Hamptons again warmed by Wall Street’s glow
The latest platinum earnings report from Goldman Sachs is one way to see the strength of Wall Street’s rebound from the financial crisis. For another, just visit the Hamptons on Long Island’s South Shore.
On a recent sunny Saturday, a Bentley and a Ferrari were parked outside the East Hampton boutique of fashion designer and New York socialite Tory Burch. Inside, store manager Megan Ruddy was hustling between well-heeled customers examining $600 handbags and gold-buckled shoes.
“It’s going to be a good summer,” she said. “Everyone is sick and tired of holding on to their money.”
No place’s fate is more tied to the fortunes of Wall Street than the Hamptons, a string of beach towns frequented by bankers and hedge fund managers fleeing Manhattan’s muggy summers. The spring house-hunting season is telling, coming as it does after the banks hand out their annual bonuses, which account for the vast majority of Wall Street pay.
A year ago, with the economy depressed, the stock market in the dumps, banks still licking their wounds from mortgage-related losses and bonuses nearly cut in half, the housing market here dropped dead and a gloom permeated the beach clubs.
All that has changed. The bonuses distributed by Wall Street have rebounded sharply — and so has the Hamptons real estate market, with the average home price surging to $1.75 million early this year, up 33% from a year before, according to data compiled by appraisers Miller Samuels.
“After people got their bonuses, they said, ‘OK, things are going to be normal again,’ ” Manhattan securities lawyer Daniel Scotti said while checking out a recent open house for an estate listed at $25.9 million in the Hamptons town of Sagaponack.
With their picturesque dunes and well-tended golf courses, the Hamptons have long been the summer playground of choice for New York’s elite. Paparazzi stake out polo matches and beach parties in search of the many celebrities who keep homes in the area, including Madonna, Steven Spielberg, Martha Stewart and Jerry Seinfeld.
As such, the Hamptons would never be confused for Southern California’s Inland Empire or other areas smacked hard by the housing crash. Even so, the Hamptons are still not quite back to where they were pre-crisis.
In East Hampton, the main shopping drag is still dotted with empty storefronts. The inventory of homes for sale is bigger than it was a year ago, and prices remain markedly below their 2007 peak. After Billy Joel and his third wife separated, the singer sold a house in Sagaponack this spring for $10 million, or $1.6 million less than he paid in 2007.
“Before it was all unbridled appreciation — you’d buy something for a million, and it would immediately be worth $3 million,” said Paul Brennan, who is in charge of the Hamptons area for Prudential Elliman Real Estate. “All that has stopped.”
Perhaps the biggest wild card is the stock market, the biggest source of the money that gives the Hamptons its green tint. Recent volatility in the markets, combined with the European debt crisis, could end the party before it really gets going.
That said, the atmosphere is less gloomy this spring, locals agree.
“There’s a real sense of confidence — at least out here,” said Adrian Berger, a saleswoman at Tennis East on East Hampton’s main street.
A year ago, Berger said, “people got by with last year’s tennis outfit.” This year she’s seeing a renewed willingness to gear up for the courts.
Scotti, the securities lawyer, bought a property in the Hamptons in 2007, at the height of the market. When the stock market crashed, he said, he expected to wait a long time until he could sell without taking a loss. But this year, before even putting the house on the market, he was offered $2.8 million for it — several hundred thousand dollars more than he paid.
And then, when Scotti went house-hunting in March, he ended up in a bidding war with four people on a property in East Hampton on the day it was listed.
Even in the Hamptons there is a rich/poor divide of sorts, and the recovery so far appears to be one of the rich getting richer. The sharpest gains in housing prices in the last year have come at the high end of the market. At the low end — in the Hamptons that’s below $800,000 — buyers have had trouble getting mortgages approved, agents say.
“I don’t want to be a bank basher, but the banks are being very cautious about giving loans to people at that level,” said Tom Griffith, a broker at Corcoran, a Manhattan-based real estate firm with offices in the Hamptons. “I had a customer who was willing to put down 50% and the bank said no. It’s the guys with all cash who are having no trouble.”
In the bargain-basement Hamptons — north of New York 27 and thus farther from the beach — prices rose 19% from a year before, while south of the highway, the rise was 86%.
Unlike in much of the rest of the country, housing demand here stayed fairly strong right up until Lehman Bros. went bust in the fall of 2008, setting off the worst of the financial crisis. That made the subsequent real estate downturn striking, with both prices and the number of homes sold plunging.
“It made no difference what you priced your product at, there was absolutely no market,” said Alan Schmurman, a lawyer and developer. “It was as if people who had money decided to make no financial commitment because the future of financial investments was unknown.”
The change this spring was all the talk among real estate agents at a recent event in Manhattan put on by Corcoran to promote its Hamptons inventory.
Caterina Proner told of one couple who asked her to sell their home last year when the bonuses dried up. The house didn’t sell, and when bonus season came around this year they went back to Proner.
“All the sudden they are back and saying, ‘I want to keep it,’” Proner said. “A bonus means a summer house.”