At The Money: Grab Your Summer Rental Soon!!

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2:24it now. I'm going to tell them now. 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 going to 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 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.

3:22So 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? Well, I think it's a matter of consumption spending. When the economy is doing well, They see this 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. It was nicknamed the summer capital. And the hotel occupancy, my dad had a hotel there. You could see it fluctuate with depending on how well the economy was doing in D.C. itself. It was quite direct.

4:10So 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? 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.

4:59So that's reducing traffic to locations that are more dependent on sort of working in middle class consumers. Um, uh, you know, I, I look at it as, uh, there's been this sort of change in the way consumers are thinking about summer rentals. And a broker, a friend of mine out in the Hamptons gave me a name for it. It's called Amazonified or Amazonified, uh, which is people are more inclined. Hey, listen, you run out of mouthwash. You just open your phone and you order it, right? You want a summer rental, you just open your iPhone and you start looking at it. And there's an understanding that you can get it at the last minute.

5:53When 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 it was kind of a failure or it was an underwhelming sort of performance now you know it's it's last minute and so you know one of the sort of evidence of this was that there was a noticeable tuck uptick in traffic after Memorial Day, which would historically be, you know, the market's over. 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.

6:43And, you know, I think coming out of the pandemic, I think orientation towards last minute is sort of a structural change. It's going to be with us indefinitely. 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, 4 ,500 Hamptons rentals available, including listing 1 ,077 in East Hampton, 889 in South Hampton, active listings still available for June, July, August through Labor Day, short term or full season.

7:34So this isn't so much an economic indicator as it is just an appified 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. 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, 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 have been traditional rental property. That was all purchased. And so now we have a new universe of renters that are effectively early or recent homebuyers.

8:24And 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, I don't know if we could call it normalizing. You know, the old joke, what does normal mean anymore? But 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 an expensive market still.

9:17So I know what a data wonk you are. How do you think about summer rentals? Are these luxury goods? housing substitutes or even a leading economic indicator? So I don't. So I see this, you know, is just another form of consumption, a luxury good. I don't see it as an economic indicator because the 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 where the economy's going. You know, a lot of the Hamptons or the East End demand has, you know, been possible from, you know, pretty good bonus season in the last couple of years.

10:16Compensation is certainly elevated. But even with that, it's showing that it's not sold out or 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 normalizing, I think, is a fair description. So I think of the overall consumer economy as very much K-shaped. There's the upper pick a number, 1, 10, 15 percent, 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?

11:10Absolutely. I think that's a very fair description of what rental markets are generally looking like. They're an extension of the primary markets, and the primary markets are generally, you know, 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. So I was spending a lot of time talking about Wall Street bonuses and the Hamptons. What about the rest of the country? What about mountain destinations, Sunbelt, California, lake communities? There's so much to a holiday or vacation property just outside of the east end of Long Island.

12:05Yes, 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 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 housing bubble buildup, it seemed like everybody I knew had a modest price second home in New Hampshire or Vermont.

12:54And 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 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 activity skewing a little bit higher than sort of the middle of the market. 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.

13:49What are you seeing in other regions? I don't mean to be a broken record, but I'm seeing something very similar. It's this idea that consumers are going to the traditional second home locations that are linked 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 the economy inflation and yet we're still seeing this activity what's a little different about it is across the U.S. 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, you know, a fair amount of activity.

14:46It's just not, you know, some sort of insane frenzy that we've been going through for the last three or four years. 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? 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. but they're concerned about, you know, are they going to get their price?

15:39So they're renting it out maybe to the same people every season and that reduces inventory, which raises or pushes, puts some at least stabilizing or higher price pressure on rents. So I don't see this as, you know, when rents are rather and rates rise, I think that's just going to make it more difficult to afford rentals, whether purchase a second home or to rent a second home, because I think it just pushes everything up. 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?

16:32People rent, they like an area and then they buy over there. Is that fair? 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 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, 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 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.

17:31After a couple seasons, the tenants that they love ended up buying the house down the street just because they love the area. So one of the things I'm astonished about, and again, my frame of reference is the Hamptons 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 seem to be fully booked.

18:24What 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? 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 of times in a recent month or two, they call it the trade parade, right? Like all the trades coming in early in the morning and then leaving, you know, sort of before rush hour. By trades, you mean plumbers, electricians, tilers, roofers.

19:13It's unbelievable. And so, you know, residents there plan their day around when they can leave and come back because the, as they call it, trade parade is so incredible. And the challenge is that those workers really are stuck in two or three-hour traffic jams, which is 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 a good distance away. Well, that's why they start at 7 and leave at 3. That makes a lot of sense. Exactly. Um, we 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.

20:13Has COVID permanently reset prices and, and, uh, house buyer behavior and, and even expectations? What's the lasting impact of the pandemic on the summer vacation market? 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 mentioned earlier, the Amazonification of demand. And, you know, 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, you know, the weaker the economy, the weaker the demand for second home markets, but they don't flip on and off.

21:13There'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 creates 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 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. Now, to be fair, that$2.5 million rental does come with both a chef and maid service.

22:04So 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 the But TAN, please use SPF. I'm Barry Ritholtz. You've been listening to Bloomberg's At The Money. I'm a 45-on so I can lock on.

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