Pod Insights Masters in Business At The Money: Grab Your Summer Rental Soon!! About this episode It’s not too late to get your summer rental! But many of the prime locations have already been snapped up.
On this episode, Barry speaks with Jonathan Miller, partner at Street Matrix and founder and President of Miller Samuel. They discuss what is going on with summer rentals, and what it means for the housing market and overall economy.
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.
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1:32 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 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,
2:16 Barry Ritholtz? 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?
2:34 Speaker 04 Well, I think it's a, it's a matter of consumption spending. You know, 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 DC. It 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 itself. It was quite direct.
3:12 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?
3:29 Speaker 04 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, 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.
4:12 Speaker 04 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 Amazonfied, 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, 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
4:57 Speaker 04 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 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
5:38 Speaker 04 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.
5:55 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
6:12 Barry Ritholtz? You know, I look at a website like Out East, 4,500 Hamptons rentals available, including 1,077 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 apified 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?
6:50 Speaker 04 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 had 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.
7:31 Speaker 04 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,
8:15 Speaker 04 it's certainly an expensive market still.
8:18 Barry Ritholtz? So 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?
8:31 Speaker 04 So I don't, so I see this, you know, as just another, you know, 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 what, where the, where the economy is going. You know, a lot of the Hamptons or the East End demand has, you
9:10 Speaker 04 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, or rented out. So I, 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.
9:44 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, 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?
10:10 Speaker 04 Absolutely. 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.
10:41 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, 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.
11:06 Speaker 04 Yes, although if you're in Long Island and are on the East End, I think that's all you see.
11:14 Speaker 04 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 housing bubble buildup, it seemed like everybody I knew had a modest-priced second home in New Hampshire or Vermont, you know, and they would go there on weekends, go there, spend there in the summer.
11:59 Speaker 04 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, you know, activity skewing a little bit higher than sort of the middle of the market.
12:25 Barry Ritholtz? So what does that mean for different regions?
12:29 Barry Ritholtz? 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?
12:55 Speaker 04 I don't mean to be a broken record, but I'm seeing something very similar. It's this idea that consumers are moving, you know, are going to the traditional second home locations that are linked to their markets, like you were describing, people leaving Texas in the summer.
13:15 Speaker 04 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.
13:28 Speaker 04 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, you know, a fair amount of activity. It's just not, um, you know, some sort of insane frenzy that we've been going through for the last three or four years.
13:55 Barry Ritholtz? You mentioned mortgage rates earlier. I'm curious, what is the, obviously mortgage rates have an 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?
14:17 Speaker 04 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, puts some at least stabilizing or higher, um, uh, price pressure on rents. So I, I don't see this as a, you know, when market, when rents are rather and
15:01 Speaker 04 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.
15:18 Barry Ritholtz? 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?
15:38 Speaker 04 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, 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, you don't, you don't just go there for the weekend, right? You know, you're gonna test it out, maybe take a year or two.
16:20 Speaker 04 We see that all the time. 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 of seasons, the tenants that they love ended up buying the house down the street, just because they love the area.
16:41 Barry Ritholtz? 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, Sagaponac, wherever I go out there, it's shocking the degree of construction. Every builder, every contractor, they are, seem to be fully booked.
17:25 Barry Ritholtz? 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?
17:39 Speaker 04 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, you know, recent month or two, they call it the trade parade, right? All the trades coming in early in the morning and then leaving, you know, sort of before rush hour.
18:07 Barry Ritholtz? Like trades, you mean, plumbers, electricians, tileers?
18:11 Speaker 04 Builders. It's unbelievable. And so, you know, residents there plan their day around when they can leave and, and come back because the, as they call it, trade parade is so incredible. And, you know, the challenge is that they, you know, that, 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.
18:54 Barry Ritholtz? Well, that's why they start at seven and leave at three. That, that makes a lot of sense.
18:59 Speaker 04 Exactly.
19:00 Barry Ritholtz? We, we've seen the real estate market sorta kinda normalizing after COVID. Certainly the reactions are less frenzied than they were during the pandemic. Has COVID permanently reset prices and, and house buyer behavior and even expectations? What's the lasting impact of the pandemic on the summer vacation market?
19:29 Speaker 04 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, 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. The weaker the economy, the weaker the demand for second home markets. But it, they don't flip on and off.
20:14 Speaker 04 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 creates some sort of void in the demand needed for more modest-priced second home housing. You know, we talked about the Hamptons, you know, as a second home vacation market. There's a $2.5 million rental there for the, 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.
20:57 Barry Ritholtz? Now, to be fair, that, that $2.5 million rental does come with both a chef and maid service. So you get a lot of services for your money.
21:07 Speaker 04 Yes.
21:10 Barry Ritholtz? 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 tan. Please use SPF. I'm Barry Ritholtz. You've been listening to Bloomberg's At the Money.
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