Dan's Papers - August 8, 2008

Back in 2001 it was tough for me to sell $1 million worth of mutual funds to clients when the forecast was that the fund may grow by minus-10% that year. In other words, a year later the million would be worth $900,000. Thus is the situation many Hampton realtors are facing because, according to recent statistics from a report commissioned by Prudential Douglas Elliman, the median closing prices for homes in the Hamptons has fallen 11.2%. (Median is not the average price of homes sold, but the very middle of the market of sales volume where half the homes traded for more, half traded for less.) In the same timeframe, homes that were worth or closing at $1.1 million are now closing at $970,000. However, on the North Fork, where the median price last year was $535,000, it has risen 13.1% to $605,000. A realtor who couldn't go on record due to company rules said that the lower prices of the homes on the North Fork are attracting the buyer because the median home sale is about half a million dollars less. It's the opportunity it was on the South Fork six years ago - more affordable for a second home.

As far as activity this year versus last year, statistics released by Assemblyman Fred Thiele show that the number of transactions, meaning home sales, is down to 754 for the first seven months of 2008, compared to the same period in 2007, which showed 937 sales. That is a decrease of 19.5%. The same period in 2005 had sales at 1,199 homes with the sales slide starting in 2006 with 937 sales. Data from Town and Country Real Estate's website also supports this trend. Assemblyman Thiele was not going out on any thin limb when he said in a statement released by his office that, "It is clear that the national economic slowdown and housing crisis are finally impacting the real estate economy on the East End...there can be no doubt that real estate activity has now slowed significantly."

So what are some of the effects? Supervisor William McGintee's aide Lynn Ryan said it has affected the budget of the Town of East Hampton because it has resulted in lower revenues. For example, the amount of money from the county mortgage tax is down around 42-49% from last year, a decrease of more than $200,000. Taxes will likely go up to compensate for this shortfall alone, not to mention additional funds needed for increased cost of fuel, medical coverage, and other goods and services.

Less activity and falling home prices have also affected the Community Preservation Fund with revenue collected by the Town of East Hampton for the fund down 49.6% as compared to the same period from last year. Amazingly, Southold is actually up - by a mere 1%. Just four years ago the towns' CPF share for East Hampton was $25.5 million. Last month the total YTD was $8.35 million. Southampton collected a record of $51.06 million in 2005 for the CPF, and just $21.8 million so far in 2008. The declines in CPF funds raised cannot be seen as a good sign for towns that were hoping to use 10% of the gross proceeds for operating costs of both the administration of CPF purchases and overhead for purchased properties. The new amendments to the CPF law signed by Governor Paterson addressed these concerns but declining revenue may have to be readdressed if such negative trends continue.

So the real estate bubble has officially burst on the East End of Long Island. However, there are many wonderful, beautiful homes for sale. It's certainly not the time for "quick buck" real estate speculators (who probably had more to do with creating the bubble). But, historically, real estate has been a safe long-term investment, which is not music to the ears of quick-buck artists who disrupted the natural movement of the market. Once again, strong hands are purchasing, using proper funding methods, taking advantage of the great opportunities that are out here with the high inventories. The truth is the best investments are made when the market is weak. At the moment, the housing market on the East End is showing signs of weakness. So for those who talk the talk of, "Buy low, sell high," this is the perfect time to walk the walk.