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- [00:02]
Karen Moscow
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Karen Moscow
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- [01:46]
Jonathan Miller
I'm going to tell him now.
- [01:50]
Barry Ritholtz
Memorial Day weekend has come and gone, but if you're thinking about getting a place for the summer, you better get a move on it. There's still inventory around, but a lot of the prime spots, they're already spoken for. I'm Barry Ritholtz and on today's at the Money, we're gonna talk about summer beach rentals, renting, buying what's hot, what's not. To help us unpack all of this and what it means for your tan lines, let's bring in Jonathan Miller. He's the director of markets for Street Matrix and co founder of Miller Samuel. His market reports covers all sorts of of summer and beach related areas including the Hamptons, the North Fork, the Jersey Shore, all along the rest of the country that has an active vacation property. So. So Jonathan, before we get into the details, let's start really broad. What does the summer rental market tell us about the broader real estate market?
- [02:52]
Jonathan Miller
Oh, I think it's a, it's a matter of consumption, spending. You know, when the economy is doing well, they see this beach, beach rentals as, you know, another commodity that they can buy. I saw this. I grew up In Rehoboth Beach, Delaware, which was the Hamptons of Washington D.C. was nicknamed the Summer Capital and the, the hotel occupancy. My dad had a hotel there. You could see it fluctuate with, depending on how well the economy was doing in dc. Its, it was quite direct.
- [03:30]
Barry Ritholtz
So around here the Hamptons gets all the attention and obviously there's a lot of celebrity and a lot of media out there. But what do you see in other markets like the Berkshires, the Great Lakes, Mountain destinations, Cape Cod, what else is interesting?
- [03:47]
Jonathan Miller
So the way, the way I think of it is that, you know, just in the real estate or the housing market itself, there's this sort of bias towards the higher end. I don't mean the very, very top of the market, but the more affluent somebody is, the more likely they're to go to one of these vacation spots. And with rising interest rates, you know, that's making homeownership for primary residences more expensive. So that's reducing traffic to locations that are more dependent on sort of working in middle class consumers. You know, I look at it as there's been this sort of change in the way consumers are thinking about summer rentals. And a broker friend of mine out in the Hamptons gave me a name for it. It's called Amazonified or Amazon Fied, which is people are more inclined to, hey listen, you run out of mouthwash, you just open your phone and you order it, right? You, you want a summer rental, you just open your iPhone and you, you know, start looking at it and you, and there's an understanding that you can get it at the last minute. When my, my parents used to have a home on Shelter island in the Hamptons and you know, basically if you weren't rented for the season by February, then of a failure or it was an underwhelming sort of performance, now, you know, it's last minute. And so, you know, one of the sort of evidence of this was that there was a noticeable uptick in traffic after Memorial Day, which would historically be, you know, the market's over. And, and there's also a lot of thought that that's going to be the same story after July 4th, which is sort of the last sort of marker for the beginning of the rental season. You know, I think coming out of the pandemic, I think orientation towards last minute is sort of a structural change that's going to be with us indefinitely.
- [06:13]
Barry Ritholtz
It's funny you say that. My experience with Fire island during grad school was you would put together a share house in October. Like February is way late, like October, November, for The following Memorial Day. And, you know, I look at a website like out east, 4500 Hamptons rentals available, including 1077 in East Hampton, 889 in Southampton. Active listings still available for June, July, August through Labor Day, short term or full season. So this isn't so much an economic indicator as it is just an ampified world. We're just used to everything on demand. Order a movie on demand, order toothpaste on demand, order a summer beach house on demand.
- [07:10]
Jonathan Miller
I think that's the way to think of it. And you know, what's interesting is, you know, on one hand there's inventory available, available, you know, a fair amount of inventory. Part of that is because during the pandemic we had rental property that had, you know, sort of annually been traditional rental property that was all purchased. And so now we have a new universe of renters that are effectively early or, you know, recent home buyers. And so we have sort of a whole new market developing. But I do think that there's going to be, you know, absorption of a lot of inventory over the next, call it, month. But I think the way to think about the market is rents are still on the high side, but not at record levels. But rents are returning to pre pandemic levels. You know, the. I don't know if we could call it normalizing. You know, the old joke, what does normal mean anymore? But it, it doesn't seem to be the frenetic or frenzied environment that it's been. But it's. I don't know if you could use the word deals really. But it's certainly, it's certainly an expensive market still.
- [08:37]
Barry Ritholtz
So I know what a data wonk you are. What, how do you think about summer rentals? Are these luxury goods, housing substitutes, or even a leading economic indicator?
- [08:50]
Jonathan Miller
So I don't. So I see this as just another form of consumption, a luxury good. I don't see it as an economic indicator because where the demand is emanating from is probably already the economic indicator to focus on. This is just an extension of it as opposed to sort of its own independent sort of, you know, telegraphing what, where the, where the economy's going. You know, a lot of the Hamptons or the East End demand is, you know, been possible from, you know, pretty, pretty good bonus season the last couple of years. Compensation is certainly elevated. But even with that, it's showing, you know, that it's not sold out, so are rented out. So I think it's a combination of people waiting to the last Minute. And the market is not as intense or frenzied as we've been used to over the last two or three years. It's not a weak market. It's more, it's normalizing, I think is a fair description.
- [10:03]
Barry Ritholtz
So I think of the overall consumer economy as very much K shaped. There's the upper pick, a number one 10, 15%, and then there's everybody else. It's really bifurcated. Are we seeing something similar? Strong luxury demand, perhaps some, let's call it softness in the middle or bottom of the rental market?
- [10:29]
Jonathan Miller
Absolutely. I think that's a very fair description of what rental markets are generally looking like. They're an extension of the price primary markets. And the primary markets are generally, call it the upper half is faring better than the lower half only because of less reliance on interest rates and also maybe more dependence on the performance of the financial markets.
- [11:00]
Barry Ritholtz
So we're spending a lot of time talking about Wall street bonuses and the Hamptons. What about the rest of the country? What about mountain destinations, sun belt, California lake communities? There's so much to a holiday or vacation property just outside of the east end of Long Island.
- [11:24]
Jonathan Miller
Yes. Although if you're in Long island and are on the east end, I think that's all you see, that's all that matters, at least when I was out there a couple of weeks ago. Yeah. So, you know, I think with all the uncertainty in the economy, economic uncertainty, I think it's a little surprising to see normalized second home market activity. But it's really skewing again, like the Hamptons. I don't think the Hamptons is performing any differently than most second home markets. I remember during the, the housing bubble build up, seemed like everybody I knew had a modest price second home in New Hampshire or Vermont, you know, and they would go there on weekends, go to spend there in the summer. I don't think you're seeing as much of that as you have in the past because a lot of that is mortgage rate sensitive. I think you're, you're, you're seeing whatever region of the country, you're seeing this sort of, I don't know if I'd call it bias, but you're seeing this, you know, activities skewing a little bit higher than sort of the middle of the market.
- [12:43]
Barry Ritholtz
So, so what does that mean for different regions? Let's talk about the Berkshires or I know people who are in Texas, New Mexico, Arizona, where it's so hot in the summer, they like to go to San Diego, La Jolla, Southern California, where it's 75 and sunny during the 80 and sunny during the day and 65 and delightful at night. What are you seeing in other regions?
- [13:13]
Jonathan Miller
I don't mean to be a broken record, but I'm seeing something very similar. It's this idea that consumers are move, you know, are going to the traditional second home locations that are linked to their, to their markets. Like you were describing people leaving Texas in the summer. You know, we're seeing all that and, and so, you know, it's confusing in a way because we're getting so much, you know, sort of bad take about, you know, what's going on in the economy, inflation, and yet we're still seeing this activity. What's a little different about it is across the US it is not nearly or it's not really frenzied at all. It's just active pricing is not as high as it's been, but it's, but you're still a fair amount of activity. It's just not some sort of insane frenzy that we've been going through for the last three or four years.
- [14:13]
Barry Ritholtz
You mentioned mortgage rates earlier. I'm curious what is the. Obviously mortgage rates have a impact on price and vice versa. But I'm curious what does that mean for renters, especially in a market where so many of the buyers seem to be straight up cash buyers.
- [14:35]
Jonathan Miller
Yeah. So the higher the interest rates, the higher the rent is, the way I look at it. And the reason for that is you have people that, you know, are on the fence about buying a second home and, but they're concerned about, you know, are they going to get their price so they're renting it out maybe to the same people every season. And that reduces inventory which raises or pushes put some at least stabilizing or higher price pressure on rents. So I, I don't see this as, you know, when market, when rents are rather and rates rise. I think that's just going to make it more difficult to, to afford rentals even to whether purchase a second home or to rent a second home because I think it just pushes everything up.
- [15:36]
Barry Ritholtz
So, so I'm curious, you're implying that people who might be buyers or might be buyers one day are sort of putting a toe in the water with renting. Is this a fairly common process? People rent, they like an area and then they buy over there. Is that fair?
- [15:56]
Jonathan Miller
Yes. Yeah, I think that's fair. The idea is that you test out the market for a summer or for a month or for a couple of weeks. And see if you really like it versus just driving there or flying there for the weekend and testing it out. And you know, that, that is, that is sort of the nature of second home markets. They move a lot slower. You know, second home market for California is Idaho. You know, it's, it's, you don't just go there for the weekend. Right. You know, you're going to test it out, maybe take a year or two. We, we see that all the time. When, you know, friends of mine that have rented for a few years, my parents went through this with their rental property in Shelter Island. After a couple seasons, the tenants that they love ended up buying the house down the street just because they, they love the area.
- [17:00]
Barry Ritholtz
So one of the things I'm astonished about, and again, my frame of reference is the Hamptons where, where our vacation property is. But I am seeing an astounding amount of construction. Any house that's sold is either if it's turnkey, it sells quickly and if it's not, it's knocked down and a 7,000 foot behemoth gets put up in its place. Just West Hampton, Sag Harbor, East Hampton, Sagaponic. Wherever I go out there, it's shocking the degree of construction. Every builder, every contractor, they are seem to be fully booked. What is driving this? Is this specific to the New York bonus area, the Wall street bonus area? Or are you seeing this around the country in other ritzy vacation areas?
- [17:57]
Jonathan Miller
We are seeing this around the country. I think the easiest cause and effect is the Wall street compensation picture of the last couple of years. That's really driving it. Having been out to the Hamptons a couple times in recent month or two. They call it the trade parade. All the trades coming in early in the morning and then leaving, you know, sort of before rush hour.
- [18:25]
Barry Ritholtz
By trade you mean trade, you mean plumbers, electricians, plumbers, electricians, roofers, builders.
- [18:32]
Jonathan Miller
It's unbelievable. And so, you know, residents there plan their day around when they can leave and come back because as they call it, trade parade is so incredible. And you know, the challenge is that they, you know, that those workers really, you know, are stuck in two or three hour traffic jams, which is, you know, a real challenge. But yet there's so much demand for their services and they can't afford to live there. So they're coming from, you know, a good distance away.
- [19:12]
Barry Ritholtz
Well, that's why they start at 7 and leave at 3. That makes a lot of sense.
- [19:17]
Jonathan Miller
Exactly.
- [19:19]
Barry Ritholtz
We've seen the real estate market sort of kind of normalizing after Covid. Certainly the reactions are less frenzied than they were during the pandemic. Has Covid permanently reset prices and house buyer behavior and even expectations? What's the lasting impact of the pandemic on the summer vacation market?
- [19:48]
Jonathan Miller
So I think structurally Covid has changed and probably extended the use of second homes because of things like Zoom. But it's also become a little less predictable because of, as I had mentioned earlier, the amazonification of demand. And everything is sort of last minute as opposed to sort of, you know, relying on tried and true forecasting patterns. But it's, you know, it's a market that is going to be tested. The weaker the economy, the weaker the demand for second home markets. But it, they don't flip on and off. There's still a base level of demand. The problem is that the demand is coming from a skewed portion of the population, sort of upper half versus lower half is the way I prefer to think of it. And that create some sort of void in the demand needed for more modest price. Second home housing, you know, we talk about the Hamptons, you know, as a second home vacation market. There's a two and a half million dollar rental there for this, for the season, which I find astounding. But if you can't afford that, maybe you get, you pay a million and a quarter for the month of July or a million for August.
- [21:16]
Barry Ritholtz
Now, to be fair, that that two and a half million dollar rental does come with both a chef and maid service. So you get a lot of services for your money. Yes, and I am not joking because I have, like you, I am a Zillow lurker and I look at all this crazy stuff. So to sum up, all right, you missed Memorial Day, but there's still a lot of summer left. And if you're thinking about a house on the lake, a house up in the mountains, maybe by the beach, there's still some inventory left. But you better get a move on it. And you better start working on that tan. Please use spf. I'm Barry Ritholtz. You've been listening to Bloomberg's at the Money.
- [22:11]
Karen Moscow
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Jonathan Miller
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Jonathan Miller
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