Real Estate Sales Show Signs of Slowdown
By James Kinsella
Gazette Senior Writer
Real estate sales on Martha's Vineyard are falling against a backdrop of increasing inventory and rising transaction prices.
For the first three months of the year, the number of residential, commercial and condominium sales on the Vineyard dropped 28 per cent to 82, while listings in those categories rose 30 per cent to 387, according to LINK, a real estate information business based in Vineyard Haven.
Some observers, including Chris Wells, president of Dukes County Savings Bank, say the severe weather of recent months may have served to put a temporary damper on the market.
Brokers say activity remains strong in what passes for the Vineyard market's low end: residential properties priced between $400,000 and $600,000.
Meanwhile, sales have been slowing - and taking longer to close - for more expensive properties.
Speaking of potential buyers considering the purchase of higher-end properties, LINK owner Eleanor Wilson said, "We're rapidly getting to the point where they won't pay those prices."
Bill Rohr, owner of Helm Real Estate in Vineyard Haven, said the market pace is a little bit slower than in recent years. "People know it's near the top," Mr. Helm said. "Prices are up, but at a much slower rate."
What are sellers asking? Recent advertisements have offered a property on East Chop Drive in Oak Bluffs with a four-bedroom main house, a two-bedroom guest house and garage for $2.95 million; a three-bedroom Colonial on South Water street in Edgartown for $2.9 million; and a four-bedroom house under construction in the Tashmoo Wood section of Vineyard Haven for $1,495,000.
Above the market's low end, where the year-round residents are congregated, the buyers are almost all off-Islanders seeking to purchase second homes.
Ms. Wilson said she suspects some of the increase in listings, and some of the asking prices can be traced to Vineyard property owners who do not need to sell their homes, but will part with them if buyers meet predetermined asking prices, which may not be in line with recent sales.
But whether the Vineyard market represents a "bubble" - a place where prices have shot up to unsustainable levels - is another question.
Much has been written about real estate bubbles in the national and regional print press in recent weeks. But it remains unclear whether Vineyard property values are heading for a drop.
Most Vineyard wage-earners cannot afford to buy a home on the Island at current prices. But it is also true that the Vineyard market draws from a widespread geographic demographic, extending from the northeastern United States to the Midwest, California, and even London, England. These are people who are willing to spend a lot of money to buy or build a place on the Vineyard.
"I think a lot of the baby boomers have done very well financially," said Kathy Sollitto, owner of Sollitto Associates in Vineyard Haven.
Ms. Sollitto said buyers also may be looking at real estate as a wise financial investment. "The stock market has not been doing very good," she said. "This is a place to put their money."
Mr. Wells said he doubts that a Vineyard bubble is afoot. But he said the bank has noticed an increase in speculative building, where contractors gamble that buyers eventually will come along to buy the homes they are building. Speculative building helped drive the real estate boom of the mid-1980s in Massachusetts - and also helped to drag down real estate values when the buyers stopped coming.
But Mr. Wells said a replay of that real estate recession is not necessarily in the works. A key reason: many sales are far less leveraged with debt than 20 years ago - or are cash deals that are not leveraged at all. At Dukes County Savings, Mr. Wells said, the bank's typical loan-to-value ratio is 50 per cent, which gives customers and the bank a cushion even if values slip.
Vineyard real estate has been a sensational investment for the past year - and the farther back in time you go, the better it gets.
According to Banker & Tradesman, a trade newspaper that tracks real estate sales in Massachusetts, a half-acre lot in Edgartown that sold for $155,000 in November 2003 recently sold for $270,000, an increase of 77 per cent in 18 months. A five-bedroom house in Oak Bluffs that sold for $772,500 in July 2004 recently sold for $880,000, an increase of 14 per cent in 10 months.
Median sales prices also have been climbing on much of the Vineyard, according to LINK. In Edgartown, the median sales price increased from $590,000 in the first quarter of 2004 to $905,000 in the first quarter of this year. Oak Bluffs also saw its median sales price rise in the same period, from $410,000 to $640,000.
The median did drop in the same period in Vineyard Haven, falling to $565,000 to $625,000, although sales climbed a bit, from 19 to 22.
Higher sale prices mean that even though fewer properties are selling on the Island than five years ago, the overall dollars spent on real estate is up. LINK statistics show that 53 properties, exempting vacant land, sold in Edgartown in the first three months of 2000. The aggregate dollar volume was $53,750,379.
Five years later, 28 properties sold. The aggregate dollar volume was $60,436,500.
In Oak Bluffs, the number of properties sold in the first quarter fell from 29 in 2000 to 17 this year. But the dollar volume rose from $8,389,200 to $12,417,000.
That jump in prices has given many Vineyard homeowners significant equity to borrow against. A number of property owners are doing just that.
Mr. Wells said the amount of money borrowed by Dukes County Savings customers on home equity accounts has risen 400 per cent over the past two years, from April 2003 to April of this year.
He said that one of the bank's most popular products are home loans on which customers pay only interest in the first five years, then paying principal as well as interest for the next 25 years.
Some customers use the loans as a way to get into the expensive Vineyard market. Others see the loans, which carry an adjustable mortgage rate, as a better bet than fixed-rate loans, especially if they decide to make voluntary principal payments during the interest-only period.
These loans, however, do carry a risk that rising rates will add to the financial burden of the borrowers.
Julie Flanders of David Flanders Real Estate in Chilmark reports renewed interest in high-end properties, especially $5 million or more. According to LINK, two properties sold in Chilmark in the first three months of this year. The median sales price was $2.1 million.
Meanwhile, the second-home orientation of the Vineyard poses both a risk and an advantage if interest rates rise and the economy slows.
Property owners who find themselves under financial pressure would likely get rid of their second home before their primary home off-Island.
But Mr. Rohr said events in the mainland real estate markets do not necessarily hit resort areas like the Vineyard.
"It's so attractive to own property here," he said. "They're not making any more Martha's Vineyards out there."