Sales Are Flat in Buyer’s Market
Priciest properties in demand, refinancing up, and bankruptcies on the rise
(2/14/2008) While the median house price in East Hampton Town broke the $1 million mark last year, the number of house sales remained flat, according to figures from Suffolk Research Service, a company that collects data on area sales.
According to South Fork real estate brokers and those in allied industries, the second figure is far more meaningful.
“The slowdown is very obvious in the numbers of transactions. In the entire town of Southampton there were 2,900 sales in 2004 and 1,800 in 2007. Nobody says that the market is bouncing along at its usual pace,” Jim McLauchlen, a real estate agency owner and appraiser in Southampton, said on Monday.
While a handful of $20 million-and-above sales, including the $103 million sale of Adelaide de Menil’s property on Further Lane in East Hampton to Ronald Baron, are driving overall price results higher, fewer actual sales mean properties are sitting longer and average houses need to cut prices to distinguish themselves from the pack.
“We’re busy where it shakes out. If you’re a broker, you better be busy now or come Memorial Day, you’re shot,” said Paul Brennan, the Hamptons regional manager for Prudential Douglas Elliman. “But that doesn’t mean things are selling.”
Both agreed in separate phone interviews that the bulk of the sales in 2007 occurred in the first half of the year, but Mr. Brennan noted that a “number of things closed in January, and February looks good so far. Who knows after that?”
Still, he said, “the fact that things closed are good signs.” In previous economic declines, buyers “would walk away from their down payments, thinking the market would continue to go down, to cut their losses.”
The South Fork real estate market “held its own surprisingly well compared with the rest of the markets in the United States. We have the wealth to hold things that don’t sell. They can just sit.”
Mr. Brennan said he has begun to worry about the state of the economy and how it will affect his business over the next two years. “If the current direction of the economy continues, we are bound to slow down here. You can’t keep throwing bad money after good and expect the market to hold.”
If real estate agents are on the leading edge of the wave, its ripples are also beginning to be felt in some of the businesses that normally rely on house sales for their financial health.
Ann Nowak, an attorney whose practice until recently was divided evenly among real estate, bankruptcy, and wills and personal injury, said last week she had only two real estate deals in her office and that she is hearing the same stories from her colleagues. “If people are being honest, everybody will say they are really slow.”
In the 1990s, “there was so much real estate,” she said. “Now, my office has a lot more bankruptcies than real estate deals,” and at levels she has not seen since she started in 1989.
Surveyors such as Michael Hemmer in Sag Harbor and David Saskas in East Hampton said business has not slowed down, but its composition has changed slightly from fieldwork to regulatory work, i.e., the surveys required for permits for additions, swimming pools, and other home improvements.
From a mortgage broker’s perspective, it is “still very active on the East End, but it is slower than last year,” said Bill Wright, the sales manager of Hamptons Mortgage in East Hampton. “Last year we were still riding the wave. It’s hard to do that now.”
Money is still available for “qualified buyers. You can get a no-income-verification mortgage with strong assets, strong employment, and strong credit. If it makes sense, banks are still offering that.” Although once “you could have your pick through a number of banks, now only about 20 different banks are offering no-income verification.”
Refinancing is becoming a popular option. With a loan value under $417,000, the cutoff for loans offered at preferred interest rates and fewer restrictions, an adjustable rate mortgage can be transformed into a fixed rate in the mid-5-percent range.
But, Mr. Wright explained, recent rate drops and talk of raising the threshold for a “conforming loan” past $417,000 to better reflect local markets were positive steps that would help buyers find more appealing loans. “After Christmas, we got a lot of phone calls to get applications started.” He has also seen a “spike of those out looking, ready to buy, making offers.”
Dropping prices in the low end are helping first-time buyers, Mr. Wright said. But he acknowledged that most of the activity was in the higher ranges.
“The special properties that are unusual, or appeal to special buyers who are unaffected by how much it costs,” Mr. McLauchlen said, are still “rather vibrant. The buyers are rolling in dough and say, ‘I like it, I want it, I want it, now.’ Ten or 15 million has no effect on their lives.” For these properties “there is steady and ongoing demand, unaffected by the nuances of the market.”
At the other end, all of the center-hall, ranch-style houses on the market “have prospective buyers getting dizzy. They like to make a very low offer to see what happens. If someone is selling with lots of things for sale in that price point, the only way to attract attention is to reduce the price” so that the buyer feels that “even if the market goes down, if I pay X it will be okay. It’s not a great time to be a seller.”
Mr. Brennan agreed. “Things that are selling have been priced to sell.”
Mr. McLauchlen gave an example of a three-bedroom, two-bath house in Shinnecock Hills one block from the water and on the highway that was listed for $630,000 in the fall, “a fair and reasonable price at the time,” he said. In January, it sold for $540,000 after an aggressive round of price cutting so that the family could settle an estate.
“I think the general outlook is the main factor and the outlook is not good,” Mr. Brennan said. Last year the fire was burning, this year we’re going to China to borrow more money to get the economy going.”
Still, “if the market is at its ebb, two years from now it should be going up, if it follows the trend over the past 30 years. Unless there is a huge problem with the economy we’re not looking at or don’t know about, then we’re all in trouble.”
And Mr. Brennan, unlike his colleagues, questions the amount of international money feeding into the local real estate market. “The international market is a myth. The percentage of overseas buyers has always been the same and is not a substantial portion.”
Ending on a more upbeat note, he said he was pleased with January and February and where his firm “stacks up compared to last year’s results. People are closing, buying, looking. All the fundamentals are there in keeping a healthy market. The fact that we’re doing okay is good. I’m grateful things are still cooking.”