Here at the end of 2023, we find that the Hamptons real estate marketplace is not truly immune from the pressures of interest rate hikes. Hamptons Real Estate Showcase spoke with Robert Nelson, Executive Managing Director of Brown Harris Stevens of the Hamptons to discuss the most recent BHS Hamptons Market Report and Mr. Nelson’s thoughts on Hamptons real estate as 2023 draws to a close.
HRES led off the conversation with a discussion of the inflation/interest rate conundrum confounding the US housing market. In response to waning Covid fears and the resulting strong jumpstart of the economy, the Federal Reserve has focused on reducing inflation to the effect that it has raised the key federal funds rate 22 times in the past 18 months. Many economists and real estate professionals believe that the Fed’s actions are jeopardizing the housing market. “We have become a fixed rate country, the majority of loans are fixed rate,” explained Mr. Nelson. “Potential sellers are staying put because we all love our low fixed rate mortgages. Despite the actions of the Federal Reserve, however, in the past few weeks, mortgage rates have started to drop – enough of a drop to where homeowners feel like they can refinance and where homeowners will start to move. The housing market is all about perception – and when people’s perceptions change, then the market will begin to change as well.”
HRES and Mr. Nelson went on to discuss market pressures more specific to the Hamptons, using the closing of 700 Meadow Lane as an example. In the first week of November, 700 Meadow Lane in Southampton closed as the highest-priced sale of 2023. Originally listed in 2021 for $175 million, the price was reduced to $135 million earlier this year before closing at $112.5 million – the latest property to sell for over $100 million and surpassing the 2021 sale of 90 Jule Pond Drive in Southampton in 2021. Despite the nearly 25% reduction, the price marked the most expensive listing in the Hamptons. “Clearly the purchaser felt that it is a good time to make that sort of investment in the Hamptons,” said Mr. Nelson. “This is a purchase by the extremely wealthy, and if those with that kind of money didn’t feel it was a good time to invest, then they just wouldn’t. Of course, there’s less of an impact when transactions are all cash. But let’s remember one thing: the top 10% are reading the headlines and headlines do affect ‘cocktail party talk.’” The discussion then turned on the notoriety of the Hamptons. “It’s a famous, but very small market.”
Mr. Nelson’s latest Hamptons Market Report comments that the “[Hamptons] market is entering a more stable period.” When asked by HRES to unpack this comment, Mr. Nelson was quick to add that he was referring to the Covid years, which were not the norm. “That’s compared to the Covid years, which were just not normal. Covid purchases were just not normal. Real estate professionals never worked so hard to sell so much so quickly as they did during the pandemic. Purchasers needed a place to hunker down, especially city dwellers moving from apartments to single-family homes.”
If the market is becoming more stable, is the lack of inventory easing? “Yes,” responded Nelson. “Inventory is building, but not at the speed as before. Supply is still low as opposed to pre-Covid. However, buyers are beginning to have a selection of homes to look at – as opposed to the Covid period. But it’s still not enough.” When asked how the market gets to enough, Mr. Nelson was very specific. When the public sees interest rates as stable at a manageable rate, we will see movement to listing and participation in the marketplace to meet sellers’ demands. For now, downsizers are not moving because many don’t want to give up favorable low rates.
And what about pricing? “We are seeing multiple offers on correctly priced properties,” confirmed Nelson. Properties that are moving are closer in line to actual values. The market today is seeing double, triple number of price reductions because ‘aspirational’ prices are not being met.”
What makes for aspirational pricing? “Every property is different, every home is different,” Mr. Nelson explained. “Some asking prices are out of sync with value because neighboring properties are so different. Comps show one price, but maybe your next-door neighbor sells for a much higher price, so a seller thinks his or her home is worth more than the comps actually show.”
What’s the takeaway for 2024? Mr. Nelson wrapped up with a very positive viewpoint. “All I know is when I take my graph and project forward, the Hamptons is never losing money. A lot of property has been preserved, look around at all the lovely farms and other preserved land. We have the ocean on one side and bays on the other and the area is world-famous. The Hamptons are a great long-term investment.”