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?”

SALES VOLUME

 Reprinted from East Hampton and Southampton Press

 February 16, 2011

 by Phelan Wolf

 Bullet Points on the quarterly and year-end data:

 -          Prices and volume generally stable

 -          Luxury sales volume rapidly increasing

 -          Land and Tear-Down sales south of the highway very strong

 Fourth quarter and year end market reports issued by brokerages in the Hamptons indicate that the market was healthy and stable throughout 2010.  Sales volume increased steadily throughout the year.  Prices were largely flat without trending strongly up or down on a sustained basis.  But average prices rose in the fourth quarter as high-end buyers returned to the market in numbers not seen since the crash.  These high-end buyers followed a rush of entry-level buyers who led the way earlier in the year.

 The reports summarize the state of the market based upon closings that took place between October 1 and December 31 of 2010.  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.

 Quarterly Results

 There were approximately 334 deed transfers (sales) on the East End of Long Island in the fall of 2010.  Volume was essentially the same as the fall of 2009.  Prior to the fall of 2010, volume increased every quarter when compared to the same quarter in the prior year, for six quarters in a row, as the market recovered from almost no volume following the crash.  Today’s healthy and sustainable volume levels roughly approximate the average volume levels over the last decade. 

 Additional signs of market health and stability include total listing inventory and average days on market.  Both figures in the fall of 2010 were virtually unchanged from the fall of 2009 as equal numbers of buyers and sellers are now participating in the market.  The listing discount – the difference between the last asking price and the sales price – is also stable at approximately 10% as post-crash values are now widely understood among all market participants in virtually every market sector and neighborhood.

 All the reports highlight the fact that the average price increased substantially in the fourth quarter versus the prior year quarter.  The average price calculation was $1,878,000 this quarter, a 13% increase from the fall of 2009.  This is a substantial increase, and it is significant.  It does not mean that the value of most homes is increasing.  But it does mean that luxury buyers are rapidly re-entering what has been a market dominated by entry-level buyers. 

 Last quarter, the big story was the fact that 67% of all sold homes traded for less than $1 Million – much higher than the 50% average figure – as first time buyers rushed to take advantage of historically low interest rates.  This fall, as high-end buyers returned, the number of houses selling for more than $5 Million rose by more than 50% compared to the fall of 2009.  The total volume of sales over $5 Million was the highest in any quarter for the last 4 years, since the pre-crash market high in 2007.

 Year End Trends

 Throughout 2010, the sale of vacant land, tear-downs, and renovation candidates continued to be one of the strongest sectors of the market.    The volume of land sales in 2010 was up more than 90% versus the prior year.  These land sales drove the total dollars spent on land in the year up more than 180% when compared to 2009. 

 Owners and builders are making big bets on continued demand for new homes in the best south of the highway neighborhoods.  One acre lots and tear-downs in good locations from East Hampton to Southampton priced appropriately in the $2.5 Million to $4 Million range are selling as soon as they become available.  But there is little or no building activity north of the highway, particularly far north in traditionally year-round neighborhoods. 

 The recession is over south of the highway, and has been for some time.   It remains a buyers market far north of the highway, with high levels of inventory and significant numbers of distressed sellers.  But many local builders and architects are reporting heavy demand for their services in 2011, and increased demand for construction, landscaping and other services south of the highway should begin to support the north of the highway housing market in the coming year.

 In the end, the Hamptons market is effectively a derivative of the broader financial markets, and so long as Wall Street continues to recover, the Hamptons real estate market will continue apace.  Higher interest rates are coming, sooner or later, and when they do they will have a negative impact on the entry-level market, where first time buyers often use all the leverage available to stretch their finances.    

 I concluded last quarter’s report by predicting a “rush of high-end buying” in spring after Wall Street bonus season and encouraged luxury buyers who were able to act prior to that date to “go to contract before their competitors follow”.  It appears that many high-end buyers were thinking along the same lines and seized the moment to buy in the fall.  For a year-end prediction, I expect the four quarters of 2011 to look much like the last quarter of 2010; a healthy, balanced market with equal numbers of buyers and sellers and stable volume, lots of low-end inventory (and perhaps declining low-end prices), increased high-end activity (and perhaps increasing high-end prices in select markets), and a “gold-rush” mentality among those seeking lots and tear-downs south of the highway.

The major theme in all the reports is the increase in the average price statistic.  This doesn't mean prices are actually rising, although they may do so in select markets in the year ahead, while continuing to fall in others.  But while the 3rd quarter was dominated by under $1 Million entry-level buyers, this quarter shows that the "smart money" is moving off the sidelines back into the market.  Lots and tear-downs in the best neighborhoods sold briskly during all of 2010.  Now it looks like more big houses are selling too.

Here are some sources for further reading...

Prudential's report, which is consistently the best, can be found here.

Corcoran's report, which is a year-end report and doesn't have quarterly data, is here.

Town and Country's quarterly and year-end reports are here.

Brown Harris Stevens hasn't posted their report (although they have released it).  When it is posted, it will be here.

Additional media coverage...

The NY Post has an article/press release/puff piece on the Prudential report here.  They note the increasing number of high end sales:

There were 38 sales of homes for $5 million or more in the final three months of 2010, compared with 24 at that time in 2009. It was the largest number of sales since the bad old days of September 2008, after the collapse of Lehman Brothers and the downturn on Wall Street.

The recovery of the securities industry is helping to boost sales because, Miller said, "the East End and Wall Street are joined at the hip, at least over the last 10 years."

Crains NY Business highlight's the split market north and south of the highway:

South of the “highway”—also known as Route 27—an area best known for its oceanfront properties, median sales prices rose 17% to $945,000 from the same quarter in 2009. This segment of the market always remained strong, aided by the relative scarcity of land to develop, noted Ms. Herman. However, north of the highway, median sales prices fell 8.7% to $890,000 from a year earlier.

Bloomberg notes that the ratio of high-end to low-end houses is returning to normal:

“The mix is returning to a normal distribution of sales,” Miller said in an interview. “On the upper end, the activity is more robust relative to the lethargic level of activity over the last couple of years.”

1. 239 Gibson Lane, Sagaponack -- $43.5 million
2. 86 Lily Pond Lane, East Hampton -- $25.5 million
3. 2 Tyson Lane, East Hampton -- $22.88 million
4. 12 Tyson Lane, East Hampton -- $19.26 million
5. 229 Quimby Lane, Bridgehampton -- $16.2 million
6. 500 Ox Pasture Road, Southampton -- $16 million
7. 55 Dune Road, Bridgehampton -- $14.25 million
8. 120 Halsey Neck Lane, Southampton -- $14.21 million
9. 102 Lily Pond Lane, East Hampton -- $14 million
10. 16 Association Road, Wainscott -- $13.75 million

Full Article Here

The big story in the overall Hamptons market this quarter was the increase in low-end activity and decrease in high-end activity.  In the third quarter, approximately 67% of all sales were homes priced under $1 Million.  Overall, volume was roughly stable with a similar number of sales in the same quarter last year.  Volume has returned roughly to pre-crash levels.

 One of the strongest segments of the market is the sale of vacant lots, renovations, and tear-downs south of the highway.  Land sales doubled in volume compared to the prior year quarter and sold at an average price of over $1 Million – 40 percent higher than last year.  The average price of sold homes south of the highway dropped 21 percent versus the prior year quarter, not because of falling prices, but because of increased interest in tear downs and renovation candidates.

 This quarter in Georgica, 2 of the 6 sales fall into the construction candidate category.  The most notable sale this quarter was 86 Lily Pond Lane, which sold for the highest price in East Hampton this year to date, $25,500,000.

 A distressing trend highlighted in last quarter’s Georgica report continues this quarter – there still have been no sales on Georgica Pond since the crash.  In my weekly column I wrote recently about the lack of pondfront sales throughout the Hamptons.  This year, only 3 pondfront homes have sold in the Hamptons at over $3 Million.  During the same period, around 10 oceanfront homes sold, and many more on the bay.

 As a result, some extraordinary pondfront inventory remains for sale throughout the Hamptons – including on Georgica Pond. 

 Sales in Georgica in 3Q 2010:

  8 Pudding Hill Lane, $7,200,000 (Spec. house built in 2006, 5,600 sq.ft.)

 6 Apaquogue Road, $2,420,000 (Small renovated cottage)

 191 Georgica Road, $3,000,000 (Renovation candidate – land value)

 57 Georgica Road, $6,480,000 (Built in 2000, 7,000 sq.ft.)

 86 Lily Pond Lane, $25,500,000 (Historic cottage, highest price in EH this year)

 19 Georgica Road, $4,375,000 (Renovation candidate)

 Average Price: $8,162,500

 Average Price without 86 Lily Pond: $4,695,000

 Median Price: $5,427,500

 Median Price without 86 Lily Pond: $4,375,000

 Notable Inventory

17 Jericho Road.  $3,999,000.  Beautiful new construction. Excellent value – recommended – my listing. 

 Oceanfront

 7 West End Road. $32,000,000.  Amazing tear-down on the ocean with guest cottage on the Dunes.

 211 Lily Pond. $25,000,000. Iconic 12,000 square foot shingle-style oceanfront Cottage.

 Georgica Pond

 5 Eel Cove Road. $28,900,000.  Spectacular 5,000 square foot turn-key home with approximately 750 feet of frontage offering sweeping Pond and Ocean Views.  Located within the private Georgica Association.  One of the best sites on the Pond – highly recommended – also available for rent for the year or season.

 30 Wainscott Stone Highway. $19,995,000.  Enormous home with very small creek view.

 24 Goose Creek Lane. $12,900,000 – reduced from $18,500,000 – motivated sellers.  Tear down on 4.9 acres.  Pond View.

 Notable Sales From my Weekly "Transaction Highlights" column in the Southampton and East Hampton Press:

 8 Pudding Hill Lane, East Hampton, $7,200,000

 This .9-acre lot is located in Georgica, the original estate area of East Hampton, near the village center and Main Beach. It is on an historic street named for a locally famous Revolutionary War incident in which British soldiers were angrily pursued by a woman threatening to pour hot pudding on them.

 The seller purchased this property in 2006 for $4,600,000 and in 2008 constructed a new 5,645-square-foot traditional home with five bedrooms, paneled living room and dining room, a light-filled office, and five fireplaces.

 Assuming a construction cost of $450 per square foot, plus $100,000 for a new gunite pool and landscaping, it looks like the seller was a victim of bad market timing and this sale represents approximately a break-even proposition, not including soft costs such as tax, title, legal, architect, survey and brokerage fees.

 6 Apaquogue Road, Village of East Hampton $2,420,000

 This home is located south of the highway in the Georgica section of East Hampton Village. It is on a .13-acre lot, tiny for this neighborhood where lots of at least 1 acre are typical. The cottage-style house is 2,500 square feet, with open kitchen and dining area, living area with fireplace and four bedrooms. Outside, there is a pool house, patio, lap pool and small yard. The house was built in 2007, and is attractive and well-built.

 The seller purchased this property with a small pre-existing cottage in 1996 for $650,000. Assuming a construction cost of $450 per square foot, plus $175,000 for pool house, patio, pool, landscape and driveway, the seller’s construction cost was $1,300,000 and basis was $1,950,000. From that perspective, this transaction appears profitable. If these figures are correct, this sale values the lot at $1,120,000, an astonishing figure for a .13-acre lot. But it is in one of the very best locations in East Hampton and shows the immense value placed upon property in the Georgica area.

 A closer look at the numbers shows that $650,000 compounded annually at the typical inflation rate of 4 percent per year, from 1996 to 2010, returns a value of almost exactly $1,120,000 today. So assuming that the cottage which existed on this lot in 1996 did not have a great deal of value, it appears that the cost of this lot, on an inflation-adjusted basis, has been stable for many years. From an investment perspective then, the seller made little or no money on the initial $650,000 house purchase, but safeguarded her capital while using and enjoying her cottage by the beach for many years.

 191 Georgica Road, Village of East Hampton, $3,000,000

 This house was built in 1950 and is approximately 2,000 square feet. Although in good condition, it is dated and not up to today's current standards in the Georgica neighborhood.  It contains many features typically not included in better homes today including low ceilings, a small kitchen with formica countertops, wall to wall carpeting, vertical cedar siding inside and outside the home, and a partial basement. 

 However, this property is in an excellant location, on a flag lot in the heart of Georgica within biking distance to Georgica Beach.  An existing pool and patio are lovely and up to today's standards, and there is a detached garage/studio which may be valuable depending upon its legal use.  As a general rule the standard value assigned to a frame and foundation of this quality would be $150 per square foot.  Because the interior features are fine here, but dated, the main house might be appraised at $200 per square foot, plus $200,000 for garage, pool, patio, driveway and landscape.  The remaining balance -- $2,400,000 -- represents the approximate land value of this 1.3 acre lot which holds significant potential. 

 Assuming that the new owner tears this house down, as seems likely because it is not a good candidate for renovation, it appears that the buyer was willing to pay approximately $2,800,000 for this lot, plus $200,000 for the garage, pool and other outside improvements which will remain.  This is right in line with a similar recent sale on East Hollow road around the corner, when an existing house was sold for $2,900,000 and completely torn down.  Based upon these transfers, it seems that a good 1 acre building lot in Georgica is worth just less than $3,000,000 today, and both of these sales are a good indication that in the best neighborhoods in the Hamptons there is renewed optimism as the building cycle starts again.

 57 Georgica Road, East Hampton Village, $6,480,000

 This 7,000-square-foot home was built in 2000 and has six bedrooms, seven and a half baths, three fireplaces, an attached garage and finished basement. The home is nicely finished with coffered ceilings, tasteful built-in cabinets, wood paneling and appealing light fixtures. The expansive kitchen has gourmet appliances and marble finishes.

 A home such as this one costs about 50 percent more to build than the typical $300-per-square-foot construction and might be reasonably valued at $450 per square foot. The landscaping, gunite pool, patio and pool house could easily cost another $500,000. Assuming those values are correct, this very private 1.2-acre lot in the Georgica area would be valued a little under $3 million, a price which is supported by other recent sales and is the current market value for a standard 1-acre lot in this neighborhood.

 86 Lily Pond Lane, Village of East Hampton $25,500,000

 This appears to be the highest price paid for any real estate in the Town of East Hampton so far this year, with the previous record-holder being a twenty year old oceanfront home.  This house is approximately 10,000 square feet, one of the original "cottages" built around the turn of the century in the original estate area of East Hampton, Georgica, which was colonized following the construction of the first railroads
around the same time period. 

 The first estate lots were very large, having occupied previously farmed land on the flat plain south of the main road connecting East Hampton and Southampton.  Over time, most all of these lots were subdivided.  However, this 3 acre lot is the last parcel that still stretches between Lily Pond Lane and Lee Avenue, although it lacks deeded ocean access. 

 While this house is in good condition, it is dated by today's standards and has not been renovated. It contains 9 fireplaces, 10 bedrooms, and numerous extraordinary paneled living, sitting and dining rooms with period details intact. The grounds hold a pool, tennis court and guest cottage. 

 Houses of this caliber, in this condition, are exceptionally rare, and the valuation of them is more art than science.  For many reasons it is not possible to exactly replicate an old estate and create a truly "new old house".  As houses with history that were built to the highest standards become rarer and rarer over time as a result of tear-downs and decay, the basic laws of supply and demand will dictate that those that remain sell for higher and higher premiums.

 19 Georgica Road, Village of East Hampton

 This 3,500 square foot carriage style house was built in 1920.  In size, proportion and design it is representative of a type of home that was once common in the Hamptons.  Downstairs, a living room with fireplace, formal dining room, eat-in kitchen and powder room.  Upstairs, four bedrooms and three baths. 

 Although the interior finishes have been updated in this house, they are not extravagent, and some period details such as wood walls and a steep and narrow staircase remain.  The 1.4 acre lot, located in the Georgica neighborhood, has mature landscaping and a generously sized gunite pool in the center of an expansive, sunny lawn.  At $300 per square foot, plus $250,000 for the outside improvements, this sale values this lot at just over $3,000,000, which is land value for a typical 1 acre buliding lot in Georgica today. 

 In Georgica, and elsewhere south of the highway, a large portion of the sales recently have been homes such as this one; older, smaller, and more modest than the big new houses built before the crash.  It remains to be seen whether these homes are admired by their new owners for their inherent charm, or if their principle attraction is their potential to be torn down or renovated so extensively as to become unrecognizable.

The big story in the Dunes this quarter -- and so far this year -- is the "cherrypicking" of the best Dunes inventory.  Last quarter, all three sales were on Marine Boulevard.  This quarter, three of the five sales were Oceanfront on Marine Boulevard.  Of the twelve homes that have sold in the Dunes this year, 6 have been on Marine and 3 have been on the Ocean.  As a result of these high-end sales, the average price in the Dunes during the third quarter was driven up over $5,500,000 which is far beyond the true average value of a home in the Dunes.

The Dunes market remains competitive, with more than forty homes for sale.  We will have to wait and see if the high-end purchasing trend continues.  In addition, there is a strong-appetite for fixer-uppers in the Dunes, particularly those that have large footprints and swimming pools, as both are hard to obtain today due to environmental constraints.

The following is the full transfer data for the quarter, along with selected analysis from my "Transaction Highlights" weekly newspaper column. 

Sales in the Amagansett Dunes - 3Q 2010:

8 Ocean Lane, $2,900,000

117 Marine Boulevard, $7,500,000

39 Marine Boulevard, $6,500,000

97 Marine Boulevard, $10,350,000

47 Treasure Island Drive, $962,500

Average Price: $5,642,500

Median Price: $6,500,000

Notable sales reprinted from my "Transaction Highlights" weekly column:

117 Marine Boulevard, Amagansett, $7,500,000

39 Marine Boulevard, Amagansett, $6,500,000

Both of these houses were built in the late 1970s and both are on approximately .7-acre lots, which are large for oceanfront parcels in the dunes.

Number 117 is traditional-style 4,500-square-foot home with eight bedrooms, three fireplaces and a one-car garage. It also has a pool, which is very valuable because today’s zoning laws make it very difficult to construct a pool within significant distances from protected natural features such as bluffs and dunes.

Number 39 is a contemporary 3,129-square-foot home with five bedrooms, one fireplace and a one-car garage. There is no pool, but it may be possible to construct one.

Although these houses were built within a year of each other, number 39 has been updated and the house on it would cost more to construct today. But in environmentally sensitive areas such as the dunes, where it can be difficult or impossible today to expand an existing house, the size of an existing structure is often as important as its condition.

Here, number 117 is more than 1,000 square feet bigger, and its traditional style makes it easy to renovate; it is essentially an empty canvas. The size and style of this house, as well as its existing oceanside swimming pool account for the difference in prices.

Both owners did very well on their sale from an investment perspective. Number 39 was purchased in 2000 for $2,600,000—this sale represents a gross compounded annual rate of return of almost 10 percent per year, although it should be noted that it appears that the owner may have done substantial interior renovations. Number 117 was purchased for $1,750,000 in 1996; this sale represents an 11 percent annual rate of return.

Both are terrific returns considering that these properties were held during the recent downturn, as well as the fact that their owners were able to use and enjoy these properties, or rent them out, for many years in addition to profiting on their sale. Even in the worst of times, it seems that oceanfront property, which is inherently limited and always in demand, never goes down in value.

97 Marine Boulevard, Amagansett, $10,350,000

This is the fourth oceanfront house in the Amagansett Dunes to sell this year.  The others sold for between $6,300,000 and $7,500,000 with this being the most expensive Amagansett oceanfront sale this year.  This is a very high number of houses in a small slice of the market indicating high demand for homes in the Dunes in general, as well as a general recognition that these houses are an excellent value compared to other oceanfront properties in the Hamptons.

This traditional shingle style home was built in 2004 and is 4,000 square feet, with 4 bedrooms.  In addition to the usual large living/dining/kitchen areas, the downstairs includes an office and a lovely semi-circular sunroom/den.  There is also a 1 space garage.  Most importantly, the house has a large pool and deck on the Ocean side of the house, as well as a walkway from the deck to the Ocean.

As a general rule, construction on the Ocean is very difficult because of environmental restrictions, with one of the most important limiting factors being setbacks from the crest of the Ocean bluff.  As a result, Oceanside pools and walkways are not always possible.  However, the present Town Board has been loosening environmental restrictions, including bluff setbacks (so far in Montauk only) so in the future we may see easier and more intense development of oceanfront lots.

As is typical with Oceanfront properties, most of the value here is in the land.  Valuing this house at $400 per square foot, plus $200,000 for pool, deck, walkway, driveway, landscape and garage results in a total value of all improvements of $1,800,000.  Therefore, this transfer implies a land value of just over $8.5 Million.  But built into that figure is the right, under the zoning laws, to continue to use and maintain a large home with oceanside pool and walkway to the beach.  A similarly sized vacant lot, without building permits and with uncertain development possibilities, would be worth less.

47 Treasure Island Drive, Amagansett, $962,500

This 1950’s cottage is only 690 square feet and sits on .14 acres.  The interior contains one public space with a galley kitchen, living area, and small dining table.  The remainder of the cottage is two small bedrooms and one bath.  Although small, the sellers succeeded in making the cottage attractive.  It is clean and sparse, with fresh white paint, cathedral ceilings, bright yellow countertops, and chic light fixtures and blinds.  The outside improvements include a small deck behind the cottage.  But the deck overlooks a 16 acre dune reserve, and the lot itself is located very close to the Ocean, with deeded access nearby.  This neighborhood, the Amagansett Dunes, was mostly developed in the 1960’s and 1970’s.  In this neighborhood, and similarly in Ditch Plains in Montauk, we are witnessing a great deal of generational turnover as young people who do not need large family-sized homes but want to surf and swim in the ocean gradually replace the previous generation of owners.  Ditch Plains is the most affordable walk to ocean neighborhood in the Town of East Hampton, but it is remote compared to Amagansett.  Those who can afford the more convenient drive to Amagansett from New York, and want to be able to walk out of their house and onto the beach are paying an extraordinary premium to do so.  At $200 per square foot, this cottage is worth no more than $150,000, and if that is the case, this sale values this .14 acre lot at more than $800,000!

Does this mean that if the same sized lot next door was vacant it would sell for $800,000?  Not necessarily.  Valuation in environmentally sensitive areas such as the Dunes is much more complicated than in an ordinary suburban tract-home context.  There are strict rules governing clearing throughout the Town of East Hampton, and building within prescribed distances from wetlands, dunes, bluffs, species of native plants and other protected natural features.  As a result, newly clearing a vacant lot in the Amagansett Dunes almost always requires discretionary permits from boards populated by lay-people nominated by the Town Board.  Additionally, there are a number of well-known local environmental activists who live in and around Amagansett and keep a close eye on building in the Dunes.  These activists are not averse to speaking up at Zoning Board hearings, and have given rise to the Amagansett nickname “I’m Against It” among the local building community.

In this case we know that the lot is buildable, because the house at 47 Treasure Island drive has been in existence since the 1950’s.  It is already pre-cleared and has a small lawn even though today it is very difficult to receive approval to clear more than absolutely necessary and install a lawn in the Dunes.  Whether expansion is a real possibility is an open question which cannot be answered without a survey not only of the house but of the surrounding area up to the limits of the jurisdiction of the Zoning Board.  But the current political climate in East Hampton is one of loosening regulatory control following the Republican take-over of the Town Board last year.  Some Zoning rules have been relaxed, and developers and their allies are being appointed to building oversight Boards.  So predicting the future value of a property such as this one can become complicated by environmental and political uncertainties.  If the past is prologue however it is likely that even if the new owners leave this cottage as-is they can expect a fine return.  Small homes on good lots close to the Ocean are consistent winners over time because of low taxes, maintenance, and insurance, and seemingly endless demand to be near the Ocean.  The sellers purchased this home in 1999 for $345,000.  While they likely did a cosmetic renovation of the interior, it couldn’t have cost much to refinish less than 700 square feet.  Although their renovation costs are unknown, this sale represents a gross return of about 10% compounded annually, a very nice return not including the use and enjoyment of a cottage by the sea.

The broader Hamptons Market reports showed reduced average and median prices this quarter, as a result of strong selling in the under $1 Million market and weak high-end sales.  It continues to be a buyer's market for luxury and waterfront properties with plenty of inventory available.  But even though supply may exceed demand, in most cases waterfront property owners have been able to command prices comparable to pre-crash values.  From an investment perspective, waterfront properties are remarkably durable assets.

This quarter there was a run on oceanfront properties in Amagansett, with three oceanfront houses selling on Marine Boulevard.   In this values-oriented market, these properties are attractive in comparison to their much more expensive counterparts on larger and more private lots in the Village of East Hampton.

Unlike other coverage areas, I do not list every waterfront property that has sold because many of them, while nominally waterfront, are inferior with small creek views or limited water access.  A selection of notable waterfront transfers follows.

 Montauk:

 138 Navy Road, Montauk $850,000 (Bayfront)

 Amagansett:

 30 Private Road, Amagansett, $1,500,000 (Bayfront)

 82 Shore Drive East, Amagansett, $725,000 (Bayfront)

 117 Marine Boulevard, Amagansett , $7,500,000 (Oceanfront)

 39 Marine Boulevard, Amagansett , $6,500,000 (Oceanfront)

 97 Marine Boulevard, Amagansett, $10,350,000 (Oceanfront)

 East Hampton Village:

 2 Tyson Lane, East Hampton, $22,875,000 (Oceanfront)

 East Hampton - Springs:

 271, 275 & 283 Three Mile Harbor Road, East Hampton Springs, $3,600,000 (Bayfront)

 Bridgehampton:

 55 Dune Road, Bridgehampton, $14,250,000 (Oceanfront)

 Southampton:

 117 Duck Pond Lane, Southampton, $7,775,000 (Wickapogue Pond)

 Sag Harbor/Northaven:

 20 Notre Dame Road, Sag Harbor, $2,313,000 (Bayfront)

 25 Harbor Drive, Sag Harbor, $2,550,000 (Bayfront)

 42 Actors Colony Road, Northaven, $12,000,000 (Bayfront) (Vacant)

 West Hampton:

 913 Dune Road

 West Hampton Dunes $1,825,000 (Oceanfront)

 59 Shore Road, Westhampton, $13,000,000 (Bayfront)

 BAYFRONT:

 Average Price: $4,567,250

 OCEANFRONT:

 Average Price: $10,550,000

 PONDFRONT:

 Average Price: $7,775,000

 Notable Sales From my Weekly "Transaction Highlights" column:

 20 Notre Dame Road, Sag Harbor, $2,313,000

 This 1,250-square-foot ranch house is located on a .6-acre waterfront lot offering sunset views of Sag Harbor Cove. The three-bedroom house was built in 1990.

 Seller purchased this property in 2006 for $2,200,000, which was near the 2007 market top. Since 2007, the market has declined approximately 25 percent. So this home, if it lost value in proportion to the broader market, would be worth approximately $1,650,000 today. But, one of the few consistent exceptions we have seen to this broad-based market drop is waterfront property, such as where this house is located.

 Waterfront properties are relatively scarce and always desirable. As a result, this house, and many other waterfront homes in the Hamptons have held their value through the global crash that devalued many classes of assets.

117 Marine Boulevard, Amagansett, $7,500,000

39 Marine Boulevard, Amagansett, $6,500,000

 Both of these houses were built in the late 1970s and both are on approximately .7-acre lots, which are large for oceanfront parcels in the dunes.

 Number 117 is traditional-style 4,500-square-foot home with eight bedrooms, three fireplaces and a one-car garage. It also has a pool, which is very valuable because today’s zoning laws make it very difficult to construct a pool within significant distances from protected natural features such as bluffs and dunes.

 Number 39 is a contemporary 3,129-square-foot home with five bedrooms, one fireplace and a one-car garage. There is no pool, but it may be possible to construct one.

Although these houses were built within a year of each other, number 39 has been updated and the house on it would cost more to construct today. But in environmentally sensitive areas such as the dunes, where it can be difficult or impossible today to expand an existing house, the size of an existing structure is often as important as its condition.

 Here, Number 117 is more than 1,000 square feet bigger, and its traditional style makes it easy to renovate; it is essentially an empty canvas. The size and style of this house, as well as its existing oceanside swimming pool account for the difference in prices.

 Both owners did very well on their sale from an investment perspective. Number 39 was purchased in 2000 for $2,600,000—this sale represents a gross compounded annual rate of return of almost 10 percent per year, although it should be noted that it appears that the owner may have done substantial interior renovations. Number 117 was purchased for $1,750,000 in 1996; this sale represents an 11 percent annual rate of return.

 Both are terrific returns considering that these properties were held during the recent downturn, as well as the fact that their owners were able to use and enjoy these properties, or rent them out, for many years in addition to profiting on their sale. Even in the worst of times, it seems that oceanfront property, which is inherently limited and always in demand, never goes down in value.

 913 Dune Road, West Hampton Dunes $1,825,000

 This home is located on a .3-acre lot directly on the ocean far out on Dune Road, which runs along the barrier beach separating Moriches Bay and Remsenburg from the Atlantic. The house is 2,300 square feet with an open floor plan, four bedrooms, an updated kitchen, deck with hot tub and walkway to the beach. The sellers purchased this house in 2005 for $2,065,000 and following their purchase they renovated the house, including new roofing and siding and updated interior finishes. The general trend with respect to prices throughout the Hamptons following the crash has been that prices today are typically at approximately 2005 levels. A notable exception are waterfront houses, most of which have held or increased their value following the crash. This sale is an exception to both trends in that not only was this house sold for a loss, but it sold below its 2005 price. Only a handful of oceanfront houses have sold in West Hampton Dunes since the crash, and there are more than 10 being offered for sale. There may be an imbalance between supply and demand in this small market, which may lead to falling prices.

 59 Shore Road, Westhampton, $13,000,000

 This appears to be the most expensive house ever sold in Westhampton by a wide margin.  In fact, it seems that no house in Westhampton has sold for over $5 Million since the crash (although there have been a handful of post-crash sales in Westhampton Beach above $5 Million but below $10 Million).  Given this environment, this very large waterfront house, built on speculation, was an extremely ambitious and bold gamble on the part of the seller.

 The Nantucket-Style traditional home is 11,500 square feet with 8 bedrooms, 10 baths, 4 fireplaces, and all the amenities typical of a high-end new home including, on the interior, paneled rooms, coffered ceilings, custom cabinetry, and beautiful fixtures and hardware.  The house is sited on 2.2 acres looking South over Moriches Bay towards Dune Road with golf course views behind the house to the North.  The property has 380 feet of Bay frontage, which is completely bulkheaded.  In the center of the waterfront is a large dock that can accommodate a significant boat.  Also included on the property are a large gunite swimming pool, detached carriage house style garage, expansive circular drive with cobbled edging and brick enclosed central planting area, and significant landscaping.

 As always, it is difficult to estimate the value of various components in a large and complex property such as this one, because once one deviates from standard construction practices into custom building, materials, labor quality and cost can vary widely.  This property was purchased in 2005 for $4,270,000 which was presumably land value at that time.  Generally speaking, as a result of the post-crash reduction in prices, values today are generally around the same as 2005, with one important exception being waterfront properties, which have held on to the values they achieved at the height of the market in 2007, or, frequently, continued to appreciate through the crash.  At $500 per square foot for the main house, and $250,000 for the Carriage House, we might value the main structures at $6 Million.  If we estimate the bulkhead, dock, driveway and landscape construction cost at $500,000 we have a total improvement estimate of $6.5 Million.  Those figures would result in a land value of $6.5 Million, which, if accurate, would mean that this land has appreciate at approximately 8% compounded annually since it was purchased by the seller, roughly in line with what we have seen in many other good neighborhoods.

275, 271, 283 Three Mile Harbor Road, Unincorporated East Hampton, $3,600,000

 This is the highest priced sale in the Springs area of unincorporated East Hampton this calendar year, topping the previous record of $3.2 million for a bayfront house at 271 Kings Point Road earlier in the year.

 The sellers purchased the house and additional parcels in 2004 for $2,530,000. This sale is comprised of three separate properties—two vacant lots, each more than one acre, which border on Three Mile Harbor Road; and a flag lot with a house on 2.3 acres and fronts directly on Three Mile Harbor. Altogether, the parcels are almost five acres, and the fact that each is in separate ownership means that a compound could be constructed with a house or guest house on each lot.

 The main house, built in 1910, is a traditional cottage-style home and sits on a high bluff providing west-facing sunset views over the harbor. It is just under 3,000 square feet with four bedrooms and a detached garage. Subsequently, the sellers did a significant renovation on the house, updating the interior and adding new mechanical systems. As a result, it is difficult to accurately estimate the cost basis and determine the rate of return on the sale.

 As this home is located on a bluff (and Town of East Hampton regulations require discretionary permits for construction within 150 feet of the top of a bluff) the sellers have added significant additional value to this property by obtaining variances permitting enlargement of the house.

 Assuming the renovation cost less than $1 million, or $250 per square foot, there is no reason to believe that this transfer is an exception to the general rule we have seen since the crash that attractive waterfront properties have held or increased in value since the crash, even while almost all other properties in the Hamptons declined in value by 25 to 30 percent. A reasonable possibility is that the renovation cost $125 per square foot, or $500,000. If this is correct, this sale constitutes a gross profit (without taking the significant transfer costs into account) of about $570,000, or an annual rate of return of about 3 percent per year.

 While this sale represents the safe return of the sellers’ investment, it does not seem to bode well for property values in Springs. Since the crash, an enormous amount of inventory has come onto the market in Springs, and as a result, there have been little or no vacant land sales or new construction. The sale of these three parcels was allocated as follows: for the main house, $3 million, and for each of the vacant lots, $300,000. These allocations are often somewhat arbitrary and are typically negotiated among the parties with tax considerations foremost in their minds. In this case, assuming a value of $400 per square foot for the main house, this transfer values this beautiful 2.3-acre high-bluff waterfront lot at $1,400,000. This is an astonishingly low figure in comparison to many other waterfront lots in East Hampton, as are the vacant lot prices.

 Although a second-home owner most likely purchased this property, most properties in Springs are the primary homes of year-round residents employed in the local economy, which is still recovering from the crash. While prices throughout most of the Hamptons have stabilized, they are still falling in Springs, and whether the buyer has obtained a great value, or made an error in trying to catch a falling knife, remains to be seen.

97 Marine Boulevard, Amagansett, $10,350,000

 This is the fourth oceanfront house in the Amagansett Dunes to sell this year.  The others sold for between $6,300,000 and $7,500,000 with this being the most expensive Amagansett oceanfront sale this year.  This is a very high number of houses in a small slice of the market indicating high demand for homes in the Dunes in general, as well as a general recognition that these houses are an excellent value compared to other oceanfront properties in the Hamptons.  This traditional shingle style home was built in 2004 and is 4,000 square feet, with 4 bedrooms.  In addition to the usual large living/dining/kitchen areas, the downstairs includes an office and a lovely semi-circular sunroom/den.  There is also a 1 space garage.  Most importantly, the house has a large pool and deck on the Ocean side of the house, as well as a walkway from the deck to the Ocean.  As a general rule, construction on the Ocean is very difficult because of environmental restrictions, with one of the most important limiting factors being setbacks from the crest of the Ocean bluff.  As a result, Oceanside pools and walkways are not always possible.  However, the present Town Board has been loosening environmental restrictions, including bluff setbacks (so far in Montauk only) so in the future we may see easier and more intense development of oceanfront lots.  As is typical with Oceanfront properties, most of the value here is in the land.  Valuing this house at $400 per square foot, plus $200,000 for pool, deck, walkway, driveway, landscape and garage results in a total value of all improvements of $1,800,000.  Therefore, this transfer implies a land value of just over $8.5 Million.  But built into that figure is the right, under the zoning laws, to continue to use and maintain a large home with oceanside pool and walkway to the beach.

A similarly sized vacant lot, without building permits and with uncertain development possibilities, would be worth less.

2 Tyson Lane, Village of East Hampton, $22,875,000

This oceanfront home is the second highest sale in East Hampton this year, following a recent non-oceanfront sale on Lily Pond Lane for just over $25,000,000.  The 7,000 square foot house was built in 1990, but the main living spaces are a renovation of a more than 300 year old barn transported from England.  Included in the house are 6 bedrooms, and living, dining, cooking and working spaces built to the highest quality standards.  There is a bowling alley in the finished basement, and accessory structures include a large pool with pool house (not on the oceanside), garage, and numerous patios decks and porches.

As always with oceanfront properties, no matter how dramatic the homes that are built upon them, most of the value is in the land.  This lot is 1.86 acres and is approached from a long driveway at the end of a private road off Further Lane.  It is located behind the double dunes which run between East Hampton and Amagansett which afford maximum privacy as well as a large measure of protection from storms.  The lot includes deeded access over the dunes along a path.  It is simply impossible to accurately estimate the value of a truly custom home such as this one, which includes both an ancient converted barn as well as contemporary spaces.  Because of the elements confronting oceanfront houses, they require costly upgrades, and this house may have cost as much as $1,000 per square foot to build, more than three times the typical $300 per square foot cost.  If that is the case, the house might be valued at $7,000,000, and adding an additional $1,000,000 for pool, lawn, landscape, pool house, driveway, decks, patios, etc. might bring the total improvements up to $8,000,000.  The resulting lot value would be about $15,000,000.

Reprinted from East Hampton and Southampton Press

November 3, 2010

by Phelan Wolf

Bullet Points on the overall data:

 ·         Prices and Volume generally stable

·         Low-end activity is strong (good time to be a low-end seller)

·         High-end activity is weak (good time to be a high-end buyer)

·         Land & Tear-Down sales up strongly (development activity starting anew – good time to sell older homes south of the highway)

Third-quarter market reports issued by brokerages in the Hamptons uniformly indicate that average and median prices fell due to an increased demand for entry-level homes and decreased demand for luxury properties. However, the reports are contradictory with respect to whether total sales volume continued to increase, relative to the prior year quarter, as it did for the five prior consecutive quarters.

After reviewing all the reports issued by area brokerages—Brown Harris Stevens, The Corcoran Group, Prudential Douglas Elliman, and Town and Country Real Estate—the data appears to indicate a modest volume increase relative to the third quarter of 2009.

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

There were approximately 350 deed transfers (sales) on the East End of Long Island in the third quarter of 2010. Volume change relative to the third quarter of 2009 was reported by the major brokerages as somewhere between a 34-percent increase and a 4-percent decrease. The average of these contradictory volume findings is a modest, 11-percent increase, and assuming that is correct, this is the sixth quarter in a row to show volume increases compared to the prior year’s quarter.

 During the prior five quarters, volume increases grew from single digits to 25 percent, to 75 percent to more than 110 percent twice in a row, and now, down to 11 percent. It was inevitable that the dramatic jumps in volume would end as we left the first quarter 2009 market bottom behind, and six consecutive quarters of volume increases vividly illustrate both the depths to which the market sank following the crash, and the resilience that it has shown over the last eighteen months.

The somewhat misleading average price statistic was $1.47 million this quarter, a 9-percent reduction from the summer of 2009. It is critical to keep in mind that this figure often tells us more about the average price of homes that sold in the quarter, than it does about whether prices are actually going up or down (in fact, prices in most market sectors are now stable). But it speaks loudly about the types of homes that are selling, and this quarter they were overwhelmingly entry-level homes priced under $1 million.

Typically, about 50 percent of homes in the Hamptons sell for under $1 million. But this quarter, that figure jumped to 67 percent, driving the median—or middle range—value of sold homes down 13 percent, to $749,000, meaning that fully half of properties traded for less than that amount.

While the low-end flourished, the luxury market languished, with only 11 sales at $5 million or above, an approximate 50-percent volume decrease at that level from both the prior quarter and the prior year quarter. The spike in low-end buying is easy to understand; with interest rates at 50-year lows and extremely competitive markets in entry-level neighborhoods far north of the highway, there is a historic opportunity for first-time buyers. But it remains to be seen whether the drop in high end buying is an anomaly, which is quite possible when dealing with statistics based upon 10 or 20 sales per quarter, or, more ominously, it represents fear or uncertainty on the part of those employed in finance who typically make such purchases.

While luxury level end-users may be hesitating about buying expensive new homes, developers and entrepreneurs are betting in earnest that there will be strong demand for such properties in the future. Land sales doubled in volume compared to the prior year quarter, and the land that sold did so at an average price of over $1 million—40 percent higher than last year. The average price of sold homes south of the highway dropped 21 percent, versus the prior year quarter, as forward-thinking builders scooped up tear-downs and renovation candidates.

The total inventory and listing discount data are encouraging as well. Real estate sales in the Hamptons are a seasonal business, with the second quarter—spring—traditionally the busiest season, as buyers rush to purchase before Memorial Day. The second quarter this year was the biggest, in terms of volume, since the first quarter of 2007, just before the crash. As a result, inventory is tightening, with the total number of homes for sale down 9 percent compared to the prior year quarter.

Of equal importance is that sellers are adjusting to the new reality that in many cases (but with important exceptions) their homes are worth approximately 30 percent less than before the crash. Because of more accurate pricing by sellers, the average number of days a home is on the market has dropped precipitously by about 20 percent compared to the same time last year. Buyers, many of whom still harbor unrealistic expectations about “stealing” distressed properties by making low-ball offers, should keep in mind that post-crash discounts have been built in to many asking prices. The average discount between listing and sales price is now only 8 percent, down more than 50 percent from the 19-percent listing discount common last summer before many sellers had accepted the reality of post-crash valuations.

What those of us in the brokerage field are seeing, time and again, is that accurately priced homes can—and do—sell quickly, and that such homes frequently generate bidding wars, to the astonishment of buyers who believe they are braving the market alone. We may have witnessed a national change in consciousness with respect to pricing, as everyone seems to be more attuned to obtaining a good value when they make a purchase. Sellers who offer a good value—or the perception of one—can expect to find a fairly robust market response, particularly at the low-end.

Barring another economic calamity, a new rush of high-end buying is likely this spring after Wall Street bonus season and before Memorial Day. In this low-end dominated market, many spectacular high-end properties remain. Prospective luxury buyers who are in a position to act now would be wise to play the contrarian and go to contract before their competitors follow.

“What it suggests to me is not that there was a sharp drop-off in pricing, because there wasn’t,” said Jonathan Miller, the president of Miller Samuel. “It’s a shift in the mix. We had a drop in upper-end sales activity.”

Sounds right to me.  Except in a few neighborhoods far north of the highway, prices are stable.  But it does look the big story last quarter was that so many deals were low-end (under $1 Million).