Quarterly Report Roundup – 2nd Quarter 2011

Quarterly Report Roundup – 2^nd Quarter 2011

Reprinted from East Hampton and Southampton Press

August 3, 2011

by Phelan Wolf

Bullet Points on the quarterly data:

-       Volume approaching pre-crash levels

-       High-end becoming a seller’s market

-       Low-end remains a buyer’s market

Brokerages in the Hamptons are reporting a significant increase in high-end sales in the second quarter of 2011.  Less apparent, but also contained within the reports, are signs of continuing weakness in the low-end market.

The reports summarize the state of the market based upon closings that took place between April 1 and June 30 of 2011.  As always, the major brokerages define the geography of the Hamptons differently, which accounts for some of the variation in reported data, which has been averaged for this analysis.

 SALES VOLUME

 There were approximately 460 deed transfers (sales) on the East End of Long Island in the spring of 2011.  The spring and fall are traditionally the busiest quarters of the year for real estate sales in the Hamptons.

These 460 closings are almost exactly the same number that occurred in the spring of 2010.  The nominal 4% volume increase that these closings represent are a good indicator of the markets steady improvement and overall stability. 

Looking back at the ten year data, prior to the crash the average yearly sales volume in the Hamptons was approximately 2,000 closings, or 500 per quarter on a seasonally unadjusted basis.  In 2008 and 2009, during the depths of the recession, volume was cut roughly in half to approximately 1,000 closings per year. 

 It is an open question as to when or if the Hamptons market will ever return to its pre-crash volume levels and whether it would be healthy for the market to do so, given that the 2,000 closings per year level occurred during a destructive housing bubble.  But the fact that we are approaching 500 closings in one quarter, whether that goal is ever achieved, is an excellent sign of market recovery.

 PRICES

 The average price this quarter was $1,760,000, a hefty 18% increase compared to the prior spring.  This jump in the average price calculation was influenced by a rush of ultra-high-end buying, including 12 sales over $8 Million, compared to 3 last spring. 

 High-end sales began strengthening more than a year ago, in the winter of 2010, when sales over $5 Million increased 300% from the 2009 bottom and the highest 10% of all unit sales accounted for almost 50% of dollars transferred.  It took courage to jump into the high-end market at that time, when there were so few post-crash luxury sales no one could say with any certainty what such houses were worth. 

 Since the winter of 2010 high-end buying has slowly increased, with a significant move forward last fall.  Just as sales volume overall is approaching pre-crash levels, this quarter the volume of sales over $5 Million comprised 4% of all sales, roughly the same proportion as prior to the credit crunch. 

 High-end inventory is being absorbed rapidly with the number of listings offered for sale and priced in the top 10% of the market dropping 30% compared to last spring.  If luxury inventory continues to disappear at this rate, price increases at the top of the market are inevitable.

 On a gloomier note, entry-level homes sales, which in the Hamptons are those that sell for under $1 Million, continue to exhibit weakness.  While luxury inventory is tightening, overall inventory in the Hamptons increased by 4%, driven by newly offered sub $1 Million homes, which typically make up approximately 50% of all sales.  This increased inventory stretched the average days on market from last asking price to sale from 131 days last spring to 188 days this quarter.     

 The median price, which reflects low-end activity much more accurately than the average price, shows the result of increased inventory and competition among low-end sellers.  Three of the four brokerages reported small median price declines between -1% and -3%, with the fourth reporting an unlikely 14% increase.

 FUTURE TRENDS

 For the last two quarters I have concluded by predicting that the market throughout 2011 would be generally healthy and balanced with lots of low end inventory (and perhaps declining low-end prices) and increasing high-end activity (and perhaps increasing high-end prices).  A close look at the market, divided into quintiles, clearly illustrates these trends.

 The median price of the top 20% of sales this quarter was $3,605,000, an increase of 12% over the same quarter last year.  The next 20%, with a median of $1,575,000 rose 9%.  The middle 20%, priced at around $940,000, registered a slight increase of 4%.  The fourth 20%, priced around $600,000, fell slightly, by about -2%.  The bottom slice of the market, priced around $330,000, fell -6%.  

 Just as Dickens described “A Tale of Two Cities”, what is emerging in the Hamptons – and elsewhere in the U.S. – is “A Tale of Two Markets”. 

Today the median price of houses located east of the Shinnecock Canal or south of the highway is approximately twice the median of homes west of the Shinnecock Canal or north of the highway.  As high-end buyers flooded the market this quarter, the median price of houses that sold east of the Shinnecock Canal or south of the highway rose by 20% compared to the spring of 2010.  At the same time, the median price of homes west of the Shinnecock or north of the highway fell by -6%. 

 As I have said before, the recession is over south of the highway and has been for some time, while it remains a buyers’ market  far north of the highway and west of the canal, with high levels of inventory and significant numbers of distressed sellers.  If these trends continue, and the “Tale of Two Markets” lengthens, it may become impossible to answer the question “How’s the Hampton’s Real Estate Market” without first asking “Which One?”