In May last year, just as warmer weather hinted at the onset of summer season, Elyn Kronemeyer and her husband listed the three-bedroom property that they rent out in the Hamptons for $4.23m.
“We priced it rather optimistically, just because it’s a very special property,” says Kronemeyer, a local estate agent who lives near her rental, which is in an upmarket area of Southampton known as the Estate Section.
“Normally, to have a small property in that area, south of the highway and with easy access to the beach, that would be a pretty quick sell,” she says.
More than a year later, the home is still on the market, and the couple, who own several properties in the US, have just made their second price reduction — to a shade under $3.5m.
The housing market in the Hamptons, the string of picture-postcard, Long Island villages and hamlets around Southampton and East Hampton, which has provided summer relief for generations of wealthy New Yorkers, is in a hole. According to Douglas Elliman Real Estate, the number of home sales during the first quarter fell 19.3 per cent compared with a year earlier. This was the fifth consecutive quarter of falling numbers — and the lowest number for first-quarter sales in seven years. The median sales price of a single-family home was $860,000 between January and March, a 7.9 per cent fall compared with the same period a year earlier.
Listings in the prime market have expanded rapidly, increasing during each quarter for the past six quarters. At the same time, the number of sales at or above $10m during the first three months was equal to the lowest of any quarter in the past six years.
There are several possible reasons for the slowdown. Downsizing baby-boomers from New York are increasingly moving to lower-tax states, such as Florida. Added to that is the relative distaste — and inability — of millennials to buy second homes. Downward pressure might also be coming from the New York financial sector: average annual bonuses fell 17 per cent last year compared with 2017, according to estimates by the New York State Comptroller. It was the first decline in three years.
However, Jonathan Miller of real estate appraiser Miller Samuel, blames tax changes brought in by president Donald Trump which included a cap of $10,000 on the amount of state and local taxes (including property taxes) that could be deducted from federal income tax. In high-price, high-tax states such as New York, this has resulted in some homeowners spending thousands more in tax every year, and has caused a stand-off between buyers and sellers. “Everyone is pointing to the sellers and waiting for them to capitulate,” says Miller.
Tim Davis, a broker at Hamptons agents Corcoran, agrees. In the past, the prestige of the Hamptons has made the housing market immune to sudden drops in price, he says. “But there is a certain amount of concern about changes in tax laws, and that causes people to think hard about their ownership.”
One of the problems with the Hamptons, says Miller, and the north-east in general, is that the tax changes affect the market more because homes are so much more expensive than in the rest of the US. “Most of the north-east is a high-cost, high-tax housing area,” he says.
In the meantime, people who would otherwise be looking to buy in the Hamptons seem to be holding off. “This year, the volume of rentals has far exceeded anything I’ve done in the past 20 years,” says Rylan Jacka, a Hamptons agent with Sotheby’s International Realty. “Everyone comes out here every year regardless of what’s happening in the world, but a lot of buyers are putting their purchases on hold and renting.”
Davis sees signs of sellers accepting the need to lower expectations. “They have become more realistic about pricing. They have been on hold for two years, but now seem more ready to adjust so that they can move on.”
He says waterfront properties on the north side of Long Island’s South Fork are becoming popular, as are properties within walking distance of the village centre. “The convenience of being able to walk out the door and go to a great restaurant has become important,” he says.
Davis is listing a four-bedroom traditional home on 0.4 acres in Southampton for $3.45m. He also has a five-bedroom, shingle-sided home on the Bay on nearly seven acres of land for $29.5m.
But Miller says it could be some time before transactions pick up again in the Hamptons because sellers are often
disconnected from the realities of the market. “It could take another six months or a year for sellers to capitulate,” he says.
Trump’s tax cap proves uncomfortable for the wealthy
Andrew Cuomo, governor of New York, has said president Donald Trump’s $10,000 cap on federal deductions to state and local taxes (known as Salt) are politically motivated.
In February, he described the reform as a “diabolical political manoeuvre” that amounted to a declaration of “economic civil war”. This, he said “literally restructured the economy to help red [Republican] states at the cost of blue [Democratic] states”.
A paper published in April by the Federal Reserve Bank of Atlanta found that the 10 US states that would make the smallest gain in spending from the tax reform all tended to vote Democrat. What is more, seven of the 10 states that deducted the most tax in 2014 voted blue in the most recent presidential election.
Whichever way they vote, the richest will lose out the most. Roughly 57 per cent of the tax burden will be borne by the top 1 per cent of earners nationally, according to estimates by the Tax Policy Center, a Washington DC-based think-tank.
“There are some houses in East Quogue [in the Hamptons] valued at around $5m that are now paying an extra $65,000 a year in taxes,” says Joseph Packard, an associate at Schroder & Strom, a real estate tax attorney based in New York. “A lot of people are really upset.”
Trump has indicated he might be willing to compromise. In February, he told regional reporters that he was “open to talking about” revisions to the $10,000 Salt cap.
- Property taxes in the US vary from state to state, and are based on the assessed value of the home
- In the Hamptons, taxes are paid to either Southampton or East Hampton town. Homes in incorporated villages or hamlets pay additional taxes
What you can buy for . . .
$3.5m A three-bedroom home in Southampton
$50m An eight-bedroom oceanfront estate on five acres of land
More homes at propertylistings.ft.com
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