term the locals use called ‘build out’, meaning there is no more raw land to develop. As it stands today, there is very little land available for builders. Competition is strong and on top of that, you have the Peconic Land Trust that has amassed half a billion dollars to buy back any land that it feels should be protected for animal migrations and scenic views. The Hamptons are naturally beautiful and also very much so by design.
While some have prognosticated that ‘there will be more inventory coming available because we saw a number of properties come off the market for sale when rents shot up’ and owners took advantage of this, we have not seen that long forecasted reversal. In fact, last week there were 25 new properties for sale from Montauk to West Hampton and there were 27 closings. That said there were 28 price reductions in this same time period. Wait for it…. Nope, this is not a turning point. The market here has become so efficient that everyone has the tools these days to do their own evaluations and comps. If priced competitively I have seen over 50 people at an open house where the home was priced at or just below fair market value. This tends to cause a bidding war that ends in best and final. This is where having a buyer’s agent can be very helpful. Houses priced too high are ignored and the property loses ‘momentum’. Hard to get that back IMO.
It's still one of my favorite areas on the planet. Covid has brought me, new friends, for hiking and exploring the thousands of acres of forests and parks and my kids are still surfing into December. I buy my fish from a guy who sells from his yard, my wine is made on 27, my beer in Montauk, and the organic farm stands are crazy delicious.
It’s a joy to be here. Hope to see you on the beach!
Michael Petersohn
Brown Harris Stevens of the Hamptons
