Chris Perry is a contributing writer for Nantucket Current
The Nantucket Land Bank has been on a roll.
Last year, it hauled in some serious money. With many “experts” predicting $1.7 billion in real estate sales in 2022, revenues should be in the $34 million dollar range this year. This unprecedented run is yet another example that reconfirms what we already know: The Nantucket real estate market is on fire.
Obviously, no one wants the Land Bank’s spigot to run dry; but, is this red hot real estate market a good thing for everyone?
More specifically, I am talking about Nantucket’s first time home buyers and what this financial haul is signaling to our neighbors and friends who are trying to jump into the market. Forget the property in Polpis for $19.5 million or Sconset for $7.5 million or Monomoy for $13.7 million. I am talking about those local, first-time home buyers who are looking at a rapidly increasing entry level price point as they yearn to put down some roots - invest into the community - and hope to secure permanent housing for the first time.
Doesn’t everyone want to start livin’ the dream? And on Nantucket, what does that look like?
Well, let’s ask the “experts.”
I spoke with three experienced brokers who have been around the barn more than a few times on Nantucket. Different offices - different styles - different tastes. I asked each of them to respond to similar questions with the understanding I would keep their names private. So, unless you are going to offer me two tickets to Adele in Las Vegas for my wife and I, you aren’t going to know who they are... until July.
The idea here is to get some info - let’s find out what they think - and more importantly, let’s get some prediction on the record. In eight months and just before the summer heats up to a chaotic boiling level, I will reveal the name of the broker who nailed it best. He / she will get to bask in the glory of being the “Warren Buffett” of the local real estate market. And the last time I checked, I think there were over 3,500 brokers on island so that’s sayin’ something.
Here’s a rough lay out and this is excluding covenant and affordable housing lottery opportunities:
“Where were we a year ago? Where are we today? Where do you see us next July 1st? Prediction on interest rates? Renting vs buying? Good time to buy - what is an accurate entry level price point today and your predictions for July 1, 2023?
”The exclusivity of Nantucket is now effecting the lower end market. Up until recently, that dynamic was seen only in the mid and high end properties on Nantucket. The entry point now is about 2 million.”
“The biggest problem is rising interest rates that are crushing the local, entry level buyer. For the most part, insurance costs and taxes have remained affordable. However, rising interest rates have effected first time home buyers the most. In 2021, if you borrowed $500K, your monthly payment at 3.25 percent was roughly $2,175. Today at 7 percent, you are looking at $3,350; but in the summer of 2023, I predict interest rates to be at about 8.25 percent and a payment close to $3,800 per month for that same $500K. Compounding the problem is the fact that you now need to borrow far more than $500K today to get into the market. So, simply extrapolate that figure out on a $1 million or $1.2 million loan and you can see why the local, entry level buyer is few and far between.”
I asked: “If a local, first time buyer was able to scrape enough together for a downpayment, should they buy now”?
“In real estate, you only lose when you sell, not when you buy. And on Nantucket, it seems no one loses. Even with a potential recession coming, Nantucket is historically the last to get hit and the first come out. So, if you can afford it, I would buy now”.
“Even though the sales volume has dropped, the price per unit has stabilize. From a price perspective, those second home buyers who thought they were looking at mid-level-priced homes are now finding themselves ‘forced’ to look at what is now the lower end of the market. They are quickly making offers - with plans to renovate - putting even more pressure on the lower end and eliminating options for the local buyer. I remember my first house - it was around 10.25 percent. So, even at 7.5 percent today, it’s better than my first foray into real estate. However, if the entry level price is 2 million on Nantucket - and it is - that’s a different world.”
“Today, I see the entry point at around $1.9 million. Last year, that same property was around $1.3 to $1.4, and next summer, that will probably sell easily at 2.2 million”.
“The problem for first time home buyers is the fact that the floor of the real estate market has permanently shifted north. Presently, there are roughly 85 properties available for sale on Nantucket; and of that number, only a handful are under 2 million. Not only is the asking price rising but the inventory is at historic lows’.
“I see interest rates moving up to as high as 8.5 percent then settling back down to about 7.5 percent next summer. Banks only make money if they lend money so the Fed has to do something. Nevertheless, I still see upside in the Nantucket market - especially when you compare it to other vacation markets. So, I would definitely buy now. Just remember, if you buy into the Nantucket market, you must realize that it’s always at the height out here”.
“I see this happen far too often. Year after year, a local family investigates the market and decides it is too expensive and pulls back. They come back the next year and the next year but the only thing that has changed is the price - up. They get frustrated and end up buying a new car instead. Five years later, they may still have the car but they don’t have permanent housing. Right now, I think Tom Nevers is a great investment especially if the bike path is built. You buy out there and survive next three years and you have solved the problem. Honestly, the better discussion is ‘year around housing’ vs ‘affordable housing’.
“Covid....... the effect of the Covid crisis caused a 40 percent spike in real estate prices and we have not looked back”.
“In the 2nd quarter of 2020, there was a significant drop in sales as Nantucket and the country was basically shut down due to Covid. Immediately after and as we moved into the 3rd and 4th quarter of 2020, sales skyrocketed. That has continued to today resulting in the lower end of the market - or as you say an ‘entry point’ - being more like $2 to $2.5 million. And, the number of properties available in that lower end has almost disappeared”
“You can see the trend. In 3rd qaurter of ’20, there were 164 transactions with 75 at 2.5 million or below. But in 3rd Q of ’22, there were 63 sales in total but only 19 below 2.5 million. It s a completely different playing field.”
“Inventory has been eliminated due to the high number of transactions and impulse buyers who acted immediately after the pandemic started do not regret their decision to purchase Nantucket real estate. For the past two years, it has been nothing but a seller’s market.”
“Why aren’t there more houses available to the low end buyer”, I asked.
“Several reasons: One is the fact that those who purchased in the last couple of years financed at 3.5 percent .Why flip and move into a new property at 7.5 percent today”?
“Another problem is the fact that before a first-time, homebuyer can make a play on a new listing, it is gobbled up for employee housing. I wish the Town of Nantucket did a better job with affordable housing initiatives. Perhaps, they should have looked at seasonal, affordable rentals vs. affordable ownership”.
“Looking down the road, what do you see”, I asked.
“Well, I actually see interest rates at 5% to 6% next summer. I see the Fed getting involved as the economic pain continues. But unlike most, I see rates sliding back a few points. This may bring some local, first time home buyers back into the market but the prices are not going down. Today’s entry level price will be pushed even higher next summer. Therefore, I would buy now; because if you wait, you’ll be waiting a long time.”
I am not surprised all the brokers suggested buying now. Go figure. But, I was surprised at how each of them freely moved into other related topics such various housing initiatives - affordable housing opportunities - affordable season rentals - local incentives, etc. One could argue that if any of those measures were adopted, it would cut into their market share.
If you travel in Nantucket’s real estate circles, you often hear: A rising tide lifts all boats....”
That may be true. But for the local, first time home buyer, that rising tide is sinking their ship.