Hamptons, North Fork markets fall back to Earth
The residential real estate markets in the Hamptons and North Fork are cooling after record activity during the height of the pandemic. New signed contracts for single-family homes in the Hamptons in February were down 45.5 percent year-over-year, while new listings held steady, declining by just 1 percent, according to a Douglas Elliman report by Miller Samuel. “We’re coming out of a heady 2020 and 2021 back to a more normal level,” report author Jonathan Miller said. “It’s not weakness, it’s lack of supply.” In North Fork, 32 contracts were signed last month, one fewer than a year ago, and listings were up 78 percent. While that increase might seem to point to a hot market, Miller said it’s indicative of a return to normalcy: North Fork listings all but disappeared at times last year. Supply in both markets was eaten away by two years of record and near-record activity, as Long Islanders and wealthy New Yorkers sought more spacious, isolated properties or just accelerated homebuying plans in response to the pandemic and low interest rates. Now the lack of supply is constraining listings and sales. North Fork and the Hamptons are seen as separate from each other and the rest of Long Island because they serve as second-home communities for many Long Islanders and New York City residents. Changes to federal SALT deductions and the arrival of New York’s mansion tax created a soft market in the Hamptons before the pandemic, yielding a glut of inventory. Things have gone the other way since. “The pandemic era is characterized not by a decline in inventory but a collapse in inventory,” Miller said. “The collapse has been caused by insatiable demand and a structural change in the way the Hamptons is perceived: It’s a co-primary market now instead of a luxury, second home market.” Signed contracts decreased year-over-year across all price ranges last month in the Hamptons, while new listings saw volatility between the different tranches. There was an increase in homes listed for $5 million to $10 million and homes listed at $1 million to $4 million. The biggest decrease came near the top of the market, with homes listed from $10 million to $20 million falling by 58.3 percent. In North Fork, contracts signed for homes listed for $1 million to $2 million rose to 13 from eight in February 2021. No homes were listed under $500,000, compared to three last year, and only one was listed for $2 million to $4 million, compared to four last year. There are very few condominiums on the North Fork. In February, one contract was signed for a condo, the same as February 2021, and listings for condos fell to two from four.
House prices are going up. Here’s when you should increase your budget, and when to stick to your original price
Prior to the pandemic’s red-hot housing market, there was a simple profile that constituted an “A” buyer, according to Brian Copeland, a realtor in Nashville, Tennessee. “Four years ago, an ‘A’ buyer was someone who was pre-qualified for a loan, had 3% down and could go out this weekend and buy a home,” said Copeland, who is also president of the industry association Greater Nashville Realtors. “Now, an ‘A’ buyer has all cash.” In addition, the top buyers today are willing to waive appraisals and inspections and, in some cases, don’t even view the house they’re purchasing in person, he said. Prices are going up Americans are aware of the struggles they face in buying a home. More than 70% of U.S. adults believe the housing market is currently in a bubble, and more than half say it’s a bad time to buy a home, according to a survey of more than 7,000 adults from Momentive. Price is a major factor that’s keeping potential buyers on the sidelines – some 38% said they have delayed or canceled plans to buy a home due to inflation. People of color were also more likely to push off a home purchase due to rising costs, the survey found. “More scuttled or delayed plans to buy among these groups threatens to exacerbate already wide gaps in homeownership rates along racial and ethnic lines,” said Jon Cohen, chief research officer at Momentive. In February, the median sales price for homes in the U.S. was $357,300, a 15% increase from a year earlier, according to data from the National Association of Realtors. At the same time, mortgage rates are also increasing, which means buyers that need loans will pay more for them as well, said Danielle Hale, chief economist at Realtor.com. That can hurt younger consumers, as well as first-time buyers, according to Hale. It also means that homeownership as a path to building wealth is now out of reach for many. “It’s a very competitive market for those who are shopping at the top of their budgets,” said Peter Murray, a realtor and the principal broker at Murray & Co. Real Estate in Frederick, Maryland. “There’s a lot of disappointments.” The money math Some homeowners may be tempted to stretch their budgets to purchase a house, especially if they’ve had months of searching and being outbid. It can make sense in some cases to stretch your budget, according to Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. “There are situations when I have told people it’s okay to stretch, but just understand the impact that’s going to have on other areas of your life,” she said. For example, it could make sense to pay slightly more if moving will lower other expenses, or if you’re anticipating lifestyle changes that will free up room in your monthly budget. This could include going from two cars to one, or having children who will soon enter public school, meaning you’re no longer paying as much for childcare. If you’ve calculated your budget using your base salary, not including any bonuses, you may also be able to afford more, she said. And, if you don’t have consumer debt, are adequately saving for retirement and have a solid emergency fund, there may be more wiggle room than you think at first. The amount of time you expect to spend in the home also matters. If you’re looking to live in a house for more than five years, it may make sense to pay slightly more now. When not to stretch On the flip side, there are some situations where it does not make sense to increase your homebuying budget. Cheng says stick with your original plan if paying more would make it difficult to contribute to other financial goals, such as saving for retirement or paying down debt. “If the only way that stretch is going to happen is if they borrow from retirement money, I would probably say that doesn’t make sense,” she said. She also cautioned against wiping out all your cash savings to afford a more expensive home. You need to budget for variable costs such as taxes, insurance and repairs. It also doesn’t make sense to stretch your budget to a point where you can only afford it with tax breaks, said Cheng. If those benefits go away in the future, you’ll be in trouble. What to do if you can’t pay more Buyers who can’t stretch their budgets have a few options. “They either pause their home search or they need to readjust their search criteria,” said Murray. Stepping out of the buying market might make sense for some who need more time to save. It could also be a bad idea, however — if prices continue to rise, you could be further priced out of the market, said Copeland. That means rethinking your must-haves might make more sense. That includes looking at different neighborhoods, including ones that aren’t as popular or might be farther away from city centers. They may also need to be flexible on the size or condition of the home they purchase. They should also have all of their paperwork ready to go so that when they do see a house they like, they can make an offer right away, said Hale. “To be competitive in this market, you could throw more money at the problem or you could be really prepared and on top of it,” she said. Working with a financial planner or advisor can help homebuyers understand what they can really afford to spend on a house, said Cheng. “The loan officer is going to be really helpful in helping you structure your loan, the realtor is going to help you find a home,” said Cheng. “You might think having a financial planner is over the top, but they are going to really help you see how this affects your situation.”
Russia’s war stalls US real estate deals
Long before Russia invaded Ukraine, supply chain challenges were driving up construction costs and inflation concerns were setting the stage for higher mortgage rates.Now, just as recovery from the pandemic seemed within reach, Vladimir Putin's war has the U.S. real estate industry bracing for its impact.Prices are rising further - reinforcing the Federal Reserve's desire to push up interest rates - and global uncertainty is putting some commercial deals on hold.The biggest immediate threat the crisis poses to U.S. commercial real estate is the ripple effect of a Russian financial crisis.When the country's central bank defaulted on its debt in 1998, it triggered an international contagion, although on that occasion the effects were short-lived, according to Real Capital Analytics' Jim Costello."The market at the time paused because suddenly financing dried up for a little bit," he said, noting that borrowers were able to find other sources of capital."The market ran right through that."Like the Trump administration's tariffs on China, the Ukraine conflict is a strike at the atmosphere of free trade that has fueled real estate for decades, Costello said.Nations have responded to the invasion by isolating Russia economically, severing connections between the East and West.On Thursday, a Deutsche Bank executive said it was not "Practical" to end its operations in Russia."We are in the process of winding down our remaining business in Russia while we help our non-Russian multinational clients in reducing their operations," the bank said in a statement."There won't be any new business in Russia."The construction industry's pandemic issues have been well documented.Despite Ukraine's relatively minor role as a U.S. trading partner, the conflict is expected to further drive up costs and complicate project timelines.Last-mile properties, perhaps real estate's hottest asset class, will see even greater interest from investors as businesses seek to reduce delivery times by using distribution centers closer to consumers."This will only further put pressure on industrial real estate demand," said Healy.Russia is among the world's top producers of nickel, steel and aluminum, and the war has roiled markets for construction materials.Nickel, used in steel and lithium batteries, hit an all-time high of more than $100,000 per ton on March 8, causing the London Metal Exchange to halt trading on the material for the first time in three decades, according to Bloomberg.Sanctions have also caused spikes in aluminum and copper prices."There's no sign that those prices are coming down," said John Robbins, who heads U.S. real estate for construction consultancy Turner & Townsend."We are going to see a very, very rocky supply chain to come."Robbins said suppliers have started tacking on fees for heightened fuel costs, and construction managers are condensing the time frames in which they will guarantee a total contract price.The immediate impact in the U.S. largely boils down to inflation: To curb rising costs, the Federal Reserve is expected to raise interest rates, perhaps more aggressively than originally planned.It raised rates by 25 basis points on Wednesday, a move that had been expected was the first increase since 2018, and signaled six more hikes to come this year.Bidders in some markets lined up for hours to tour any reasonably priced home.Higher mortgage rates are adding to homebuyers' woes.The average rate last year was 2.96 percent.The Federal Reserve is largely expected to follow through with its planned rate hikes this week, but "Uncertainty about the war in Ukraine is driving rate volatility that likely will continue in the short term," Sam Khater, Freddie Mac's chief economist, said in a statement.For now, buyers still largely view rates as relatively low, said Taylor Marr, an economist at Redfin."There's a little bit of fluctuation from week to week, but overall we are seeing demand hold up," he said in an interview.The housing market could still feel the ripple effects of the crisis.Higher gas prices could cool demand in certain markets, Marr wrote in February, and declining stock prices could cut into buyers' ability to sell assets for down payments.According to a recent report by the National Association of Realtors, oil-producing states, including Texas, Alaska, Colorado, Wyoming, North Dakota, New Mexico and Oklahoma, are expected to see job growth as drillers increase production, in turn driving housing demand.The crisis has economists and central banks on watch.Rate hikes are used as a check on inflation, and more broadly as a hedge against uncertainty.The invasion has already paused some bond deals, including $1.5 billion in commercial mortgage-backed securities financing for Deutsche Bank's new headquarters in Columbus Circle.According to Bloomberg, the deal at the Related Companies property is expected to proceed when market conditions improve.Manus Clancy, a structured finance expert at Trepp, which tracks securitized mortgages, said that while some CMBS deals have been paused, no conduit deals - CMBS deals with multiple loans - have been delayed."Lenders are being more judicious."
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