- "You never know when it's the bottom or when it's the top," veteran real estate broker Paul Brennan
said as he assessed current market conditions that clearly reflect a dramatic downturn no matter who's counting or how they are compiling their statistical data. The market is off - by just how much is anyone's guess based on a wide array of data. Experienced brokers continue to do business optimistic about the future despite the drop in sales.
Agencies around the South Fork are reporting a marked downturn in a once booming market that continues to slow as inventory increases, turning what was often a somewhat audacious and certainly thriving seller's market into a humbled buyer's market. Estimates vary from office to office with many agencies reporting a downturn from 20 percent to 40 percent in sales compared to last year.
Paul Brennan at his desk in the Bridgehampton Prudential Douglas Elliman office
on Main Street where the impact of Wall Street is never far away.
"There are buyers out there but they want to pay 50 cents to 60 cents on the dollar," Scott Strough
, principal broker at Strough Associates said, literally referring to buyers who expect to get a 40 percent to 50 percent discount on buying a house in The Hamptons this year and next.
Strough, who owns and operates two offices in the Hamptons, one in Sag Harbor and another on Main Street in Bridgehampton, notes he has seen this kind of market before, albeit not in this kind of economy. He has been a South Fork broker for 20 years.
"It's going to be a long and boring winter for a lot of brokers," he said as he described his typical work day and the stand-off between buyers who offer 50 percent of the listing price and are prepared to wait out sellers who are unwilling to negotiate. The buyers are becoming more encouraged by a daily barrage of forecasts from the news media bolstering their belief that sellers will become desperate.
of Prudential Douglas Elliman, another veteran broker, agrees. "The daily barrage of negative news around the clock has people holding their breath," Morabito said. Nevertheless Morabito has closed three deals recently and is moving forward to closing on four more deals that are in contract. Bringing a deal to the table is also a challenge once contracts have been signed. "Buyers listen to the news and they begin to have second thoughts sometimes." Morabito commented.
"What the buyers are overlooking," Strough said, "is the staying power of the seller out here. They are not desperate. They can afford to hold out. If a house is listed at $4 million they are not willing to take $2 million, and the buyer won't offer the $3 million that the house is probably worth. So it is a stalemate with buyers and sellers so far apart it is impossible to make a deal."
According to Strough, the deals that get done are emotional where a buyer decides they just have to have the house or a seller waves a white flag, surrenders and makes a deal. But for the most part, according to Strough, "the seller is motivated to sell, but not to discount."
Enzo Morabito and his team continue to list and sell in a market that Morabito, the top selling agent on Long Island for Prudential Douglas Elliman, notes favors the old pros.
Stough describes the phenomenon as a "pure retail sale." "For example," Strough said, "if we list a house at $2,495,000, a buyer will offer $1.6 million to $1.7 million, an offer that reflects a deep discount and assigns a presumption of stress on the part of the seller that quite frankly doesn't exist."
Nevertheless, veteran brokers are united in their belief that this is a good time to buy because inventory is high and sellers are more negotiable than they were in stronger markets.
"The old pros will survive in this market," Morabito predicted, recalling the down years between 1989 to 1994 when the real estate market on the East End had become eerily quiet. "Things started to turn around in 1994-1995. None of these kids were around then," Morabito commented. "Paul Brennan and I are probably the only guys who remember that now," Morabito said referring to his colleague, a Bridgehampton native who has been selling real estate for over 25 years.
Scott Strough grateful for the good run he has
had in his Sag Harbor and Bridgehampton
offices is giving back to the community by
counseling friends and neighbors who need
help making mortgage payments in this difficult
"It's counterintuitive," Paul Brennan, a top broker at Prudential Douglas Elliman, chimed in, "but the key to real estate is to outlast the downturns. If you are real estate savvy this is a good time to buy and it is a good time to borrow money."
Brennan likens the situation to a driver with one foot on the gas pedal and one foot on the brake, noting he anticipates more forward motion
after the new administration takes office and Obama's team takes over. "If they lower the interest rates and extend mortgages from 30 years to 40 years you will see a lot of activity," Brennan said. "It's tough out there right now, but when it gets tough, it turns."
Brennan and other brokers also pointed to the massive federally funded bailout expressing optimism that the real estate market will rally by mid-2009 once new money starts to trickle down. However, high-end brokers like Morabito note that many of their recent deals have not been subject to mortgages. "There's still a lot of money around," he observed. "Local banks are also in good shape because they were careful who they lent money to."
of the Corcoran Group
pointed to the uniqueness of the Hamptons market noting buyers who sit and wait out the market will miss a unique opportunity to buy a property they really want at a price that they may not achieve once the market picks up.
"Its like shopping a sale at Macy's where everything is 60 percent to 70 percent off," DePersia said. "Are you going to buy everything because it's discounted or are you going to buy what you like, what you want and what you need and leave the rest behind? There are only a few houses in each price range that fit a buyer's needs and that is what they are going to concentrate on. If nothing appeals to you, you won't buy it."
On the other hand, DePersia notes the customer who tracks a $10 million house and makes a move when they see a price reduction down to $8 million is taking advantage of the prevailing market condition and getting a good deal in the process.
Brokers also pointed to the downtime they experience at this time of year as the holidays approached and summer homes and vacation plans take a back seat to Christmas shopping.
"It's too early to start talking about how the summer rental season is going to shake out," DePersia said, noting he is optimistic that rentals will do well in 2009.
Gary DePersia top selling agent at the Corcoran Group is
still busy despite adverse market conditions and a general
slow down in the real estate market.
"That's a double edged sword too," DePersia added. "If you make a rental deal now you may pay a little more, but you will get the house you want. If you wait until the last minute thinking you will get a better deal you won't get your pick of the best houses."
"No one really knows where this is going to go," Strough reiterated. "Anyone making predictions for 2009 is just expressing their own opinions." According to Strough business is off by as much as 30 percent to 40 percent on the South Fork this year as compared to 2007. Strough estimates his own sales have declined by 25 percent in 2008.
Buyers, sellers, brokers and market watchers know they can count on the listed inventory, which is definitely on the increase. They can also read their company's market reports looking for trends, facts and figures. They can count the number of sales and they can compare last year's values to this year's sales to date.
"You have to be careful with all these numbers floating around," George Simpson of Suffolk Research Services said. Simpson is widely known in the real estate business for his facts and figures provided weekly to 300 subscribers largely composed from research offered by brokers, appraisers and published transfers.
"A lot of these reports are not sourced or footnoted so the numbers don't have all that much meaning," Simpson cautioned. "It's not responsible."
Simpson has been tracking the local real estate market for more than 15 years as he makes two or three trips a week to the County Center in Riverhead to check recorded deeds and monitor selling prices on transactions in the area.
"It's not rocket science," Simpson said. He continues to produce a wide array of graphs and charts monitoring the state of the real estate market. "No matter who is counting and how they are counting, the market is down. The median home price is down, and the number of transactions is down," Simpson asserted.
Simpson points to his data indicating the median home price in Southampton for the first 10 months of 2008 is now $810,000. This figure reflects a 12.43 percent decline from 2007's figures when the median home price in Southampton was $925,000. According to Simpson's data there were 1,329 transactions in Southampton in 2007. Conversely, 822 transactions were recorded through the end of October 2008 in Southampton.
In terms of dollar value, that translates into $2.3 billion in total sales in Southampton in 2007 as compared to the 2008 total of $1.48 billion running to the end of October 2008.
The sign on Paul Brennan's office door says it all.
In East Hampton, Simpson recorded 648 transactions totaling $1.256 billion in 2007. This year 371 transactions have been recorded as of October 2008 totaling $623.8 million. In East Hampton the median home price in 2007 was $1.1 million. This year the median price based on figures through the end of October 2008 is $913,000 or a 9.54 percent decline.
Data aficionados are encouraged to visit Simpson's website where charts and graphs are presented in great detail with hamlet and village breakdowns.
"Most real estate agents are unsophisticated when it comes to reading charts and graphs," Simpson said, cautioning against the use of un-referenced data.
"That's too complicated for me," Brennan quipped. "You lose me when you start talking about graphs and charts. For me, the indicator is the CPF," Brennan contended, referring to Community Preservation Funds. "You know the number of transactions and you know the selling price. What else do you need?"
These funds, established in 1997, exist in all five East End towns, deriving revenue for land preservation by charging a two percent transfer tax on sales at the closing table. This tax is paid by the buyer before the deed is recorded.
Revenues collected by these funds have declined steadily since 2006. In Southampton Town, $50.3 million was collected in 2007. In 2006, the fund topped out at $55 million.
This year, according to figures available through October 2008, the town has collected a total of $29,867,254.33. Southampton Town Supervisor Linda Kabot
hopes to close out the year with a total now estimated at $33 million or $17.3 million less than the previous year's total. This reflects a 34 percent decline in the fund's revenue in 2008. Town officials now estimate 2009 CPF revenues to reach a total of $20 million to $24 million if current real estate market conditions prevail.
The beauty of the South Fork will endure and buyers will always be looking for their own piece of the Hamptons. Veteran brokers expect a boisterous market in the Spring of 2009.
According to figures provided by the Southampton Town Building Department there were 199 new dwelling or building permits issued in 2007 as of Dec. 11 of that year. This year to date, the Department has issued 132 new dwelling permits. The 67 fewer permits issued to date in 2008 reflect a 33 percent decline from last year's total to date.
"People are in trouble," Strough concluded, acknowledging his own good fortune as he admits some homeowners may find themselves struggling to hold on to their homes. "We are trying to do the right thing and give back. We have had a great ride and we want to help out and exercise some social responsibility," Strough said.
Strough and his associates are working with 30 to 40 local families to help them avoid foreclosure and hold onto their homes. "We are working with the banks, trying to renegotiate and restructure loans. Some people just freeze in this situation. They are in trouble and they can't make their mortgage payments. Some of them go to lawyers, but lawyers don't have the time and if they do, they are billing $350 an hour and that makes it worse. We aren't charging anything here, just glad to help out."
As for 2009's market, Strough figured "it's too early to tell. What happens out here reflects Wall Street and the economy in general. If you are in real estate and you have some money go skiing this winter or do what you do, or come down here and help us with these mortgages."