Bringing down the house, from teardowns to turnkeys

Over the past three years, the Hamptons has seen an unprecedented spike in new home construction, with buyers ordering up their dream beach homes on demand. Land is hard to come by, however, and teardowns continue to proliferate. On every street, in every enclave, someone is leveling an old house and starting from scratch.

But some say there are too many single-family homes on the market. “I think there has been a softening, not due to lack of demand, but just a lot of supply on the market,” said Steven Dubb, a principal of the Beechwood Organization. “It will eventually be absorbed. The Hamptons is a cyclical market, and the cycles tend to move pretty quickly.” At the same time, there are insufficient housing options available. There’s a need for more condominiums in particular, brokers say, and a growing market for turnkey homes.

Regardless of market trends, the security in Hamptons property value remains, the experts say. “They see an asset they can live in. If in the future plans change, or jobs change, they still have that asset, which is rentable,” said Christine Curiale, a lender at Wells Fargo. “That option is very unique to our marketplace.”

Here’s what the experts have to say about the East End’s single-family home market.

Steven Dubb
Principal, The Beechwood Organization

More and more, people are buying homes in the Hamptons as teardowns. Why? It’s a function of demand and lack of raw land. People have started to look at houses as the next best option. Developers look at these knockdowns as raw land. If a builder sees opportunity there, they’re going to buy it.

Where has there been the most activity regarding teardown construction? If you drive down any street in Southampton, Water Mill, Bridgehampton, Amagansett, Sagaponack, you can find a knockdown that’s being rebuilt. It’s really all over.

Has there been any response from the locals? There’s been a little pushback from the community against the existing zoning laws, so that much larger houses couldn’t be built in their place. Residents felt these larger homes were changing the character of the community.

Do you see this activity sustaining itself for much longer? There’s an anecdote out there: When your doctor tells you he’s building a spec house somewhere, it’s time to get out of the market. That’s been the case for the last couple of years.

My personal experience is that the trend has cooled off a bit. It’s definitely a buyer’s market across the Hamptons. That’s not to say there aren’t amazing homes in amazing places that command a premium, but by and large, it’s a buyer’s market right now. It will resume once supply gets absorbed to a reasonable level.

The “factory built home” is a high-end home, constructed off-site that can be installed at a fraction of the price and time as traditional builds. Has this found any local momentum? Apparently in Europe, nobody “stick frames” a house anymore. All the homes are built in a factory somewhere and shipped and assembled on location. People may be doing it in the U.S, but I haven’t seen it in the Hamptons.

Have you seen buyers looking to other vacation areas in lieu of the Hamptons? People on the younger side who look at the Hamptons may say they want to be upstate ‘cause it’s a little less congested, but I think there’s enough depth in demand for homes in the Hamptons. When we built Bishops Pond in Southampton Village, our buyers were over 50 years old, and they used the condominium as their second home.

What is the average cost of building a new home in the Hamptons? What about the cost of land? It’s tough to say with land because people could pay any number per square foot for land, but to build, a general rule of thumb is about $400 per square foot. That’s hard cost, site work and soft costs.

Where do you see the building focus shifting? Single-family homes are oversupplied. What I think doesn’t get enough attention is the demand for condominiums. That’s a vastly undersupplied part of the market. It’s difficult to get condominiums approved in the desired parts of the Hamptons.

In 2016, there was talk of an affordable housing complex coming to 531 Montauk Highway in Amagansett. What is your stance on these developments? Affordable homes are being gobbled up by developers and knocked down to be turned into spec homes. There are plenty of year-round residents, and housing is very expensive, so there’s a shortage of housing for that everyday resident. The responsibility falls on the town so year-round residents can stay, live and work there.

Gary DePersia
Real Estate Broker, Corcoran

What type of buyers are you seeing? A recent presence has been the empty nesters. The kids are gone, they sell their homes in the tri-state area and purchase a house out here. Some are actually downsizing from houses into condos like in the Watchcase Factory in Sag Harbor.

How have home prices fared thus far in 2017? It’s been a late “buy and rental” this year. Activity that should have been done in January, February and March is now being done in April, May, June, and I’m assuming right through the summer. I consider that a good sign.

How does new construction compare to resales overall? Very often when people come out here, they’re looking for newer houses. Sometimes a buyer will opt for a resale where the house seems to have been well cared for. Others want new construction where they put their own imprint on the land.

Homes that were built even 10 years ago are different than the new construction today. A buyer seems to prefer new construction; they can start fresh.

Have sellers had to adjust their expectations? The listing prices are actually close to the prices they’re getting, or might be a little lower. But we’ve seen such a dramatic increase the last couple of months; it can all change very quickly.

Are the Hamptons feeling any repercussions from second-home buyers shifting their attention elsewhere, namely up the Hudson River? They exist. There are some who have opted to stay closer to New York City and not deal with traffic, but for every one of those, there are 10 more that want to come out here.

Christine Curiale
Home Mortgage Consultant, Wells Fargo Home Mortgage

Over the last year, what has changed regarding approvals for getting a mortgage? I think with the new presidency people were waiting to see if the Dodd-Frank legislation was going to be repealed. We don’t know if it’s going to happen, so banking today is still hard and fast.

Have there been any signs of a downturn in the market? Anything coming in between $1 to say $2.5 million is moving rather quickly. For the first time in many years, we’re seeing bidding wars. I’m asked for pre-approvals now, more than ever, because everybody wants to be in a position to negotiate on a property.

The market that seems to be slowing as far as contract signings on the mortgage level basis is the $3 million and up market. We’re started to see price reductions in those.

Has the recent hike in interest rates sparked a change in buyer-seller activity? It really hasn’t. Interest rates are still very low. If you look at your 30-year time period, your average interest rate is at 7 to 7½ percent. With interest rates still in the 3s and 4s, it’s still a very good time to buy.

Why has home building boomed in the Hamptons over the last year? We’re finding that fewer and fewer people are willing to put in the work to purchase and renovate themselves. You have an entire market of people that are specifically looking for turnkey. They just want to drive out to their Hamptons home, bring their toothbrush and put their feet up and enjoy a cocktail around their pool.

Have the factory-built homes gained any traction in the Hamptons? No significant activity. There’s been a couple of builders that have decided to do it on the higher end. It certainly lowers the cost basis a lot, but it’s more difficult to find a lender to lend on that kind of financing.

Do you think the Trump administration will have a positive or negative effect on the Hamptons housing market? I think that’s really anybody’s guess, because nobody knows what he’s actually going to do versus what he says he’s going to do.

How does lending in the Hamptons differ from New York City? It really doesn’t. Lending in itself is very straightforward. A lot of people that purchase in the Hamptons have their primary residence in the tri-state area, so we build relationships. If I work with a customer out here in buying a second home, chances are I’ll be refinancing or lending to purchase their property in the area.

What are some words of advice from a lender’s perspective? This is one of the largest investments that people make. Take your time. Everybody needs to work together to get the customer safely, comfortably and intelligently into contract and closing.

Michaela Keszler
Real Estate Broker, Douglas Elliman

Regarding home prices, what have you seen so far this year? Where do you see the market trend going? Well-priced homes are selling; people come in close to the asking numbers. We are pretty stable right now in Southampton Village, which is different from the market further out, where people started to build like crazy, and they wonder why their inventory isn’t going down.

How do new developments compare to resales overall? People want to find the perfect house, hire a designer and get going. They don’t want to get involved in obtaining permits, which might take a couple of years. However, buyers who come from Europe like the charm of the older homes; they are happy to do the renovation.

What’s your take on the affordable-housing development in Amagansett? I’m not sure of what’s happening there, but in general I think we need affordable housing in order to keep a balance out here. The people who have jobs here year-round can’t afford to live here; they end up commuting from mid-island.

Are buyers looking away from the Hamptons? I’ve been out here since the early 1990s, and there was always that attraction of upstate or other areas. In the end, we have a beautiful ocean and beautiful beaches out here. It’s a family tradition for New Yorkers. They grew up coming here and they want to continue their family history out here.

— The responses have been edited for brevity and clarity.