Hamptons Market is Strong Despite Lack of Inventory

It’s Columbus Day weekend – and 2023 was a good year for real estate in the Hamptons. Not a Covid kind of year, but a good year nonetheless. In her latest market report, Judi Desiderio, CEO of Town & Country Real Estate reminds us that comparing any year to the Covid markets is not particularly conclusive. “As I’ve mentioned repeatedly, comparing any year to the COVID markets is simply an unfair comparison,” Desiderio says. “I’ve been a broker for almost four decades and have never seen a surge in sales like we saw during the COVID wave, as I call it.”

And the “COVID wave” has certainly skewed the numbers. In 2020, brokers in the Hamptons sold over $8.1 billion worth of real estate, almost double the total of the previous year, according to data from Brown Harris Stevens. That momentum continued into 2021, with a buying frenzy that drove prices up astronomically and sparked bidding wars. The year’s top 10 deals in the Hamptons generated over $600 million in sales, about 35 percent more than the year before. According to the data reported in the latest Town & Country market report, 806 sales were recorded in the first six months of this year, which represents a 42% drop from 1,400 sales which closed in the same period of 2022, but more than the 729 sales which closed during the first half of 2019. 

“At first glance, the mid-year report of 2023 may appear dire for our Hampton markets with statistics like total home sales volume nearly half what transferred in 2022 same period…. but one must dig deeper and view past reports to get a full and clear view of Hampton home sales,” reports Ms. Desiderio. “But the real message is in the Median Home Sales Price! Year to year there was a slight dip of 7.75% to $1,637,500 for this year — YET — that’s a BIG YET — looking back at our 2019 Mid-Year Report and we see the Median Home Sales Price was $995,000.” For those of us reaching for calculators: that’s a 65% increase over the 2019 number.

Rising interest rates have had a strong impact on other markets across the US, but not so much here on the East End. The Hamptons is a luxury seasonal market which is historically less rate sensitive. Most of our buyers are cash buyers. That’s not to say they are immune, but it is not as impactful as, say, a primary housing market in the middle of the country. Anecdotal market data for the Hamptons indicated that rising mortgage rates prompted would-be sellers to hang on to their properties with an eye towards renting. 

For a more in-depth understanding of how the Hamptons market is trending through the end of 2023, Hamptons Real Estate Showcase turned to a number of industry professionals for some insight on the following questions:

HRES: What’s in store for the balance of the 2023 Hamptons market? What other factors do you see as contributing to the strength of the Hamptons real estate market?  

Corcoran’s James Peyton is very succinct: “Increased demand at every price point and lack of inventory are the two main contributing factors to the strength of the market.” 

Gary DePersia, from Corcoran’s office in East Hampton, lends a bit more color to the issue. “Based on the flurry of sales in the last few weeks, including my own business, I anticipate we’re going to have a very strong rest of the year. There is a lack of supply and a surplus of buyers who have been making decisions with more to come over the balance of 2023.” 

Based on the flurry of sales in the last few weeks, including my own business, I anticipate we’re going to have a very strong rest of the year. There is a lack of supply and a surplus of buyers who have been making decisions with more to come over the balance of 2023.

— Gary DePersia, Corcoran

Lori Schiaffino with the Bridgehampton office of Compass agrees. “We have seen a major uptick in sales this August. Many buyers who have been renting for multiple years are now coming off the sidelines and making offers so that they can be in their homes comfortably for next summer.” 

HRES: The lack of supply has been an ongoing issue within the Hamptons market which does not appear to be easing. Do you see the lack of supply as one of the factors propping up the Hamptons market?  

Gary DePersia jumps right in, giving examples of how supply is affecting pricing. “Absolutely. For instance, if you’re looking for a new house with tennis south of the highway be prepared to pay close to $20 million and if you go north of the highway, be prepared to pay between $8 million and $14 million. Waterfronts are even harder to come by.”

“Yes, inventory is directly correlated to pricing,” shares Ms. Schiaffino, taking a more macro view on the topic. “The last time prices noticeably adjusted downward was in 2018, where inventory was at a 10 year high, and up by 85%. We are not seeing that downward adjustment happening now for a few reasons, including lack of inventory. Also, owning real estate in the Hamptons has historically been and continues to be a solid investment as a desired destination outside of New York City.”

Mr. Peyton agrees. “Yes, inventory is a major factor and will continue to be so as new development is scaled down to lack of land coupled by higher building costs and commercial loan rates.”

HRES: Given the supply issue, are homeowners renovating instead of participating in the marketplace? Are renovations being made to new purchases that need upgrading? 

“Replacement cost is a major factor in determining if it’s time to sell,” confirms Mr. Peyton. “Intrinsic land values have increased substantially and a good investment is putting further equity into the home itself.”

“Renovating an existing home is a very smart way for buyers to capture value,” explains Ms. Schiaffino. “Cost of goods are beginning to come down and labor pricing will be more competitive as we head into the winter months. Buyers should be meeting with local architects and interior designers who can give their advice on how these older homes can be completely transformed.”

Mr. DePersia agrees. “I believe you see both scenarios happening. Many homeowners who are thinking about selling are deferring that decision realizing that they may have to spend much more if they intend to stay in the area unless they’re downsizing. Conversely, there are buyers who are tired of waiting for a great new house to come on the market and are buying someone else’s house and making changes to make it their own.”

HRES: What sort of effect is the rise in interest rates having on the Hamptons market? Are homeowners backing off selling properties because they are married to mortgages with low interest rates? If so, are those homeowners renovating/updating in lieu of selling and buying up? During the Covid wave, anecdotal information indicated that purchasers were looking for turnkey properties; has that mindset changed in the current market?

Ms. Schiaffino agrees that the interest rates do have an impact, even though the Hamptons market is historically less sensitive to rate changes. “We are not seeing people trade up as much in this current interest rate climate. Many people still prefer turnkey homes because they are so busy and don’t have the time for another project.”

Owning real estate in the Hamptons has historically been and continues to be a solid investment

as a desired destination outside of New York City.

— Lori Schiaffino, Compass

“No,” confirms Mr. Peyton, “our market has not been affected negatively due to raising rates, it just changes the structure of the deal. Covid rates allowed highly leveraged deals and as rates began to raise our deals became 50% cash to 100% cash as an inflation hedge. Most buyers who locked in very low rates aren’t ripe to move on yet as the average Hamptons flip is 5-7 years.”

“I can’t tell if interest rates are a factor,” says Mr. DePersia, “as my buyers don’t seem to be discussing it and those buying my exclusive listings with other brokers don’t seem to be getting financing. I do think that some homeowners look at their low interest rates and decide not to sell but others, who may be leaving the area or have something else in mind, put their properties on the market.”

HRES: How was the 2023 rental market and what do you expect as we head into 2024?

“I’m not a statistics guy,” answers Gary DePersia, “but based on my own rentals, I find it was a decent year although decisions were made later than they normally are and maybe for less time and slightly less money. Too early to tell for 2024, but if inventory for sale stays low, those people who cannot find houses to buy will most definitely rent. I think some houses didn’t rent because they were priced too high in reaction to the recent Covid market. Those days are over and landlords have to price accordingly.” 

James Peyton sees movement for next year’s rental market. “Quality homes are always in high demand and I’ve already done a half dozen leases for next season. Although 2023 had an unprecedented amount of rentals hit the market most were absorbed at good numbers.”

Ms. Schiaffino gets granular about what homeowners need to do in order to be competitive in the rental market. “2023 rental inventory was saturated so pricing for 2024 rental pricing should be competitive. I think it’s important that if you are going to put your home up for rent, you should freshen it up, buy new kitchenware, towels and linens. Give the home a new coat of paint and keep the interiors light and neutral. People want to feel like they are going to a luxury hotel.”