Dan's Papers - May 9, 2008 - Boom? Bust? Trend!

The media love a crisis, and barring that, they'll accept the next best thing: a trend. And so will readers. A single story is once and done - a first and last date. A trend is a relationship. It's a daytime TV drama that hooks you in. That's great for readers and papers. Trends give people a sense of security in their predictability. And the comfort of being "in on" a benign trend quadruples when it comes to predictions on finances and the economy.

When there isn't a crisis or a trend, journalists may create one. It happens to us all: You find out about something that's a kernel of a story, something that hasn't been reported to death, or even reported at all. Aha! A trend! You try to find corroborating stories and if your ethics aren't squeaky clean, you conveniently ignore information to the contrary.

This paper, of course, never stoops to such tactics. And covering the real estate beat (as I have for the last three years on the East End), I try to stay away from stories based on a few statistics, national trends (which have little to do with the East End market) or a few brokers' opinions. This is especially important out here, where real estate is to the community what entertainment is to Los Angeles. This is a company town, and the product is real estate. The people here, whether buyers, sellers, brokers or visitors (oh, and the ones who actually live here who think of their houses as homes rather than investments), don't want to hear that the plant is shutting down or in financial straits.

While the country was bemoaning the fallout from the mortgage crisis, plummeting housing prices and a dead market, some East End real estate agents were brokering deals left and right, as folks from New York and beyond who were in good financial standing and had been toying with the idea of entering the real estate market saw the situation for what it is: an incredible investment opportunity due to price corrections.

So now, here we are, through the first quarter of 2008. And two respected agencies - Town & Country Real Estate and Prudential Douglas Elliman - have produced their real estate market reports for the East End. Are there trends? Yes. Are they going to continue? Maybe. Is it good or bad? Depends on whom you talk to.

The numbers from Prudential and Town & County didn't quite jibe in all areas, so more of Prudential's story will be revealed in a special segment next week. Don't forget to tune in! But let's at least begin with Prudential's first quarter stats, which included some interesting breakdowns like the number of houses on the market and how long they sat before being sold. There's 27% more inventory this year compared to the same quarter in '07. And not surprisingly, properties are taking longer to sell now - from a little over four months in '07 to six months in '08. An eternal optimist would see this as a positive trend: Houses are selling! But chances are if your neighbors annoy you, and they've recently put their homes on the market, there's a good probability that they'll continue to annoy you for a while.

Town & Country CEO Judi Desiderio opened her report with this statement; "Those who know me will tell you I'm a passionately positive person, the glass is always half full...but even I am having difficulty putting a positive spin on the First Quarter statistics for 2008."

Desiderio reports that the number of actual home sales in all 11 South Fork markets declined - by 48.5% compared to the first quarter of '07. Percentage-wise, East Hampton area (including Wainscott) fared the worst, with a 61% decline in the number of transactions compared to the same quarter in '07; Bridgehampton (including Water Mill and Sagaponack) followed, with a 60.4% drop; and Shelter Island was next, with a 58.8% decline in sales. North Fork showed a similar pattern in number of sales, according to Town & Country's report. Overall, North Fork markets revealed a 45.5% decrease in the number of sales, and total sales volume was cut by 56.5%.

Southampton area (including North Sea but excluding the Village) had two distinctions: the smallest change in total sales volume, down 17% (about $10 million); and the smallest dip in median price of a home, down just 4%. Sag Harbor had a dubious distinction: It showed the biggest dip in median sales price - from $1.35 million in '07 to $862K in '08. For those who bought there last year, well, hope you plan to stay for a while. It's a lovely place to live, after all.

What's most interesting in the South Fork market are the changes based on price point. The very top and the very bottom of the market showed the smallest percentage of change in number of houses sold. Based on Town & Country's numbers, sales for houses priced under $500K inched down by only 9%. The really big-ticket items - houses priced over $5 million - dropped by 38%. The price point showing the largest decrease in sales are houses between $3.5 and $5 million. Buyers are taking a McBreak from the McMansions.

The reason for the teeny slippage on the low end? "Availability," said Desiderio. "There's hardly any inventory in the $500K or less category." As far as the relative stability in that $5 million-plus market? Well, I'd say that falls under the 'you either have it or you don't' category.

And everything in between? "We've been hit across the board," said Desiderio. "The East End has been somewhat insulated, but it's in our face now. A home in the Hamptons is a luxury item. When people tighten their belts, luxury items go. But here it might be, 'We don't need that $10 million house, honey, let's get one for $3 million.'"

Desiderio also pointed out that the numbers we're looking at are actually reflective of activity from 3-6 months ago - considering the time it takes between offer, closing and reporting.

"What we're looking at is the bleakest time period, the winter that just passed," she said. "If there's a silver lining, it's that we've been very busy with sales and leases since January. In this case, I'm saying, with a little hesitancy, most of the worst is behind us."

Aha! Is this a new trend? Yes! An upturn? Yes! The beginning of the real end? Yes, yes! To whichever it turns out to be. And remember, you read it here first.