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The Hamptons correlation: What beach house prices say about the market

Breakout

Throngs of beach goers will crowd the Long Island Expressway this weekend heading out to the beaches of Long Island and particularly the Hamptons. Long seen as the summer playground of New York’s wealthiest, the towns along the southern shore of the island’s east end are the meeting place for just about anyone who aspires to be “Gatsby-like.”

Nick Colas of ConvergEx Group has taken a closer look at real estate out in the Hamptons (and those who buy it or rent it) for the past several years and has drawn some interesting conclusions about the Wall Streeters that head there for the summer and the markets they largely leave behind.

“You’ve got a whole raft of 25-35 year old bankers, hedge fund guys, a bunch of other financial people,” says Colas in the attached video. “They get paid bonuses and it directly affects the value of both rental and purchase real estate a hundred miles away over in the Hamptons.”

In short, the higher the prices in the Hamptons, the better Wall Street is doing. In a note to clients Colas breaks down the details:

Check out the Zillow average prices for the 11968 (Southampton) and 11937 (East Hampton) from 2004 to the present. Yes, luxury sales are notoriously chunky and hard to parse, but the overall trends are clear. In Southampton, average prices peaked in late 2006 at $1.1 million. The trough came in early 2012 at $890,000, and now the average sale sits at $981,000. The contours of the drop and rebound are similar for East Hampton. In the last 12 months, demand for Hamptons properties seems to be accelerating. Throughout the entire Hamptons, there were 2,055 sales in 2013 versus 1,625 in 2012. Properties priced between $500,000 and $1,500,000 both saw 35% increases in unit sales and drove the overall advance.

What does this all mean for the market? Colas writes, “despite the recent bout of market volatility, correlations are not clustering like scared sheep as they did during 2011. That’s a good sign that capital flows are more discerning now and we can ditch, once and for all, the ‘Risk on, risk off” mantra of the last five years. Some assets can do well even if stock market volatility picks up.”

Enjoy the long weekend. Make friends, and try and catch the chopper back instead of the Jitney!