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Nantucket Report: Wealthy Homeowners Primed to Suffer Major Pain
Posted Jul 13, 2009 03:00pm EDT by Henry Blodget in Investing, Recession, HousingI recently had the chance to do some first-hand investigative reporting on the crash of the Nantucket real-estate market. Here's what I found.
In case you don't give a damn about Nantucket--most people 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 at the high end 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 else, 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 costs $1.5 million. Dozens of houses 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.
Why not?
Because sellers are still engaged in a mass-hallucination, helped along by encouraging noises from desperate real-estate agents who will say and believe anything to retain clients until the market finally recovers.
In other words, on Nantucket, as elsewhere, the current mantra of most owners 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.
(For a still-steep $2,500 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 12 weeks, the homeowner would gross $30,000 for the summer. 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 12 weeks on the island instead of buying and save yourself at least $80,000 a year.)
The rare bear on Nantucket real-estate, meanwhile, observes 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 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?
It has been clobbered. Thanks to the building boom of recent years, the economy became highly dependent on construction. One resident says unemployment hit 16% this winter and that more than a thousand families had given 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.
91 Comments
who cares - Monday July 13, 2009 03:14PM EDT
Nantucket is fine June through October (the latest). Only the insane would consider paying those prices for a part time gig. Thank you Kennedy and friends. Your wealth has spoiled you and ruined it for others. Pelosi, Kennedy, Frank and all you robber barons can go to blazes. That's where you'll end up anyway.
Yahoo! Finance User - Monday July 13, 2009 03:14PM EDT
psst... here's a clue.. you need a job to buy or keep your house... obama is making sure you are unemployed.... punishing small business owners, higher taxes and fees... 9.5% and climbing.. Whitney says' 13% unemployment coming.. obama striving hard to make America a third world Socialist state.....biden saying 'WE BLEW IT'... no chit sherlock.. who wouldn't have guessed YOU biden are CLUELESS...lolol hope and change morons hope and change...
Yahoo! Finance User - Monday July 13, 2009 03:14PM EDT
What no bonus? They have yet to see pain. Wait until this recession really gets rolling. A country that does not manufacturer is doomed.
humperdink31394 - Monday July 13, 2009 03:14PM EDT
location location one of a kind cant be matched anywhere will still command top dollar in the right place thats where i put my dollars no compitition
R A Bottens - Monday July 13, 2009 03:23PM EDT
BOO HOO I'M CRYING TEARS AS BIG AS HORSE TURDS!
Steven - Monday July 13, 2009 03:24PM EDT
Here is the moral of this story. When there is no news, these two clowns come up with something gloomy to generate clicks. Pathetic.
Alfamagnate - Monday July 13, 2009 03:25PM EDT
Remember paper profits do not equal actual profits unless you sell at that point in time. For the most part we are not seeing people losing money on these houses, just not realizing the rediculous gains they thought they had. We are only seeing a correction back to normal rather than euphoric values
Len T - Monday July 13, 2009 03:26PM EDT
Some teachers in the local school system had listed their modest house for the island-average selling price of about $1.2 million. What a joke. A teacher buying a $1.2 million house, I cannot believe that they could afford the mortgage payment. What are they paying them?
Len T - Monday July 13, 2009 03:26PM EDT
Some teachers in the local school system had listed their modest house for the island-average selling price of about $1.2 million. What a joke. A teacher buying a $1.2 million house, I cannot believe that they could afford the mortgage payment. What are they paying them?
Len T - Monday July 13, 2009 03:26PM EDT
Some teachers in the local school system had listed their modest house for the island-average selling price of about $1.2 million. What a joke. A teacher buying a $1.2 million house, I cannot believe that they could afford the mortgage payment. What are they paying them?
Jesse - Monday July 13, 2009 03:29PM EDT
Ready to dump credit and mortgage? They have no use anymore unless I can get more or the value goes up. Not gonna happen for about the 10 years it would take to recover from dumping the $800G commitments. Why would I pay that when it's worth $400G? I wouldn't be any more credit worthy in the eyes of a bank!
Yahoo! Finance User - Monday July 13, 2009 03:32PM EDT
Wow! Nantucket will lose a lot of snobiness over this! I do not think that anybody has a clue of how bad things are going to get! Hopefully the good people in this nation will open their eyesto what is going on and come together. The bottom is about to fall out all over the country in real estate and hopefully people will look at buying a house for shelter and not an investment.
Yahoo! Finance User - Monday July 13, 2009 03:33PM EDT
A friend left there in 56 , "what a dump in winter" , sold house and farm for 5k. So, who won? sour grapes above?
MikeM - Monday July 13, 2009 03:34PM EDT
Hey how about our BASKET BALL PLAYERS, BASE BALL PLAYERS, GOLF, Judges (lot of them get lots of bribes), C Lawless Congressmen/women who also get lot of bribes (so un accounted money).
Frank - Monday July 13, 2009 03:35PM EDT
It is going to take a very long time for the US to recover. We have not even come close to the bottom.... funny today the stock market is up almost 2%, because the "economy is recovering"... yet the price of oil is falling due to the weak economy.... which is it? I am still inclined to protect my own ... good luck to all
Tamara - Monday July 13, 2009 03:38PM EDT
There will always be the "haves and the have nots". Some folks really do need to be humbled big time. Sorry for the innocents that get hurt in all of this !
EdwardG - Monday July 13, 2009 03:40PM EDT
"A teacher buying a $1.2 million house, I cannot believe that they could afford the mortgage payment." I would guess that these are teachers who bought their houses back when they sold for a small fraction of $1.2 million and are paying off the unpaid principal of the original, much smaller, mortgage.
Yahoo! Finance User - Monday July 13, 2009 03:41PM EDT
The Real Estate Market.....Is Still....INFLATED...It Needs TO COME DOWN.....Another...50 -60%..In the Next 3- 4 Years....Maybe Even..."MORE"...Until then...{Correction In Prices} We WILL .."NOT"..Have A Normal Economy......Save Your Money....And...."WAIT"....
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s.d.w. - Monday July 13, 2009 03:06PM EDT
its gonna be just like in Europe, your gonna need to rent you house out half of the year. Now we just need employers to give us 1/3'rd the year off and let the party begin!!!