TO BUY, OR NOT TO BUY...THAT IS THE QUESTION

OPINIONS ARE LIKE...
You would like to buy a second home in the Hamptons, but you're undecided; after all, your brother-in-law thinks you should wait until prices drop 30-40% before you jump in (and your brother-in-law rents because he's been waiting for Hamptons prices to drop 30-40% since 1997). News reports of Miami condo price drops are all over the place, as well as reports of the glut of pre-construction condo projects in Las Vegas, San Diego and Ft. Lauderdale. Virtually every business writer in the country has predicted a catastrophic collapse of the real estate market in a dramatic way. Have you noticed that since the web has entered its third dimension with blogs everywhere, online news and media reports, newstainment, Forbes, FNN, NYT, CNBC, etc., we can read the same story in three different publications, all written by different people? The real estate bubble has been a media darling since last fall and seems to have the shelf life of Monica Lewinski.

The agent you're working with in the Hamptons has sounded down lately. She says "nobody's buying...they're all waiting". She's had her real estate license for a year and a half after leaving a midtown ad agency for a "better life" in the Hamptons. She's never been through an ebb in the real estate business and was selling houses like non-fat sugar-free vanilla macchiatos until last fall.

BUY OR RENT?
So you're trying to decide between either renting a four-bedroom house with a pool for $40,000 for August through Labor Day, or pulling the trigger on that $1.5MM home you like so much in Watermill. You need some facts...fast.

First, screen calls from your brother-in-law. Second, do some research on your own. Third, get yourself a real estate broker with some experience, or at least someone who is part of an experienced sales team. One who knows how to look for opportunities in all types of markets.

GET THE FACTS
If you go to www.liprofiles.com, look under "Facts & Figures". By combining Southampton and East Hampton Township information, you'll end up with the following:

TOTAL SOUTHAMPTON AND EAST HAMPTON PROPERTY SALES (East End, South Fork)
Year.....# Sales......$ Volume.........Avg $......*Median $...%Inc
2002....3634.....2,405,599,090....661,970.....415,000.....100%
2003....3383.....2,727,731,500....806,305.....505,000.....122%
2004....3927.....3,991,663,068...1,016,466....636,667.....153%
2005....3439.....4,477,246,772...1,301,904....763,333.....184%
'06..Q1..633......1,057,961,290...1,671,345....829,833.....200%
*Median $ is estimate

The above figures indicate that for the first quarter of 2006, while the NUMBER of sales is down 25% vs '05 Q1 (849 vs. 633), the AVERAGE sales price is up 28% and the MEDIAN price is up 9%. Preliminary figures for April and May indicate that the same trend will continue: less number of sales and higher sales prices.

PRICES AND INTEREST RATES
So let's suppose that sales price increase rate slows by one-half and AVERAGE prices only go up 14% and MEDIAN prices only increase by 4.5%. Interest rates have increased roughly .5 to 1.0 point in the last six months, since the Fed has steadily increased its rates. If the interest rate goes up an additional .5 to 1.0 point in the next year, some people will be priced out of the homes they want.

An $850,000 mortgage at 6.5% interest calls for $5,373 in monthly payments. If you opt not to buy now and the property increases in value 10% (less than one-half the increases of the last four years), and if the interest rate on the now-$935,000 mortgage goes up to 7.5%, then payments will be $6,538, an increase of nearly 22% in the monthly payment. Make that a $1.5MM mortgage under the same scenario and payments go up $2,056 ($9,481 vs $11,537). And don't forget about that $40,000 rental.

So buy now, or buy later? You make the call. md