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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Gone.

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Speaker 1: Memorial Day weekends has come and gone. But if you're

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Speaker 1: thinking about getting a place for the summer, you better

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Speaker 1: get a move on it. There's still inventory around, but

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Speaker 1: a lot of the prime spots they're already spoken for.

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Speaker 1: I'm Barry Ritolts and on Today's At the Money, we're

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Speaker 1: gonna talk about summer beach rentals, renting, buying, what's hot,

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Speaker 1: what's not. To help us unpack all of this and

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Speaker 1: what it means for your tan lines, let's bring in

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Speaker 1: Jonathan Miller. He's the director of markets for Street Matrix

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Speaker 1: and co found of Miller Samuel. His market reports covers

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Speaker 1: all sorts of summer and beach related areas, including the Hampton's,

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Speaker 1: the North Fork, the Jersey Shore, all along the rest

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Speaker 1: of the country that has an active vacation property. So, Jonathan,

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Speaker 1: before we get into the details, let's start really broad.

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Speaker 1: What does the summer rental market tell us about the

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Speaker 1: broader real estate market.

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Speaker 2: Well, I think it's a matter of consumption spending. You know,

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Speaker 2: when the economy's doing well, they see this beach rentals

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Speaker 2: as you know, another commodity that they can buy. I

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Speaker 2: saw this. I grew up in Rehoboth Beach, Delaware, which

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Speaker 2: was the Hamptons of Washington, d C. Who was nicknamed

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Speaker 2: the summer capital and the hotel occupancy. My dad had

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Speaker 2: a hotel there. You could see it fluctuate with depending

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Speaker 2: on how well the economy was doing in DC itself.

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Speaker 2: It was quite direct.

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Speaker 1: So around here the Hamptons gets all the attention, and

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Speaker 1: obviously there's a lot of celebrity and a lot of

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Speaker 1: media out there, But what do you see in other

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Speaker 1: markets like the Berkshire's, the Great Lakes, Mountain destinations, Cape

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Speaker 1: Cod what else is interesting?

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Speaker 2: So the way I think of it is that, you know,

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Speaker 2: just in the real state or the housing market itself,

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Speaker 2: there's this sort of bias towards the higher end. I

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Speaker 2: don't mean the very very top of the market, but

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Speaker 2: the more affluent somebody is, the more likely there to

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Speaker 2: go to one of these vacation spots. And with rising

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Speaker 2: interest rates, you know, that's making home ownership for primary

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Speaker 2: residents is more expensive, so that's reducing traffic to locations

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Speaker 2: that are more defended on sort of working in middle

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Speaker 2: class consumers. You know, I look at it as there's

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Speaker 2: been this sort of change in the way consumers are

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Speaker 2: thinking about summer rentals, and a broker friend of mine

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Speaker 2: out in the Hamptons gave me a name for it.

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Speaker 2: It's called amazon afied or amazon fied, which is people

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Speaker 2: are more inclined. Hey, listen, you run out of mouthwash,

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Speaker 2: you just open your phone and you order it. Right,

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Speaker 2: you want a summer rental, you just open your iPhone

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Speaker 2: and you you know, start looking at it and you

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Speaker 2: and there's an understanding that you can get it at

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Speaker 2: the last minute. When my parents used to have a

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Speaker 2: home on Shelter Island in the Hamptons, and you know, basically,

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Speaker 2: if you weren't rented for the season by February, then

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Speaker 2: it was kind of a failure or it was an

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Speaker 2: underwhelming sort of performance. Now you know, it's last minute,

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Speaker 2: and so you know, one of the sort of evidence

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Speaker 2: of this was that there was a noticeable tuck uptick

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Speaker 2: in traffic after Memorial Day, which should historically be you know,

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Speaker 2: the market's over. And there's also a lot of thought

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Speaker 2: that that's going to be the same story after July fourth,

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Speaker 2: which is sort of the last sort of marker for

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Speaker 2: the beginning of the rental season. You know, I think

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Speaker 2: coming out of the pandemic, I think orientation towards last

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Speaker 2: minute is sort of a structural change. It's going to

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Speaker 2: be with us indefinitely.

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Speaker 1: It's funny you say that. My experience with Fire Island

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Speaker 1: during grad school was you would put together a sharehouse

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Speaker 1: in October, like February, way late, like in October November

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Speaker 1: for the following Memorial Day. And you know, I look

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Speaker 1: at a website like out East forty five hundred Hampton's

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Speaker 1: rentals available, including one thy seventy seven in East Hampton,

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Speaker 1: eight hundred and eighty nine in Southampton, active listings still

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Speaker 1: available for June, July, August through Labor Day, short term

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Speaker 1: or full season. So this isn't so much an economic

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Speaker 1: indicator as it is just an appified world. We're just

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Speaker 1: used to everything on demand. Order a movie on demand,

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Speaker 1: order toothpaste on demand, order a summer beach house on demand.

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Speaker 2: I think that's the way to think of it. And

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Speaker 2: you know what's interesting is you know, on one hand,

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Speaker 2: there's inventory ava available, you know, a fair amount of inventory.

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Speaker 2: Part of that is because during the pandemic, we had

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Speaker 2: rental property that had you know, sort of annually have

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Speaker 2: been traditional rental property that was all purchased, and so

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Speaker 2: now we have a new universe of renters that are

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Speaker 2: effectively early or you know, recent home buyers, and so

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Speaker 2: we have sort of a whole new market developing. But

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Speaker 2: I do think that there's going to be you know,

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Speaker 2: an absorption of a lot of inventory over the next

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Speaker 2: call it month. But I think the way to think

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Speaker 2: about the market is rents are still on the high side,

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Speaker 2: but not at record levels, but rents are returning to

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Speaker 2: pre pandemic levels. You know that. I don't know if

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Speaker 2: we could call it normalizing, you know the old joke,

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Speaker 2: what does normal mean anymore? But it doesn't seem to

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Speaker 2: be the frenetic or frenzied environment that it's been. But

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Speaker 2: it's I don't know if you could use the word

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Speaker 2: deals uh really, but it's certainly it's certainly an expensive

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Speaker 2: market still.

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Speaker 1: So I know what a data wonk you are. How

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Speaker 1: do you think about summer rentals? Are these luxury goods,

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Speaker 1: housing substitutes or or even a leading economic indicator?

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Speaker 2: So I don't, uh so I see this, you know,

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Speaker 2: it's just another you know, form of consumption, a luxury good.

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Speaker 2: I don't see it as an economic indicator, because the

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Speaker 2: the where the demand is emanating from is probably already

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Speaker 2: the economic indicator to focus on. This is just an

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Speaker 2: extension of it, as opposed to sort of its own

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Speaker 2: independent uh, sort of you know, telegraphing what where they

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Speaker 2: where the economy is going. Uh, you know, a lot

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Speaker 2: of the Hampton or the East End demand as you know,

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Speaker 2: been possible from you know, pretty pretty good bonus season

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Speaker 2: in the last couple of years. Compensation is certainly elevated.

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Speaker 2: But even with that, it's showing, you know that it's

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Speaker 2: not sold out, so are rented out. So I think

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Speaker 2: it's a combination of people waiting to the last minute

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Speaker 2: and the market is not as intense or frenzied as

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Speaker 2: we've been used to over the last two or three years.

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Speaker 2: It's not a weak market. It's more it's normalizing, I

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Speaker 2: think is a fair description.

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Speaker 1: So I think of the overall consumer economy as very

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Speaker 1: much K shaped. There's the upper pick and number one,

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Speaker 1: ten fifteen percent, and then there's everybody else. It's it's

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Speaker 1: really bifurcated. Are we seeing something similar strong luxury demand?

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Speaker 1: Perhaps some let's call it softness in the bottom of

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Speaker 1: the rental market.

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Speaker 2: Absolutely. I think that's a very fair description of what

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Speaker 2: rental markets are generally looking like. They're an extension of

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Speaker 2: the primary markets, and the primary markets are generally you know,

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Speaker 2: I call it the upper half is faring better than

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Speaker 2: the lower half, only because of less reliance on interest

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Speaker 2: rates and also maybe more dependence on the performance of

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Speaker 2: the financial markets.

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Speaker 1: So we're spending a lot of time talking about Wall

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Speaker 1: Street bonuses and the Hampton's. What about the rest of

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Speaker 1: the country. What about mountain destinations, sun Belt, California, lake communities.

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Speaker 1: There's so much to a holiday or vacation property just

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Speaker 1: outside of the East end of Long Island.

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Speaker 2: Yeah, although if you're in Long Island and are on

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Speaker 2: the East End, I think that's all you see, that's

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Speaker 2: all that matters, at least when I was out there

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Speaker 2: a couple of weeks ago. Yeah. So, you know, I

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Speaker 2: think with all the uncertainty in the economy, economic uncertainty,

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Speaker 2: I think it's a little surprising to see normalized second

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Speaker 2: home market activity, but it's really skewing again, like the Hamptons.

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Speaker 2: I don't think the Hamptons is performing any differently than

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Speaker 2: most second home markets. I remember during the housing bubble,

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Speaker 2: build up. It seemed like everybody I knew had a

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Speaker 2: modest price second home in New Hampshire or Vermont, you know,

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Speaker 2: and they would go there on weekends, go to spend

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Speaker 2: there in the summer. I don't think you're seeing as

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Speaker 2: much of that as you have in the past, because

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Speaker 2: a lot of that is mortgage rate. I think you're

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Speaker 2: you're you're seeing whatever region in the country, you're seeing

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Speaker 2: this sort of I don't know if i'd call it bias,

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Speaker 2: but you're seeing this, you know, activity skewing a little

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Speaker 2: bit higher than sort of the middle of the market.

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Speaker 1: So what does that mean for different regions. Let's talk

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Speaker 1: about the Berkshires or I know people who are in Texas,

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Speaker 1: New Mexico, Arizona, where it's so hot in the summer,

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Speaker 1: they like to go to San Diego, La Joia, Southern California,

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Speaker 1: where it's seventy five and sunny during the eighty and

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Speaker 1: sonny during the day and sixty five and delightful at night.

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Speaker 1: What are you seeing in other regions?

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Speaker 2: Uh, I don't mean to be a broken record, but

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Speaker 2: I'm seeing something very similar. It's this idea that consumers

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Speaker 2: are moved, you know, are going to the traditional second

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Speaker 2: home locations that are linked to their to their markets,

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Speaker 2: Like you were describing people leaving Texas in the summer.

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Speaker 2: You know, we're seeing all that and and so you know,

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Speaker 2: it's confusing in a way because we're we're getting so

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Speaker 2: much you know, sort of bad take about you know,

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Speaker 2: what's going on in the economy, inflation, and yet we're

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Speaker 2: still seeing this activity. What's a little different about it

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Speaker 2: is across the US it is not nearly or it's

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Speaker 2: not really frenzied at all. It's just active. Pricing is

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Speaker 2: not as high as it's been, but it's but you're

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Speaker 2: still you know, a fair amount of activity. It's just

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Speaker 2: not you know, some sort of insane frenzy that we've

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Speaker 2: been going through for the last three or four years.

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Speaker 1: You mentioned mortgage rates earlier. I'm curious what is the

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Speaker 1: Obviously mortgage rates have an impact on price and vice versa,

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Speaker 1: but I'm curious what does that mean for renters, especially

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Speaker 1: in a market where so many of the buyers seem

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Speaker 1: to be straight up cash buyers.

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Speaker 2: Yeah, so the higher the interest rates, the higher the

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Speaker 2: rent is the way I look at it. And the

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Speaker 2: reason for that is you have people that you know,

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Speaker 2: are on the fence about buying a second home, but

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Speaker 2: they're concerned about, you know, are they going to get

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Speaker 2: their price, So they're renting it out, maybe to the

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Speaker 2: same people every season, and that reduces inventory, which raises

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Speaker 2: or pushes put some at least stabilizing or higher price

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Speaker 2: pressure on rents. So I don't see this as a

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Speaker 2: you know, when market. When rents are rather and rates rise,

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Speaker 2: I think that's just going to make it more difficult

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Speaker 2: to afford rentals, to whether purchase a second home or

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Speaker 2: to rent a second home, because I think it just

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Speaker 2: pushes everything up.

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Speaker 1: So I'm curious you're implying that people who might be

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Speaker 1: buyers or might be buyers one day, are sort of

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Speaker 1: putting a toe in the water with renting. Is this

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Speaker 1: a fairly common process? People rent, they like an area,

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Speaker 1: and then they buy over there. Is that fair?

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Speaker 2: Yes? Yeah, I think that's fair. The idea is that

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Speaker 2: you test out the market for a summer or for

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Speaker 2: a month or for a couple of weeks and see

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Speaker 2: if you really like it, versus just driving there or

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Speaker 2: flying there for the weekend and testing it out. And

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Speaker 2: that is that is sort of the nature of second

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Speaker 2: home markets. They move a lot slower. You know, second

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Speaker 2: home market for California is Idaho. You know it's it's

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Speaker 2: you know, you don't just go there for the weekend, right,

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Speaker 2: you know you're going to test it out, maybe take

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Speaker 2: a year or two. We see that all the time

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Speaker 2: when you know friends of mine that have rented for

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Speaker 2: a few years. My parents went through this with their

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Speaker 2: rental property in Shelter Island. After a couple of seasons,

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Speaker 2: the tenants that they love ended up buying the house

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Speaker 2: down the street just because they love the area.

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Speaker 1: So one of the things I'm astonished about, and again

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Speaker 1: my frame of reference is the Hampton's where our vacation

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Speaker 1: property is. But I am seeing an astounding amount of construction.

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Speaker 1: Any house that's sold is either if it's turnkey, it

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Speaker 1: sells quickly, and if it's not, it's knocked down and

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Speaker 1: a seven thousand foot behemoth gets put up in its place.

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Speaker 1: Just West Hampton sag Harbor, East Hampton sagapon It wherever

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Speaker 1: I go out there, it's shocking the degree of construction.

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Speaker 1: Every builder, every contractor, they are seen to be fully booked.

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Speaker 1: What is driving this is this specific to the New

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Speaker 1: York Bonus area, The Wall Street bonus area or are

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Speaker 1: you seeing this around the country and other rootsy vacation areas.

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Speaker 2: We are seeing this around the country. I think the

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Speaker 2: easiest cause and effect is the Wall Street compensation picture

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Speaker 2: of the last couple of years. It's really driving it.

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Speaker 2: Having been out to the Hamptons a couple of times

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Speaker 2: in you know, recent month or two, they call it

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Speaker 2: the trade parade, right, all the trades coming in early

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Speaker 2: in the morning and then leaving, you know, sort of

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Speaker 2: before a rush.

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Speaker 1: Hour by trade, trade.

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Speaker 2: Electricians, builders. It's unbelievable. And so you know, residents there

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Speaker 2: plan their day around when they can leave and and

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Speaker 2: come back because the as they call it, trade parade

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Speaker 2: is so incredible. And you know, the challenge is that

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Speaker 2: they you know that that those workers really you know

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Speaker 2: are stuck in two or three hour traffic tamps, which

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Speaker 2: is you know a real challenge. But yet, uh, there's

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Speaker 2: so much demand for their services and they can't afford

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Speaker 2: to live there, so they're coming from you know, a

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Speaker 2: good distance away.

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Speaker 1: Well that's why they start at seven and leave at three.

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Speaker 1: That makes a lot of sense exactly. We've seen the

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Speaker 1: real estate market sort of kind of normalizing after COVID.

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Speaker 1: Certainly the reactions are less frenzied than they were during

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Speaker 1: the pandemic. Has COVID permanently reset prices and house buyer

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Speaker 1: behavior and even expectations? What's the lasting impact of the

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Speaker 1: pandemic on the summer vacation market.

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Speaker 2: So I think structurally COVID has changed and probably extended

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Speaker 2: the use of second homes because of things like Zoom.

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Speaker 2: But it's also become a little less predictable because of,

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Speaker 2: as I had mentioned earlier, the amazonification of demand, and

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Speaker 2: you know, everything is sort of last minute as opposed

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Speaker 2: to sort of you know, relying on tried and true

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Speaker 2: forecasting patterns. But it's you know, it's a market that

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Speaker 2: is going to be tested. The weaker the economy, the

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Speaker 2: weaker the demand for second home markets. But they don't

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Speaker 2: flip on and off. There's still a base level of demand.

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Speaker 2: The problem is that the demand is coming from a

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Speaker 2: skewed portion of the population sort of upper half versus

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Speaker 2: lower half is the way I prefer to think of it,

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Speaker 2: and that creates some sort of void in the demand

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Speaker 2: needed for more modest priced second home housing. You know,

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Speaker 2: we talk about the Hampton's you know, as a second

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Speaker 2: home vacation market. There's a two and a half million

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Speaker 2: dollar rental there for this for the season, which I

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Speaker 2: find is stouting. But if you can't afford that, maybe

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Speaker 2: you get you pay a million and a quarter for

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Speaker 2: the month of July or a million for August.

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Speaker 1: Now, to be fair that that two and a half

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Speaker 1: million dollar rental does come with both a chef and

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Speaker 1: maid service, so you get a lot of VISs for

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Speaker 1: your money. Yes, and I am not joking because I

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Speaker 1: have like you, I am a Zillow lurker and I

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Speaker 1: look at all this crazy stuff. So to sum up,

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Speaker 1: all right, you miss Memorial Day, but there's still a

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Speaker 1: lot of summer left. And if you're thinking about a

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Speaker 1: house on the lake, a house up in the mountains,

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Speaker 1: maybe by the beach, there's still some inventory left. But

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Speaker 1: you better get a move on it, and you better

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Speaker 1: start working on the ten Please use SPF. I'm Barry Ritolts.

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Speaker 1: You've been listening to Bloomberg's At the Money