May 1, 2013
On Nantucket, the laws of supply and demand are back in play
Nantucket Property News April-June 2013 (excerpt)
Nantucket Property News ‘The Current State of the Market’ Vol 5. No. 1 April -June 2013
Q and A with Steve DiFrancesco, Principal Broker at Hunter, Reed and Company
Nantucket Property News : Where is the market right now?
DiFrancesco : on Nantucket, the market is great — reflecting strength in the financial markets, confidence in a sustainable economic recovery, confidence in Nantucket real estate as an investment-grade asset … and simple pent-up demand. Properties which are fairly priced are selling, and they’re back to selling pretty quickly.
Not to be overlooked is the rally we saw to get deals closed by Dec 31 of last year. Many of those sales would have normally closed sometime in Q1 2013, but were accelerated by principals to reduce their exposure to increased capital gains tax liability this year.
Across the market though, really at all price points, we saw demand strengthen in 2012, and we see demand continuing to increase in 2013; with regard to inventory, the net effect of increased demand has been a correspondent decrease in the number of properties which are available to buyers, and, smaller spreads between the list price and the sale price.
Nantucket Property News : Signs point to a national recovery. What’s your take on when we’ll feel the full and lasting effects of any recovery on Nantucket?
DiFrancesco : Totally depends on how you define “recovery” on Nantucket, because there’s a meaningful difference between defining recovery in terms of regaining lost value, versus defining recovery in terms of the number of annual real estate transactions.
I think using transactional activity as a measure of “recovery” is the most meaningful benchmark for Nantucket. And it’s worth noting that an increase in the number of transactions also typically translates to an increase in the median sale price, because Nantucket is such a stand-alone market.
I believe Nantucket is “the perfect real estate market”. The dynamics of this market are entirely unique — in an extremely valuable way. First, there’s an extremely finite supply of real estate. And given that Nantucket has become a destination market for buyers here in the US and overseas, there’s literally an infinite demand.
Add to that the unique reality that on Nantucket, in every single year, more land is acquired and placed in permanent conservation by well-run and well-funded conservation entities like the Land Bank, NCF and other groups. Today, nearly half of Nantucket is permanently protected as conservation land.
When you consider these realities, you can take the position pretty credibly that real estate on Nantucket represents an investment-grade asset, especially over the longer term.
From time to time there may be a couple years, as we’ve seen, where the number of transactions is down versus prior years, but values on Nantucket are not connected in any significant way to the condition of the real estate market on a national level — in the sense that the simple laws of supply and demand give Nantucket an immunity from any sustained loss of value, such as that which has happened to owners in many other areas of the US.
So in terms of “recovery” — if recovery on Nantucket is defined as a rising number of real estate transactions on-island, and a rising median sale price, then we’re already seeing the effects of a strong recovery.
Barring something unforseen or another major economic crisis, it’s likely that we’ll look back to 2013 as the year that appreciation resumed on Nantucket.
Nantucket Property News : What is the state of the Nantucket rental market?
DiFrancesco : The rental market is quite strong this year, as it was in 2012. Generally, people seem to feel more confident given the strong recovery in the stock market, and the wealth effect it creates. People seem very willing to spend for vacation rentals this year, especially on Nantucket. For example, we see more rentals which are for 2 or more weeks this year versus last year.
We also see strong demand for full-season rentals, especially for homes at the high end of the market in the most valuable locations, like Cliff and Dionis. It’s also possible that some of the strength we’re seeing this year in the rental market might reflect that many vacation areas along the northeast coast were damaged by hurricane Sandy. People who vacation in those areas are seeking alternative coastal locations like Nantucket. All in all, for owners and renters alike, and regardless of the reasons, 2013 looks like another great summer.
Nantucket Property News : What kind of properties are selling now?
DiFrancesco : Properties that are fairly priced, well-maintained, and well-located — and this is true at all price points. In terms of buyer confidence, there’s also a certain “self-fulfilling” truth to reporting by the national media that the housing market is stabilizing and that values are beginning to rise again.
On Nantucket, buyers have pretty much concluded that prices are about as low as they’re going to get — and in fact prices are now trending upward again — so that’s an inherently strong motivation to buy, for those who have been on the sidelines waiting out the market. In a sense, if you’re not buying now on Nantucket, you’re betting against the market.
Nantucket Property News : What neighborhood(s) do you think is/are undervalued now? What neighborhood(s) do you think best retain its/their value over time?
DiFrancesco : Right now, with the possible exception of mid-island, all areas of the island are undervalued, in the sense that we see demand rising again across all price points. It’s Econ 101 — as demand rises, supply diminishes, and values rise accordingly.
In terms of neighborhoods that I think will best retain their value over time, I’d say all areas of the island. No exceptions, no second thoughts. It’s Nantucket — extremely finite supply, unlimited demand. Barring some catastrophic event, over the long term there’s nowhere for values to go on Nantucket — except up.
Of course, certain areas of the island will consistently sustain much higher values than others, depending on their location relative to Town and beachfront — Cliff, Dionis, Sconset, Squam and Monomoy, for example.
Nantucket Property News : Are you seeing any movement in sale of land, up or down from previous years?
DiFrancesco : Absolutely. Strong demand and an extremely limited supply. There has been some buying by spec builders over the last couple years, but of greater long-term significance for the value of land, is the continuous acquisition of open land by conservation groups. In 2012 alone, over 500 acres were permanently taken out of the market and placed in conservation — including the 200+ acre Norwood Farm Tract in the Middle Moors, which NCF acquired in December 2012. I believe that over the longer term, as supply continues to diminish every single year, the value of buildable land will continue to trend significantly higher.
— Nantucket Property News ‘The Current State of the Market’ Vol 5. No. 1 April -June 2013