We recently had the chance to do some first-hand investigative reporting on the crash of the Nantucket real-estate market. Here’s what we found. (Just take the tour >)
(In case you don’t care about Nantucket in particular–most people who don’t live or go there don’t–think of Nantucket as a microcosm of the next segment of the real-estate market that’s poised to collapse: The super-expensive fabulously wealthy communities who heard for years that they were immune.)
Some analysts think the high-end will be the next segment of the real-estate market to crash. And the situation on Nantucket certainly supports this view.
As everywhere, real-estate prices in Nantucket went vertical about five years ago. In the early 1990s, the average house on the island sold for about $200,000. Two years ago, the average house sold for well over $1 million (and you still have to work hard to find houses listed below that). Your basic 3-bedroom, 2-bath with a tiny lawn in the middle of town lists for $1.5 million. Dozens of houses are listed at more than $10 million. The ex-president of Goldman Sachs recently listed his for $55 million.
But, of course, that’s all fantasy, because right now houses just aren’t selling at all.
Because sellers are still engaged in a mass-hallucination, helped along by encouraging noises from real-estate agents who will say and believe anything to retain clients until the clients finally get real the market finally recovers.
In other words, on Nantucket, as elsewhere, the current mantra of most sellers is: “We’ll just rent for a year until the market comes back.”
In fact, the general feeling on the island is that the 5X+ price appreciation in the dozen years from the early 1990s was just the normal rate of wealth-creation that a Nantucket homeowner can expect and that prices will surely soon bounce back to the peak levels they hit a couple of years ago (and then rocket higher).
Meanwhile, would-be buyers feel differently. They look at the prices Nantucket sellers are asking, and they wonder what on earth has been dumped into the island’s water supply. They also look at all the rental vacancies this summer, and the willingness of many homeowners to negotiate on rent, and observe that they would be nuts to buy now when renting is so relatively cheap.
What do we mean, “relatively cheap”?
For, say, $4,000 a week, you can get a house that would list for $2 million right now. Assuming the homeowner rented the house at that rate for 10 weeks, the homeowner would gross $40,000 for the summer (or about $30,000 net, after costs and agents fees). If a renter were to buy the house, meanwhile, the renter would pay about $100,000 a year in financing cost–assuming a 100% mortgage at 5%–plus taxes, insurance, etc. So you could rent for 10 weeks on the island instead of buying and save yourself at least $80,000 a year. What might the same house be worth in a rational market, if rents hold at $4,000 a week? Say, $750,000. At that price, the annual carrying and financing cost might be $50,000, which would be close enough to the rental price that owning would become more attractive. But that assumes that the rental prices will hold…
The rare bear on Nantucket real-estate, meanwhile (we met one), observes that the market fell almost 50% in the early 1990s crash, that this crash is much worse, and that many of the folks who bought in in the boom years from 2003-2006 need to rent their houses for a chunk of the summer at huge prices. And some of those folks have since been fired.
So, the rare bear predicts, this fall will finally mark the sellers’ capitulation, as Nantucket sellers like this fellow cut their losses and dump their houses for what the market will bear. That level is likely at least 50% below peak prices, or another 30% below most asking prices today.
And how about the Nantucket economy?
Not surprisingly, it has been clobbered. Thanks to the building boom of recent years, the economy became highly dependent on construction, renovation, and real-estate sales. One resident says unemployment hit 16% this winter and that more than a thousand families gave up and left the island.
This resident also reports that the low end of the Nantucket real-estate market has already crashed: Some teachers in the local school system had listed their modest house for the island-average selling price of about $1.2 million… and ended up selling it for about $600,000. So that’s a 50% decline. And there’s likely a lot more where that came from.
Disclosure: Henry Blodget would love to own a house on Nantucket some day. He would also love to pay less than a king’s ransom for it. So there may be some “rooting bias” at work here.
The Pitch: Exceptional waterfront property with all the amenities imaginable. Main house, 3 bay garage with guest quarters above, guest house with 2 bay garage and office studio above. Lots total 5.75 acres.
Cut the price in half and maybe they'll find a buyer.
3 bedrooms, 2 baths, somewhere in town.
The pitch: A PIECE OF HISTORY WITH A 'MAIN STREET' ADDRESS! Plenty of extra interior living space for active families. Pleasant brick patio for outside enjoyment.
Would be a crazy buy at $750,000.
But who knows? This is Nantucket. It might sell for that.
Priced based on hallucinatory price of land (same developer is selling similar lots for $1.2 million) and perceived demand for more huge houses at $2+ million a pop. Rocking cul-de-sac, though.
SCONSET SERENITY Brand New subdivision in the old Plainfield area of Sconset with sweeping pastoral views overlooking Sankaty golf course and Sankaty lighthouse. Half acre lot with HDC approved plans for a 5 bedroom, 5.5 bath house at the beginning stages of construction. Have your buyers step in now and have input on the finishing touches for a customised Nantucket Home.
Nice old bluff house, exclusive road, 3,000-mile views across the Atlantic to Spain, all for $1.25 million...what's not to love?
Well, for one thing, the bluff:
If not for the fact that the house is about to fall into the Atlantic, it might sell for $6+ million.
So you can always roll the dice!
Top photo: www.linknantucket.com
'Steps from the beach...' And only $900,000 for your one bedroom and one bath.
Classic 2005-era Nantucket getaway. Perfect for still-solvent G5 owner. More space than you (or anyone) will ever need, and plenty of jet-parking at the airport (20 mins away) for the one or two weekends that you fly in every year.
(Warning: This may be Dennis Kozlowski's house. His is somewhere nearby...)
Truly, one of a kind! Amazing, new, Sam Hill custom built estate with generous attention to quality, details and amenities. The outdoor living space features a glamorous, poolside setting featuring a well-equipped outdoor kitchen with a fireplace, hot tub and a sun shelf that spills into the pool. The site offers privacy, direct beach access and sweeping views over the dunes out to the Atlantic. The property is being offered FULLY furnished and equipped. Seller is offering the property with 53 Squam Road Road for $25,000,0000 and/or 51, 53 and 55 Squam Road for $26,000,000.
At last, a homeowner who isn't in denial.
According to the New York Times, this fellow is going to sell his house for whatever someone will pay for it. (THAT should be interesting!)
It's going on the auction block soon. Get ready for a big island-wide price readjustment the moment it sells.
Photo excerpt: New York Times
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