It was a relatively warm summer for Hamptons real estate, but the fall may get quite chilly. The high-end rental market fared well — some houses went for $500,000 for a single month — and the sales market this year has mostly performed better than last year, brokers told The Real Deal as part of an annual summer Q & A wrap-up.
But the credit crisis and mortgage meltdown could affect East End sales more strongly than other markets, since it’s full of second homes and large price tags. Brokers say they are most worried about low-end properties, a segment which is already showing weakness. At least, there’s weakness in what passes for the low end in the Hamptons, houses in the $500,000-to-$700,000 range.
Looking back at the rental market, brokers say shorter rentals were more popular this year, and European renters were particularly active thanks to favorable exchange rates.
As The Real Deal went to press, it learned that a property rented for $1 million for the summer, setting a new record. The Southampton house was rented through Harald Grant, senior vice president at Sotheby’s International Realty, who declined to provide the address or renter.
In the sales market, with mortgages getting harder to find — and more expensive to secure — underrated areas that present a bargain for buyers could be more popular. Brokers mentioned Shelter Island — where buyers get twice the value compared to East Hampton — as well as Devon, North Haven, Napeague Stretch and Montauk as potential beneficiaries. Montauk in particular is starting to be appreciated again and is benefiting from an “almost reverse snobbery appeal,” according to one broker.
Several brokers mentioned Sagaponack — rated as the No. 1 community in the country with the highest income — as the most overrated area. “It is all farmlands, and there is no true estate feeling,” said one broker.
Here’s more of what they said:
Alice Bell
vice president and East Hampton brokerage manager, Sotheby’s International Realty
What part of the rental market fared best this summer?
High-end rentals did extremely well this year. Renters did not rent for a full season, but often took rentals for a shorter period of time. Still, those rentals were more or equally expensive. There were more July-to-August rentals or
August-to-Labor Day rentals.
What sort of notable or record rental prices did you see this summer?
I understand that there was a $500,000 rental for a month in Southampton. Also, we have had many more $300,000 to $500,000 rentals this year.
Was there any group of renters that were surprisingly active compared to the past?
There were more Europeans this year renting than we have had in the past. It costs them one-third less because of the exchange rate. Many were from England, Germany and France. Many rented houses without even seeing them first. There were many upper-end rentals of $125,000 plus for the season.
What is the most negative trend in the East End market right now?
Indecision. Also, the reaction from the stock market drop. The low end of the market will be affected.
What group of buyers is the most active right now in the overall market?
The most active are buyers from the financial community, the entertainment community and the Europeans.
What part of the sales market has fared best this year? Which fared the worst?
The best was on the high-end of the market — homes over $10 million. Homes in the $5 to $9 million range fared the worst. There was a rumor that one could not purchase a good house in an estate section for less than $10 million south of the highway [Route 27]. That’s not true. As a result, homes in that price range have not been selling that rapidly.
What is the most underrated area as far as there being an upside in sales prices?
The most underrated is Shelter Island — you can get twice the value there compared to East Hampton, and waterfronts are available. Also, Montauk and Napeague Stretch. There are cliffs and property overseeing the ocean. People are just becoming aware of Montauk, and a lot of buyers do not have to work on Fridays, so they can travel further for a house.
What is the most overrated area?
The most overrated area in my opinion is Sagaponack. It is all farmlands, and there is no true estate feeling. It is mostly new, shingled houses. It is the No. 1 community in the country with the highest income. It’s terrific, but if you want an estate feeling with older wonderful estate homes that have been here since the ’20s and ’30s and a lot of mature trees, it’s not in Sagaponack.
Stuart Epstein
owner, Devlin McNiff Real Estate
How did the market this summer stack up compared to last summer?
In my view, 2005 was the high-water mark. That was a boom year when sellers would put properties on the market and expect a deal in 60 days. In 2006 it dropped off, and 2007 was more or less in line with last year’s sales, but when all the beans are counted, it may be a little better than 2006.
What is the most interesting trend in the East End market right now?
I think the most interesting trend is that there is a lack of certainty about what’s happening. Up till now, there has been a bubble in Manhattan and the East End that has kept us floating along nicely as opposed to the rest of the country.
Because of everything now, all the lending institutions are panicked and are tightening up, so it’s harder to get [money]; it is more expensive and may crimp demand.
I recently received an interesting e-mail from a Manhattan mortgage company that does a lot of business out here. They are reloading lending guidelines as fast as they get them. Home equity lines of credit are no longer available, and jumbo loans [those above $417,000] are at least 2 points higher than the smaller conforming loans.
What is the most negative trend in the East End market?
At the lower end, which here is $500,000 to $700,000, there’s a real weakness right now. I’m guessing it’s because those buyers are the most likely to be affected by the difficulty of getting financing. In the rest of the country, those same people are buying homes for $170,000 to $250,000. Here it’s higher numbers, and those are the people that are hit first.
What sort of notable or record rental prices did you see this summer?
In the last few years, our numbers for big rentals are more in the $100,000 to $200,000 range for the season. I knew someone threw a house on the market for $1 million; it could have been just for the thrill of it.
What is the most underrated area as far as there being an upside in sales prices?
Montauk has all of a sudden become discovered again. It has become hot over the last year or so. Before, it was thought to be too far, too blue collar, there were too many hotels. Now there is an almost reverse snobbery appeal. Some people like the fact that it’s not all fancied up. It has always had its admirers like Ralph Lauren, Paul Simon, Julian Schnabel, Peter Beard and Richard Avedon. It is not a totally new phenomenon, but I would say it has gained speed.
What have been the most significant changes in the brokerage world in the past year, as far as mergers, firms growing significantly or going out of business?
The mergers all happened [in the last several years], so that’s over. I think that now, everyone is settling in to the new landscape. We’ll see what it means for us as an independent smaller company, but it hasn’t been a problem for us; I think we can compete. You hear grumbling that agents are unhappy at the big firms, but I don’t see anyone acting on it, so it may be a lot of sound and fury signifying nothing.
Michael Daly
principal broker, RE/MAX Beach Properties
What is the most positive trend in the East End market right now?
The plans in place for more condominium development in Sag Harbor and Montauk. While I don’t want to see huge growth of condos, like we have seen in several markets like Southern Florida, Las Vegas and Southern California, we do need to have a healthy mix of lifestyle options here on the East End.
What is the most negative trend?
The growth we are experiencing endangers the very things that attracted us to the East End: small-town charm, and a country feeling. One thing I am sad to see is the increased amount of stop signs that have been installed on our country roads and lanes. Some great drives have now become interrupted, although I too have children and loved ones here whom I wish to protect through safety measures.
How did the market stack up compared to last summer?
The average sales price is up about 15 percent from last year, according to the “flash” numbers I see. Unfortunately, actual sales figures for this market can take months to report because of the process for recording real estate closings.
What is the most underrated area as far as there being an upside in sales prices?
Devon, North Haven and Shelter Island.
Jay Flagg
managing director of the Southampton office, Prudential Douglas Elliman
What is one of the most interesting trends in the East End market right now?
Although traditional homes sell really well, there is renewed interest in quality modernism, as long as they are really quality homes.
What part of the rental market fared best this summer?
Traditionally, people have rented for an entire season. This year, renting was broken up into monthly or two weeks here or there. From the landlords’ perspective, they were making more by renting shorter periods to more renters rather than one entire summer rental. Renters usually want to be here in July and August but also want to do other activities, like go to Europe.
What sort of notable or record rental prices did you see this summer?
There was a home by Janna Bullock [a Russian developer and home renovator] that was remodeled and rented for $1 million for the year. Considering that any off-season rentals usually account for only 25 percent of a landlord’s total, that’s significant.
Was there any group of renters that were surprisingly active or inactive?
Every year we’re getting more Europeans from all countries — Russians, Italians, a lot of Germans and French. Many have also bought here given the strength of their currencies.
What part of the sales market fared worst?
The one area with increases in inventory was the $2 to $5 million range north of the highway, which is typically the first area to experience a softness.
What sort of notable or record sales deals have you seen recently that indicates the top of the market?
The 40 acre property on the ocean in East Hampton that sold to [financier] Ron Baron for $103 million and set a record price for a residential transaction in the U.S.
Judi Desiderio
president, Town & Country Real Estate
What is the most interesting trend in the East End market right now?
Since the beginning of the year, we have been busy in all markets and price ranges, but the most spectacular is what I call the elite end. It has been over $5 million, maybe even $10 million. We’ve had more sales in that price category than ever in history. But you would be a fool to think we are not going to be affected by what’s going on in the world; now it’s global. In August 2005, the media said, “Don’t buy now, wait a year.” There is no doubt that the media changed the market; there was no foundation for that. This time, it is real.
What is the most negative trend in the East End market right now?
Far north of the highway [Route 27], in the $2 to $3.5 million range. By far north, I mean more than two miles outside the village. Unless it is on a pond, an overlook or a horse farm, an uninteresting lot or street or dirt road doesn’t do as well. People would rather be in the hubbub of excitement.
How did the market stack up compared to last summer?
Much better. Last year was one of the worst years for the number of sales I’ve seen in 26 years. We were up in sales in most of the markets.
What part fared worst?
Small houses that went for $25,000 to $40,000 for the season.
What sort of notable or record rental prices did you see this summer?
I understand there was one for $1 million for two months.
Was there any group of renters that were surprisingly active or inactive?
Yes, the less-than-one-month-rental segment. I saw more one-, two- or three-week rentals than in the past.
What group of sellers is the most active?
Spec houses. The homes sitting on the market for the last 18 to 24 months, some are spec and some are privately owned. That’s who are choosing to sell. The spec houses do well if they are over $5 million. If they are less than $5 million, they will do well if they are truly tastefully done and architecturally appealing.
What sort of notable or record sales deals have you seen recently that typify where the market is at?
The Andy Warhol estate sold at $25 million after spending six years on the market at $50 million, and then on the market for under a year at $40 million. And of course, there was Ron Baron’s $103 million purchase on Further Lane, which set a record.
What is the most overrated area?
It is not necessarily overrated, but rather there is a feeding frenzy to the point of pushing prices quicker than can be substantiated in Sagaponack. Media hyped the zip code as the most expensive in the country. It is still beautiful farmland, with some houses dotted along the way. The property values shot up. I bet if I broke it out separately in the numbers, it appreciated more than all the other towns.
Cee Scott Brown
senior vice president, Corcoran
What sort of notable or record rental prices did you see this summer?
Several $500,000 rentals for the season or part of the season. We also did some last minute three-day $15,000 rentals.
What part of the sales market has fared best this year? What part of the sales market has fared worst?
Definitely $4 million and up has been the least affected by any dips in the market. Worst hit? Probably the $1 to $3 million market. And there is a large amount of inventory for sale.
How has the East End sales market fared in relation to Manhattan or the suburbs?
I believe that the Hamptons are joined at the hip with Manhattan. I can’t speak for other parts of Long Island.
Jack Pearson
senior vice president, Corcoran
How has the East End sales market fared in relation to the Manhattan market or the suburbs?
The trend here is always about six months behind the city, so when the wave hits Manhattan, we will always get the wake.
What sort of notable or record sales deals have you seen recently that typify where the market is at?
There is a new wave hitting here: homes selling for $10 million to $20 million not on the water. That never happened here until the last two years.
Peter Turino
president, Brown Harris Stevens of the Hamptons
What is the most interesting trend in the East End market?
One of the more interesting trends is the market for new construction throughout the Hamptons. A lot of speculators have been buying land and tearing down existing houses. Fewer people are buying land and building a house themselves. Maybe they don’t have the time or the creativity to commit to a project like that anymore.
What part of the rental market fared best?
A four- to five-bedroom house with pool can cost as much as $100,000, where a few years ago it was $50,000 to $60,000. That’s an indication of growth in the rental market.
Any particular towns surprisingly active or inactive for rentals?
More and more have been built in the Bridgehampton area, compared to the older markets of Southampton and East Hampton. Thirty years ago, Bridgehampton was agricultural property. Every year in Bridgehampton and Sagaponack, there are more homes being built, so there is definitely more of a third market south and north of the highway.
What is the most overrated?
Some of these emerging markets are not big unknowns. Sometimes people will sell in the Southampton or Bridgehampton market and buy in the less expensive market of those towns [like Sag Harbor, Shelter Island, Montauk and North Haven].