No one in real estate yet knows whether the Covid-19 pandemic will prove to be the disaster it has been for much of the retail and service economy on the East End.
Real estate here was having a good first quarter, according to quarterly reports ending March 31, but New York’s economy didn’t lock down until the last two weeks of the report period, and an initial wave of people leaving New York City in mid-March intent on finding a place to stay has since dried up.
“Although, immediately after the stay-at-home order, the East End saw a flurry of emergency rental activity, that has slowed, as have new home sales,” says attorney Christopher Kelley, a senior partner at Twomey, Latham, Shea, Kelley, Dubin & Quartararo, LLP in Riverhead. “However, there are sales continuing to be made as buyers look ahead to the prospect of a more normal economy in the near future.”
The East End does have a precedent for what could be a good outcome: After the terrorist attacks of September 11, 2001, many New Yorkers fled the city looking for shelter. As of this writing, more than a quarter of the nation’s deaths from Covid-19 were in the five boroughs, and flight from the city has been an enduring East End story of this global crisis.
Town & Country Real Estate CEO Judi Desidero is optimistic about a potential rebound when the world reopens.
“I will venture to say the East End should, undoubtedly, experience heightened interest as we emerge from this life-altering event — interest from people who wish to secure a safe haven for their families and the nostalgic experience of life and nature in full harmony,” she said in her first quarter report.
“I’m getting calls from people who are more excited about being further away from the city,” said Licensed Real Estate Agent Suzette Reiss of Douglas Elliman in Mattituck. “That could be really good.”
But with office staff at title companies, attorney and government office working with a remote skeleton crew, and real estate agents still forbidden from entering sellers’ houses, it could be quite some time before we know if East End real estate has proven resilient.
The Empire State Development Corporation has deemed real estate agents as “essential” employees, but agents are now prohibited from meeting with clients at the property in person. Prospective buyers may visit homes themselves without an agent if sellers agree.
“We’ve been having to do everything virtually,” says Ms. Reiss. “We aren’t supposed to go into houses at all, even to take photos. New listing photos would have to be provided by the seller. We would also talk to them about doing a virtual tour, walking around with their camera.”
“I know it’s temporary. It’s not like I have to worry that other agents are getting in and my people are not,” said Ms. Reiss, who is planning to use some of this down time to start online broker’s license classes.
“By law, we’re not allowed to show real estate right now. Anything has to be done virtually, said Michael Daly of Douglas Elliman in Sag Harbor. “We always have sold a couple homes a year sight unseen, and its very possible that will happen now as well.”
“Is there going to be a flight to safety? Are people going to let people they don’t know from outside the area into their homes if they’re living in them?” he asked. “Anybody who is aware of the reason for social distancing doesn’t want to put themselves in that situation.”
The inability to show houses is just the tip of the iceberg of effects the economic shutdown is having. From the closing of government offices to process deeds or rental permits to difficulties scheduling home inspections and title searches to tightening mortgage standards and difficulty scheduling closings with attorneys, no part of the real estate adjacent business world is unaffected.
“This has negatively affected the transaction in the preparation and signing of documents,” says Mr. Kelley, the attorney. “It has become somewhat slower to arrange for inspections, water testing and such. Title companies have also been asking sellers to indemnify them against liens and judgments.”
“The world came to a grinding halt as of mid-March, but the fallout from that will not show up until the Second Quarter Home Sales Report, due to the nature of the time-frame from time of contract, to closing, and then recording,” says Ms. Desiderio in her first quarter report, released in late April. “I do, though, hypothesize that some of the lack of statistical data here is due to the closings of government offices — in this case, lawyers and title companies were unable to record closing documents as of mid-March in Suffolk County. If the closings are not recorded, then the data doesn’t show up on my report.”
Community Preservation Fund revenues, which come from a 2 percent transfer tax on real estate transactions, saw an explosive 86.9 percent gain over the first quarter of 2019, bringing in a total of $30.92 million for land preservation on the East End in the first quarter of 2020. Though CPF revenue is often a reliable bellwether of the health of the real estate market, even the fund’s creator, New York State Assemblyman Fred Thiele, hedged his announcement of the first quarter figures.
“CPF revenues were on a four-month rebound from the 2019 downturn before the Covid-19 pandemic hit. The last three months represent the single largest first quarter in the history of the CPF,” said Mr. Thiele on April 22. “Obviously, Covid-19 and the necessary public health response shutting down major portions of the state’s economy are not yet factored into these numbers. We will be better able to assess the impacts of the pandemic on the real estate industry on the East End and the impact on CPF revenues in April and the coming months.”
Southold Town put in place its first-ever rental permit requirement last year, which it began enforcing in August of 2019, after the summer rental season was nearly over. Under the new law, real estate agents cannot list any rentals, be they summer, winter or year-round, without having a rental permit on file with the town’s building department.
Town offices are now operating with a skeleton staff, and Southold Building Inspector Mike Verity said April 24 that the town is not processing new rental permit applications during the statewide shutdown, but the town is enforcing the requirement that rental permit numbers be included in real estate listings.
“This is the first summer season needing a rental permit,” said Ms. Reiss. “People who don’t have one will have to wait.”
The South Fork rental market doesn’t face the rental permit issue found in Southold, but Mr. Daly said he’s advising his clients who want to rent their houses for the summer to rent only once this season, because the state’s hold on evictions also applies to summer rentals.
“What if they get sick in your house and you can’t move them out? If you let people in for a month, you could lose your entire summer,” he said. “At this point, quite a few people have taken their houses off the rental market. They want to use them to shelter in place for their own family.”
Mortgage lenders throughout the country have tightened standards in recent weeks, especially with regard to the minimum credit scores they will accept from borrowers. But even people who had anticipated paying cash are now turning to mortgages for funding as their investments seesaw with the news cycle. Their switch to finding financing is currently causing delays, said Mr. Kelley.
“Some purchasers who were counting on paying cash in a deal saw the need to seek mortgage financing, citing the volatility of the stock market,” he says. “This has led purchasers to seek extensions of time to close in order to obtain mortgage commitments and concessions from sellers to get to closing. There is no basis in most instances for cancelling a real estate contract or postponing a closing in an all-cash deal based on the COVID-19 pandemic and the challenges surrounding it.”
Even when the government allows agents show houses again, real estate companies haven’t figured out yet how to make it safe for prospective buyers, and their agents, to spend time in sellers’ homes.
Mr. Daly said he’s in no rush to go back to doing showings until he knows it is safe.
“Some of them might die, or worse, infect others, and it’s not going to be me,” he said of agents.
“My crystal ball is broken,” he said of the long-term picture. “I think this pandemic is making people think of their life choices. There’s going to be a significant amount of change going forward, with people making decisions to do things that maybe they had been putting off. People are retiring now who had no intention of retiring now, but their jobs are gone.”