The rich and famous are buying again according to a report on home prices in the Hamptons, an exclusive summer retreat in Long Island, New York.
Median home prices rose 12 percent in the third quarter from a year earlier according to the Corcoran Group, a large New York real estate brokerage company. The company’s Hampton office reported that the median home price for luxury homes surged 23 percent to $5.9 million.
Surprisingly, as home values climbed in the Oceanside haven for Billy Joel, Howard Stern and other celebrities in the third quarter, home sales dropped by 1 percent. Furthermore, the supply of homes available for sale rose 15 percent to 7,648.
The cross currents in the local marketplace are likely due to overly eager New Yorkers and the whims of the wealthy. This is a case where wealthy households ignore market fundamentals. For example, large Wall Street bonuses were distributed to management, traders and institutional salesmen in the second quarter. It is likely that many of these recipients waited until the third quarter to pull the trigger on purchasing a summer getaway.
Household wealth is finally rising again in the U.S. after plunging the past couple of years. According to a Federal Reserve report, household wealth rose by $2 trillion to $53.1 trillion in the second quarter, the first increase since 2007. With the stock market trending upward and home values stabilizing, wealthy households are in a better financial position than they have been for several years. Rising net worth is generally associated with a rise in luxury home sales.
Hopefully, what is happening in the Hamptons could happen in other luxury locations across the nation. During the real estate recession, many luxury markets were left stagnant; with supply rising, demand falling and home values plummeting. As the economy and housing markets continue to rebound, the luxury market is beginning to show signs of life; at least in the Hamptons. With any luck, other luxury markets across the nation will rebound as well.