East End: Back in the money?

It is often said that the Hamptons market moves in lockstep with the stock market. And the upcoming season on the East End is shaping up to be no exception. As the stock market has made gains in the last year and, perhaps more important, shown some stability, the Hamptons market has followed suit.

“I think the latest wave of business we’re doing is very much tied to the increase of the stock market,” said Andrew Saunders, president of boutique brokerage Saunders & Associates.

In this month’s Q & A, The Real Deal spoke to East End brokers and firm heads, including Saunders, who said that sales activity has picked up recently and that the rental season started earlier and stronger than it has in the last few years.

Those interviewed also noted that financing for the second-home market has loosened.

But with all of that said, brokers are reporting a more tempered and cautious market than the one that existed before Lehman Brothers crashed.

While in the year or two after the crash the market was littered with short-term rentals of two or three weeks, now there’s more of an even mix of full-summer and shorter-term rentals.

And while homeowners are being slightly firmer with their prices than they were last year or the year before, they are not getting their asking price in all cases. If they are, it’s likely because they’re starting at a lower price point. Plus, more discounts could come later in the season if homeowners are left without renters.

On the sales side, transactions are up from a few years ago but not as strong as they were last year, because the pent-up demand then was stronger, coming after a period of real estate silence.

Still, the high-end market has taken off, particularly in the last six months. Saunders said last year there was activity, but much of it was below $3 million. Now there is more in the $5 million to $9 million range. Of course, those numbers vary by firm. Another source said that the $2 million range was weak for a while, but is now moving again.

For more on which areas of the Hamptons are doing best and worst, what’s going on with prices and what’s happening with new development building, we turn to our panel of experts.

Rick Hoffman

regional senior vice president, East End, the Corcoran Group

How is the Hamptons residential sales market doing right now compared to the last few years and last year in
particular?

Compared to the last few years the market has picked up. However, we are not seeing the spike in sales activity that we witnessed in the first quarter of [2010] because there was [so much] pent-up demand last year. This year’s first quarter has been very active, but not to the same extent as last year. [It’s evidence] of a more normalized market.

Is the Hamptons summer rental season in full swing yet? If so, how does the timing of the start of this season compare to the last few seasons?

The summer rental season is absolutely in full swing. Some of our offices are up as much as 180 percent compared to last year in terms of rental volume. The market started strong right after the holidays — that’s much earlier than witnessed in prior years.

What’s going on with rental pricing in general? Are homeowners negotiable on pricing or are they holding the line more this season?

Rental prices have remained relatively stable as compared to the last two years. Landlords have generally not raised their rents, but they are becoming less negotiable. Most rentals are getting their asking price or near asking price this year.

The Real Deal and others have reported a lot about shorter-term rentals in the last couple of years. Are you still seeing that?

We’re not seeing quite as many short-term rental requests as we did last year. The mix of long- and short-term rentals has stabilized over the past few years. [There’s] a good mix of both now.

Is it still a buyer’s market in the Hamptons? If so, what kinds of discounts are buyers getting off the asking prices?

It remains a buyer’s market in the Hamptons. While we are not seeing deep discounts, the buyers are in the driver’s seat and the properties that are well priced by realistic sellers are moving at a brisk pace.

Market reports show that the luxury market has rallied and that it’s skewed prices up. Which price range for both rentals and sales is doing best right now?

The high end has absolutely had strong activity, both in sales and rentals. Many agents are anecdotally commiserating on the lack of inventory in the high end as a result of so many transactions having already been done in that segment of the market over the past six months.

Which price range in rentals and in sales is struggling most right now?

The $1 million to $2.5 million range for sales and the $45,000 to $70,000 for rentals. While those segments of the market remain active, there is a lot of inventory.

Is mortgage financing still difficult because it’s a second-home market?

Many lenders have loosened their lending criteria, which has helped the lower- to mid-level buyers in attaining financing.

What’s going on with residential building and development? Are you seeing more of it than you were last year at this time or hasn’t it rebounded yet?

There has been an increase in sales activity for vacant land that has been purchased by developers in anticipation of this improved Hamptons residential market.

Andrew Saunders
president, Saunders & Associates

How is the Hamptons residential sales market doing right now compared to the last few years and last year in particular?

It was in September ’09 that we really started to do significant business for the first time after the financial meltdown. From September ’09 to early May 2010, business was quite dynamic and transactions of $3 million and under made up the lion’s share of the deals. … The flash crash [the stock market decline last May] definitely prompted a downshift among buyers and business in what is traditionally a busy time for us. So the summer selling season was actually tentative and disappointing. But starting in 2010’s fourth quarter, people seemed buoyed by the advancement in the stock market. I think the latest wave of deals we’re doing is very much tied to the increase of the stock market.

Which segment of the market is doing best for you right now?

Last year at this time we were doing quite a bit of business, but it was all below $3 million. This year we are seeing a lot of business well into the upper end and also in the $5 to $9 million range. There is a larger universe of buyers today than there was this time last year.

What is going on with rental pricing in general? Are homeowners negotiable on pricing or are they holding the line more this season?

Homeowners are certainly holding the line a lot more this season than they did last season. Various classes of inventory have started to thin out already. It’s not as if all these deals are happening at the asking price, but I think owners sense that it’s going to be a dynamic rental year. … Last year’s rental season was the first [dynamic season] after the horrible meltdown and many owners were anxious to rent. So those owners who rented early were quite negotiable. … This year the rental season kicked off early and pretty strongly. I think there was a sense almost from the beginning that it was going to be a firm rental season, and perhaps owners did not need to negotiate as much as they did last year.

The Real Deal and others have reported a lot about shorter-term rentals in the last couple of years. Are you still seeing that?

Yes, we are seeing shorter-term rentals. It used to be that the two most popular periods were the full season or August through Labor Day. We are seeing many one-month rentals, six-week rentals and certainly some two- and three-week rentals.

Market reports show that the luxury market has rallied and that it’s skewed prices up. Have you seen that?

The sweet spot, if you will, of the upper-end rental market is $150,000 to $250,000. That part of the market is pretty thin … and very picked over at this point. That does not reflect the upper, upper end. We do rentals here at $300,000 to $500,000.

Are you seeing more residential development than you were last year at this time or hasn’t it rebounded yet?

It has rebounded in a significant way. It’s very brisk right now. The multi-unit spec builders who at any time might have five to seven projects are back in the game. … We are also seeing a lot of one-off developers, who buy one lot to build a spec house. We are starting to see that happen with a great degree of regularity now. A year from now there is certainly going to be a lot of spec product on the market and for the builders who build quickly.

Paul Brennan
regional manager, Prudential Douglas Elliman

Is the Hamptons summer rental season in full swing yet?

Yes. … It started in early January 2011. The season started earlier than last year. Many good houses are rented. Rental prices are stable with perhaps a slight increase.

Which price range for both rentals and sales is doing best right now?

Rentals from $50,000 to $150,000 are doing best. Sales from $3 million to $10 million are doing best right now.

Judi Desiderio
CEO/founder, Town & Country Real Estate

How is the Hamptons residential market doing generally at the moment?

The current market conditions are the strongest they’ve been since the crash. Several specific markets such as Sagaponack South, which was hit the hardest, have now bounced off the bottom to near their highest levels. In addition to the prices recovering, the number of home sales has improved in all markets. This winter was our busiest in many years.

Is the rental market in full swing, and how does the timing of the rental season start compare to recent years?

It has been steady since November. In normal years, if there is such a thing, January would be early and Presidents’ Week was always the height of rental activity.

What is going on with rental pricing? Are homeowners negotiable or are they holding the line more this season?

Prices are stable. [Homeowners] are holding and getting [their prices]. Any discounts will come late [in the season]. … The other big change from the last two years is longer terms. While in the past two summers we had one-month and shared rentals, this year is back to normal, with full-season rentals being prevalent.

What else are you seeing on the sales side in the Hamptons right now?

While ordinarily sales activity peaks in August, September and October, then falls off in November and December, this past year was the opposite. Our activity died off in August, September and October, then spiked in November and December.

JR Kuneth
salesperson, Devlin McNiff

Is it still a buyer’s market in the Hamptons? If so, what kinds of discounts are buyers getting off the asking prices?

Yes. [But] more and more new listings are being priced appropriately and in many cases do not need to reduce price, with the sale landing within 5 percent of list.

Which price range for both rentals and sales is doing best right now?

For rentals it is $50,000 to $100,000. There is a lot of activity in sales from $2 million to $5 million. For a while in ’08 and ’09, the $2 million range was weak. It showed some life last year, and now things are moving.

Which price range in rentals and in sales is struggling most right now?

The low end in both rentals and sales is struggling most right now.

What’s going on with residential building and development?

It will be some time for the spec market to rebound to its previous activity, but building activity is [up] for the residential sector. Many people bought great locations with homes that needed to be rebuilt. … A lot of end users are building new, renovating and improving what they bought in 2009 and 2010. Builders are building.

Ed Reale
senior managing director, Brown Harris Stevens

How is the Hamptons residential market doing right now?

There has been a substantial increase in the number of potential purchasers making realistic offers since the beginning of the year.

Are homeowners negotiable on pricing or are they holding the line more this season?

Perhaps due to the increased rental traffic, homeowners have not been especially negotiable on asking prices for rentals. We see only small-percentage discounts or, in many cases, none at all.

Is it still a buyer’s market? If so, what kinds of discounts are buyers getting off the asking prices?

It is much less of a buyer’s market than in the past two years. A fair amount of older inventory is now selling and the inventory numbers are starting to diminish. … In general, certain buyers’ low-bidding strategy is not resulting in counteroffers, and while there are some percentage discounts, on the bulk of the transactions they are not substantial.

Is mortgage financing still difficult because it’s a second-home market?

Lenders have begun to open up again to the second-home market. We have had several deals go forward with financing without delay.

What kinds of buyers and sellers are you seeing? And how is that a change from the past?

People in the financial industry have always been a mainstay of our business. We are seeing the return of Wall Street people to our market, more circumspect than a few years ago, but carefully pursuing purchases. Due to the decline in prices of a few years ago, we are also seeing the return of young, professional families looking for a second home.