Property Grunt

Wednesday, August 02, 2006

Game of Chicken is still on

Master Appraiser Jonathan Miller has released his Second Report. Those of you who are interested can download the PDF

Curbed does an excellent rundown of this report.

One the parts that Curbed's eye was this analysis from Mr. Miller.

The phenomenon of rising prices and declining sales is a classic sign of a market in transition. The market has entered a period where the sellers no longer have a clear advantage in the typical sales transaction. Buyers were expecting a deep discount on all transactions while sellers remained fairly firm in their pricing. As a result, the number of sales dropped as the buyers who were resistant to rising prices simply chose not to participate, while those who stayed in the market paid record prices on average."

Translation: The game of chicken is still on. Sellers are either still in denial or just determined to get the best bang for their buck. While buyers are standing their ground, refusing to pay a premium. And it is not just happening in Manhattan. According to the Daily News sales have taken a hit in the Hamptons of all places.

Those fat Wall Street bonuses haven't found their way to the Hamptons.
The number of homes sold in the recreation zone of the rich and famous fell to 958 during the first half of the year, down 21%, according to a soon to be released report from Hamptons brokerage firm Town & Country Real Estate of the East End.

The slowdown came despite record bonuses paid out to Wall Streeters who bagged $21.5 billion this year, up 15.5%.

"Normally with record bonuses, people buy," Town & Country president Judi Desiderio told the Daily News. "It didn't happen this year."

While sales were down, the median price of a Hamptons home rose 13% to $900,000, according to the report.

Much of the sales activity registered at the high end, with volume of homes priced above $5 million up 18.6%. Among the big-name Hamptons buyers making multimillion deals were Katie Couric and Warner Music Group boss Edgar Bronfman Jr.

But sales were slack for less expensive properties, with transactions involving houses priced between $500,000 and $999,000 falling 24%.

"One would have expected everyone to do well, only the big boys did," Desiderio said.

All the talk of the bubble bursting, coupled with rising interest rates, had Wall Streeters sitting on the sidelines waiting for prices to go down. But sellers are continuing to hold firm on price.

Instead of buying homes, the big-money guys decided to take some of their bonus bonanza and plow it into rentals.

"We've seen the best rental market in five years," said Rick Hoffman, regional vice president of Corcoran's East End offices.

Lawrence (Chip) Porter, a broker and partner in Brown Harris Stevens' Westhampton office, said investment bankers are putting their money elsewhere. "They're buying gold and energy," he said. They've also pumped up the Manhattan real estate market.

The Hamptons slowdown comes after five years of off-the-charts appreciation. "This is a correction," Porter said.

He noted "a record number of houses on the market in the outer hamlets and north of the highway" areas farther away from the multimillion-dollar oceanfront properties.

"We used to have 15 houses on the market," Porter said. "Now we have 65 to 70."

Hoffman is seeing a glut of homes priced between $1 million to $3 million, with inventory up 60%.

But some say Wall Street execs will start to pounce on deals after Labor Day, as demand builds and interest rates stabilize.

Brokers are hopeful buyers will give in in the fall.

"My prediction is we'll see a big increase in sales when the summer ends," Hoffman said.

As most of you know, I never had alot of faith in the Wall Street bonuses. And I do not see buyers blinking unless they have a pressing demand to own a home. Sellers on the other hand are the ones more likely to be walking on thin ice. Their the ones with their money locked up in their homes and if they have an ARM or interest only mortgage then God be with them.

I can't wait to see what happens in the next quarter.