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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.
Roger - Monday July 13, 2009 03:47PM EDT
Real estate prices will fall much further. Anyone who doesn't belive this will happen, should google "bubbles" and find out what happens when a bubble crashes.
Yahoo! Finance User - Monday July 13, 2009 03:50PM EDT
Real estate will collapse, food will go up. US=finished.
frankmargel.com - Monday July 13, 2009 03:55PM EDT
Welcome back to the 'dynamic duo', I like these guys throwing comment to the wind. The commercial real estate doom and gloom's are waiting inline to interview next. The markets are bumping up today...Can earnings reports be cooked...I doubt it, don't you? Twitter and tweet me @frankmargel_com. Happy Monday ! God bless Wall st. God Bless freedom in America! Earnings week...dismal is my take...what's yours?
Ronald - Monday July 13, 2009 04:04PM EDT
Just another sign of a recession that is becoming a depression. I am a small business owner who in the not so distant pas did not have time to respond to discussion groups such as this. Now I have lots of time no money and am no longer sending thousands of dollars in to the IRS in estimated taxes each quarter. No profit no taxes. Why are there no jobs? NAFTA. Remember Bill Clinton and his pen that signed the bill into law? The giant sucking sound was almost immediate and was the sound of your manufacturing jobs leaving for third world countries. Now my fellow Americans you are being forced to compete with children in China earning fifty cents per day. Where have all of the jobs gone? NAFTA and our brilliant lawyer politicians can't figure out how to put Humpty er ah Uncle Sam back together again. Protectionism isn't that what we send those idiots to D.C. for, to protect the US? As Popey said "I've had all I can stands, I can't stands no more."
frankmargel.com - Monday July 13, 2009 04:04PM EDT
Doom and gloom comes from the markets and politicians, not sound minded commentators. Funny...The commercial real estate market is really doomed! Why are the markets up today? Tweet me at twitter @frankmargel_com! Later Gang! These guys are working well together. Ticker provides more views online...I like these boards TY Yahoo! WOWEE!
frankmargel.com - Monday July 13, 2009 04:05PM EDT
Doom and gloom comes from the markets and politicians, not sound minded commentators. Funny...The commercial real estate market is really doomed! Why are the markets up today? Tweet me at twitter @frankmargel_com! Later Gang! These guys are working well together. Ticker provides more views online...I like these boards TY Yahoo! WOWEE!
Peter - Monday July 13, 2009 04:05PM EDT
Oh well. That's the breaks folks. You could also just charter a small sail boat and enjoy the area for 6-8 weeks and also spend time in Marthas Vineyard, Manemsha and Woods Hole. A quick sail to Black Island and then up the Ct. Rver to Hamburg Cove probably do all that for about $20,000 or less. Oh Yes, don't forget to stop into the Thimbles for a couple of nights.
TerryL - Monday July 13, 2009 04:14PM EDT
Its all OK because Obama says change is a coming! Change change change change, that will save all of us!!! Too bad the next election can't come soon enough to save us from his Socialist/Marxist take over of America!
Jed - Monday July 13, 2009 04:15PM EDT
All over, the big banks are ignoring loan defaults. It's cheaper for them to leave deadbeats in the houses instead of throwing them out. That way, the banks don't have to pay to cut the grass or keep the heat on. How many mortgage defaults are being ignored? We'll never know.
Yahoo! Finance User - Monday July 13, 2009 04:23PM EDT
Every time the market approaches 8000, something magically pushes it up. Hmmmmm
Yahoo! Finance User - Monday July 13, 2009 04:24PM EDT
Every time the market approaches 8000, something magically pushes it up. Hmmmmm
Yahoo! Finance User - Monday July 13, 2009 04:25PM EDT
Nantucket looks like a good place for a nudist colony.
Yahoo! Finance User - Monday July 13, 2009 04:27PM EDT
Boo Hoo, I feel so sorry for those rich A-holes having things depreciate on them. I know I will never begin to be able to buy a home that cost their cheap asking rate of $600000. You rich people better cry to other rich people who might still give a rats a$$ about your problems. Luckily I still have a job, but all I can afford is to rent. F@#k all rich cry babies.
Donna - Monday July 13, 2009 04:28PM EDT
r_east@swbell.net - Monday July 13, 2009 04:04PM EDT Just another sign of a recession that is becoming a depression. I am a small business owner who in the not so distant pas did not have time to respond to discussion groups such as this. Now I have lots of time no money and am no longer sending thousands of dollars in to the IRS in estimated taxes each quarter. No profit no taxes. Why are there no jobs? NAFTA. Remember Bill Clinton and his pen that signed the bill into law? The giant sucking sound was almost immediate and was the sound of your manufacturing jobs leaving for third world countries. Now my fellow Americans you are being forced to compete with children in China earning fifty cents per day. Where have all of the jobs gone? NAFTA and our brilliant lawyer politicians can't figure out how to put Humpty er ah Uncle Sam back together again. Protectionism isn't that what we send those idiots to D.C. for, to protect the US? As Popey said "I've had all I can stands, I can't stands no more." Good post...I too own a small business and you have hit the nail on the head 100% correct. I have all kinds of time on my hands and it is all due to all of this stupid stuff the politicians keep promoting and the voters who are getting the kick backs keep voting the same jerks into office and the rest of us get their bills.
Yahoo! Finance User - Monday July 13, 2009 04:32PM EDT
I suppose we're supposed to feel sorry for them? Let them suffer like the rest of America. And take Kennebunkport with them.
Heroine Worshipper - Monday July 13, 2009 04:33PM EDT
No. It's the next segment to be subsidized. If U think the apartment bailouts were expensive, wait till U have to cover the condos. Don't even think about the yacht & spaceship bailouts. U slaves better get started.
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Yahoo! Finance User - Monday July 13, 2009 03:46PM EDT
we average taxpayers should diligently pay our taxes so that the govt can have $$$ to bail out this poor rich people.