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Home sales and prices tumbled in 2019’s first quarter in the Hamptons, the summer playground for Wall Street bankers and Hollywood glitterati.
Sales of single-family homes dropped 18% compared to a year earlier and the median price fell 8%, according to a report from Miller Samuel and Douglas Elliman Real Estate.
The inventory of homes on the market almost doubled as potential buyers hung back, said Jonathan Miller, president of Miller Samuel. Uncertainty over the fallout from the new federal tax code making it more expensive to own luxury properties is the main culprit, he said.
“The new tax law has been a wet blanket on the market,” Miller said in an interview. “Almost every region in the New York City metro area has seen multiple quarters of declines since the tax law was implemented.”
The single-family median home price in the collection of villages on the eastern tip of Long Island known as the Hamptons dropped to $860,000 in the first quarter from $933,750 a year earlier, according to the report.
That’s tough if you’re a seller, but it’s still more than triple the national median home price of $259,400, as measured by the National Association of Realtors. Most of the homes in the Hamptons are vacation properties for people who work in Manhattan – typically, stock brokers and investment bankers.
“Sales in the Hamptons are highly correlated with the securities industries,” said Miller. “In addition to the new law, you have some concern among potential buyers about the economy and trade wars that could be putting a damper on things.”
While corporate profits jumped after the Republican Congress cut taxes in the closing days of 2017, financial markets workers didn’t see that benefit expressed in their annual bonus checks, a big chunk of their compensation. Those bonuses, typically distributed in the first months of the year, tend to drive sales of Hamptons homes as happy bankers go shopping for summer digs.
The average Wall Street bonus dropped 17% this year, the biggest decline since 2011, according to the New York State Comptroller’s office.
The tax code approved by Congress in the closing days of 2017 capped state and local tax deductions – known as SALT – at $10,000. That had an outsized impact on states such as New York, New Jersey, Connecticut and California that have high-priced real estate coupled with hefty property taxes that support schools and local services.
A report last week from the Federal Reserve Bank of New York said the tax law slowed home sales across the country in 2018 by making it more expensive to own homes in many areas.
“Changes in federal tax laws enacted in December of 2017 have contributed to the slowing of housing market activity that occurred over the course of 2018,” according to Richard Peach and Casey McQuillan, co-authors of the Fed report. “This slowdown stems from a higher user cost of capital caused by lower marginal tax rates, the $10,000 cap on the deductibility of state and local taxes, and the lower limit for the amount of mortgage debt on which interest payments are deductible.”