Nobody"s Buying Hamptons Mega-Mansions Because "Small Is The New Big"

Any realtor worth their salt will tell you, when it comes to the home-buying habits of wealthy hedgies and bankers, gaudy McMansions and sprawling estates are so last season.

Or, as they say in Greenwich: “Small is the new big."

Owners of large homes in tony Hamptons neighborhoods hoping to cash in on a frothy housing market before the inevitable rise in mortgage rates will be disappointed to learn that the trend of buyers favoring lower-priced homes continued in the third quarter, according to the latest Douglas Elliman Real-Estate Report. This left the high end of the market in a double-bind as supplies of new homes hit the market while sales tapered off...

Purchasers agreed to pay more than the asking price in 10 percent of deals for properties under $3.3 million -- this quarter’s definition of “non-luxury” homes, making up the bottom 90 percent of the market, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the biggest share of transactions with bidding wars since the firms began tracking the data in the second quarter of 2016.

 

In their zeal for lower-end deals, buyers snapped up condos as well. Those units -- with a median sale price of $567,500 -- were available for just 97 days on average before going under contract, the fastest clip in six years of record-keeping. On the high-end, buyers showed less interest in acquiring luxury homes than sellers did in listing them. Inventory in that top 10 percent of the market jumped 22 percent, the biggest pile-up in two years.

 

“The market is looking towards those smaller, more manageable homes,” said Carl Benincasa, a regional vice president at Douglas Elliman who oversees sales in the Hamptons. “That’s certainly been a trend we’ve been observing.”

Bloomberg, which obtained an advance copy of the report, noted that the Hamptons housing market often parallels performance in the financial industry, seeing as many buyers of luxury homes out east are wealthy finance types.

With markets at record highs, the Hamptons housing market is doing reasonably well - but buyers’ unwillingness to snap up the most expensive homes in a way mirrors the trepidation surrounding stretched stock valuations and record low volatility.

With stocks at record highs, people are in a buying mood in the Hamptons. The beachside towns on Eastern Long Island, whose fortunes are closely linked to the performance of the financial industry, had 517 total sales in the three months through September -- or 12 percent more than the 10-year quarterly average, Miller Samuel and Douglas Elliman said. Even with all that buying, inventory declined only in the non-luxury category, with listings dropping 10 percent from a year earlier to 1,143.

 

Deals for less than $500,000 fell 12 percent to 57 -- because there weren’t many such properties available, Town & Country Real Estate said in its report on Hamptons. But sales of homes priced between $500,000 and $999,000 jumped 22 percent to 131, and those between $1 million and $1.99 million climbed 12 percent to 76, the brokerage said.

One realtor noted that inventory is thinnest in the under-$1 million category, which has forced some buyers to the next rung of the market.

“When you look at the inventory under a million, that’s the largest shortage, so buyers stepped up to the next level of the market,” said Ernest Cervi, a senior vice president at Corcoran Group, which released its own report Thursday.

One couple recounted their struggle finding a new home in the Hamptons for under $1 million after selling their old home for $1.4 million.

For Brian DeSesa, it was much easier to sell his under-$2 million home than it was to buy one in that price tier. Sensing the market demand for lower-cost properties, he and his wife listed their three-bedroom Sag Harbor Village house in June at $1.45 million. It went into contract in July, to a buyer offering $1.35 million but willing to pay all cash and close within 14 days, said Jessica von Hagn, the Brown Harris Stevens broker who marketed the property.

 

Then came the hard part: finding a new house in the area for less than $1 million. The couple bid on at least three such properties, offering the asking price each time and getting outbid within hours, said DeSesa, 36, a land-use attorney with the Adam Miller Group in

 

Bridgehampton. On the next try, they offered the $795,000 asking price on a ranch-style home -- and then, in a second round of bidding, offered $860,000, which won them the deal.

 

“It’s pure competition,” von Hagn said. “At the $1 million mark, you’re competing with year-rounders trying to live out there, you’re competing with builders who are going to tear it down, and you’re competing with flippers.”

To be sure, there were still some ultra-luxury deals in the quarter, including two for more than $20 million, the same as a year earlier, Bloomberg reported. Purchases between $5 million and $9.99 million plummeted 56 percent to just 11. Sales were up 30 percent in Bridgehampton, with six deals over $10 million, but plunged 29 percent in the Sag Harbor area, where none of the 17 transactions were for more than $5 million.

Of course, as we noted last quarter, “smaller” in the Hamptons is purely relative, because apparently there’s nothing more modest among today’s Hamptons set than trading a 13,000 square-foot home for an 8,000 square-foot home.
 

Purchases Of US Real Estate By Foreigners Hit All-Time High In 2016

In a testament to Chinese oligarchs, criminals, money launderers and pretty much anyone who is desperate to park their cash as far away from the mainland as possible, purchases of US real estate by foreign buyers surged to an all-time high in 2016, according to data from the National Association of Realtors via CNBC.

Foreign purchases of US residential real estate surged to the highest level ever in terms of number of homes sold and dollar volume last year, with Chinese buyers leading the pack, followed by buyers from Canada, the United Kingdom, Mexico and India. Meanwhile, Russian buyers made up barely 1 percent of the purchases.

Foreign buyers closed on $153 billion worth of US residential properties between April 2016 and March 2017, a 49 percent jump from the period a year earlier, according to the NAR. That surpasses the previous high, set in 2015. Foreign sales accounted for 10 percent of all existing home sales by dollar volume and 5 percent by number of properties. In total, foreign buyers purchased 284,455 homes, up 32 percent from the previous year.

According to CNBC, the increase in home sales comes as a surprise, given the dollar’s relatively expensive valuation versus both developed and emerging-market currencies. Half of all foreign sales were in just three states: Florida, California and Texas.

Aging Canadians buying property in Florida and other warmer climates were responsible for the largest increase of buying activity from any one country.

“But the biggest overall surge in sales in the last year came from Canadian buyers, who scooped up $19 billion worth of properties, mostly in Florida. They are also spending more, with the average price of a Canadian-bought home nearly doubling to $561,000.

‘There are more [baby] boomers now than ever before. It"s the demographic,’ said Elli Davis, a real estate agent in Toronto who said she is seeing more older buyers downsize their primary home and purchase a second or third home in Florida. ‘The real estate here is worth so much more money. They all have more money. They"re selling the big city houses that are now $2 million-plus, where they went up so much in the last 10 to 15 years, so they"re cashing in.’”

Mexican buyers nearly doubled their purchases by dollar volume from a year earlier, coming in third behind China and Canada. Though Adam DeSanctis, economic issues media manager at the National Association of Realtors, said "you could easily make the point that perhaps their uptick was wanting to buy now before new immigration policy was in place.”

In general, though, Mexicans have been buying less expensive homes.

“The average purchase price of buyers from Mexico came in at about $327,000, compared with the $782,000 average among Chinese buyers and $522,000 for Indian buyers. Mexicans overwhelmingly favored homes in Texas, while Chinese buyers opted more for California and, increasingly, Texas.

‘The environment is much more Asian-friendly than it used to be with churches, grocery stores and schools that cater to their tastes,’ said Laura Barnett, a Dallas-Fort Worth area Re/Max agent. ‘I have been told they target good schools and newer homes. Yards are not a high priority, but rather community parks.’”

In a sign that home valuations in America’s most populous state might be nearing a peak, some Chinese are being priced out of California, forcing them to buy property in...Texas.

“It"s also possible that Chinese buyers are being priced out of California. The average price of a home purchased by a buyer from China fell from about $937,000 to $782,000, even as the number of properties purchased jumped to nearly 41,000 from 29,000. The drop in purchasing power likely stems from tightened regulations in China with regards to capital outflow.”

As we’ve reported, Chinese authorities trying to stem the capital flooding out of their country adopted new currency controls specifically aimed at stopping Chinese nationals from illegally repurposing money to buy real estate. Those took effect early this year. Because of the new restrictions, CNBC says Chinese demand is beginning to wane – which could be catastrophic for home prices. Luxury markets in cities like New York City are already struggling with high vacancy rates. The recovery in home prices since the crisis has been uneven, but expensive coastal markets like New York and San Francisco experienced massive home-price inflation as younger Americans flocked to urban areas. However, if foreign demand weakens, these markets could be poised for a crash as fewer residents can afford to own their homes.

And of course, there’s the Trump factor…

"Stricter foreign government regulations and the current uncertainty on policy surrounding U.S. immigration and international trade policy could very well lead to a slowdown in foreign investment," said Lawrence Yun, chief economist for the NAR.

But if Chinese oligarchs are now out of the US real-estate game, who’s going to pay $150 million for this 14-acre parcel of beachfront property in the Hamptons?