The Decline of the Upstate NY Luxury Market

Since the peak of the single family residential detached market in Q3 2006, the median sales price has declined a total of 22.2%, from $360,000 to $280,000. As the housing bubble began to burst through 2007, the effects in Dutchess County were delayed in comparison to other regions of the nation. However, median housing prices nonetheless began to decrease in Q3 2007 and from Q3 2006 to Q1 2008 decreased 11.6%, a decline of approximately 0.55% per month. Beginning in March 2008, the housing market began to steeply decline, dropping another 12% from $318,275 to $280,000, a decline of approximately 1.2% per month. The following graph illustrates:

While the national housing market has been in decline since 2007, the Dutchess County market did not truly enter into decline until about Q2 2007. Beginning in Q2 2008, the rate of decline has increased and begun to spread across all housing markets, not just the typical single family housing market.

Dutchess County contains three areas of luxury second home estate markets, similar to the Hamptons market of Long Island, NY, the Historic Hudson Riverfront Estates, Quaker Hill, and the Millbrook Hunt.

The Historic Hudson Riverfront Estates, in the Towns of Hyde Park, Rhinebeck, and Red Hook, houses most of the historic "turn of the century" large river front mansions constructed by late 19th century industrialists as one of a number of second homes. These mansions are characterized by large land holdings, frontage or access to the Hudson River and connected by a series of former carriage roads running along the river bluff.

In the southeast corner of the county, in the Town of Pawling, is Quaker Hill, a historic community cherished for its rolling countryside, magnificent estates and famous residents, past and present. Quaker Hill is a region of the County where large land holdings predominate and are mostly composed of equine estates, gentleman farms and estate quality homesteads. Splendid views and protection from cookie-cutter development give added value to even the most modest properties. Zoning there requires a minimum lot size of five acres and 350-foot road frontage. Gracefully divided by old cemeteries and stone walls, the Hill still has its share of white clapboard farmhouses interspersed with much more ostentatious properties. Originally settled by Quakers in 1728, the Hill's panoramic views began to attract affluent summer visitors after the railroad opened up Pawling in the mid-19th century. Gov. Thomas E. Dewey was a Quaker Hill resident when he ran for President in 1944 and 1948. In 1968, The New York Times noted the Hill was a low-key ''community of reticent celebrities,'' a tone set by the resident who made the most lasting contributions to the area, Lowell Thomas, the radio news commentator and world traveler. Intent on preserving the place he called ''Paradise on Earth,'' Thomas purchased Quaker Lake, donated more than 1,000 acres of land to the Nature Conservancy and founded the Quaker Hill Country Club. Other well-known residents of the Hill were Edward R. Murrow, the radio-TV journalist, and Dr. Norman Vincent Peale.

The Millbrook Hunt is also a region of Dutchess County where large land holdings predominate mostly composed of equine estates, gentleman farms and estate quality homesteads. The Millbrook Hunt is a formal organization that sponsors English style horse events with fox hounds. Other horse events held outside of the Hunt includes Olympic style equine events (jumping, cross country and dressage) and polo matches at the Mashomack Club. The Hunt kennel, housing the fox hounds, is located on Kennels Road in the Town of Washington and is the official headquarters. Events are in scattered locations within the "Hunt" neighborhood, at sites called coverts where the hunts begin. The boundaries of the "Hunt" are generally NYS Route 82 on the west, NYS Route 343 to the southern, NYS Route 7 on the north with eastern boundary generally located westerly of NYS Route 22 along the western ridge line of the Oblong Valley, north/south valley along extreme eastern New York State bordering the States of Connecticut and Massachusetts.

The typical buyer is drawn by the open rolling nature of the general topography, an attractive mix of meadows, woodlands and open wetland areas; wildlife activity and presence on the wetlands is considered a positive as it provides nature watching, water fowl hunting opportunities and buffering of the home site from negative encroachments such as other housing and intensive agricultural activity. Soils conditions vary widely on many of the properties ranging from those with no limitations on residential use (buildings with basements and septic leach fields) to severely limited or a mix thereof. This isn't a deciding factor in the purchase of these types of properties as the typical buyer isn't interested in the developing the property as a subdivision under the "as of right" under zoning, but in maintaining the open nature of the property with conservation amenities intact.

Of the three estate communities, the most active is the Millbrook Hunt, which is a much larger geographic area than the Hudson Riverfront and Quaker Hill. Generally speaking, properties within the Hudson Riverfront and Quaker Hill markets come up for sale once a generation. The Millbrook Hunt, however, is a much more active market, similar to the Hamptons market on the east end of Long Island, enabling one to observe changes in the market due to economic conditions that would not necessarily be observable in smaller markets like Quaker Hill.

As mentioned previously, housing prices began to steeply decline beginning in Q2 2008. In past recessions, the Dutchess County Luxury Market did not typically follow the patterns of the greater housing market. Luxury market participants are not generally affected by adverse economic conditions which are heavy factors in the greater housing market. However, due to the unique nature of the current national recession, where industries which employ many luxury market participants – particularly the investment banking industry – are encountering unprecedented declines, there is evidence of a decline within luxury market prices.

From 1999 through 2006, the Dutchess County luxury market mirrored the greater housing market. Within the Millbrook Hunt, median sales price of improved estates increased 140% from $749,000 in 1999 to $1,800,000 in 2006. Median sales price of vacant estate lots increased 261% over that same time period, from $4,730/acre to $17,065/acre. Quaker Hill improved estates also saw an increase in median sales price from $565,000 in 1999 to $744,000 in 2006, an increase of 32%. Vacant lot sales also increased from $10,489/acre to $39,225/acre, an increase of 274%. Since 2006, the Millbrook Hunt has declined steadily, with the improved estate market losing 20.8% in 2007 and 21.4% in 2008 and vacant estate lots losing 16.6% in 2007 and then gaining 11.1% in 2008. Quaker Hill also saw a decline in the improved estate market, losing 14% in 2007 and then gaining 60% in 2008 (the 2008 number is skewed due to a once in a generation sale of the Lowell Thomas Estate for $11.3MM). There have been no vacant land sales in Quaker Hill since 2006. The following graphs illustrate:

In both graphs, trend lines show a decrease in the market, except for the Quaker Hill improved estate market, which is skewed by the Lowell Thomas estate sale in March 2008. Going back to 1999, total sales of vacant and improved land were analyzed in the Millbrook Hunt, which as a more active market than Quaker Hill, better reflects the current market conditions. Both graphs show a decline in sales price since 2007, with the Improved graph showing a decline of about 20% from August 2007 to January 2009, a decline of about 1.2% per month.

Looking at the most active segment of the Millbrook Hunt market, 20-50 acre vacant estate lots, the peak of that market segment occurred in Q1 2008, with two lots sales at approximately $43,000/acre and $32,000/acre respectively, far higher than sales before or since. As a way to further reflect the decline in the market, there have been no sales of 20-50 acre lots since July 2008, which is out of character for this market segment. The Quaker Hill improved estate market has behaved similarly since its apparent peak in 2007, as illustrated below:

Active listings of vacant land in the Millbrook Hunt and Quaker Hill show an average Days on Market at 370 days with some listings having decreased listing prices approximately 12%.
An analysis of the Hamptons/North Fork market in Long Island further substantiates this decline. According to a January 2009 study by Prudential Douglas Elliman, the Hamptons Market, which is similarly priced but much more active than the Millbrook Hunt and Quaker Hill, has experienced a 12.5% decline over 2008 from a median sales price of $975,000 in 2007 to $850,000 in 2008. As well, listing discounts in the Hamptons were 11.1% in 2008, similar to those in the Millbrook Hunt. While the exact date of the peakof the Dutchess County Luxury estate market cannot be ascertained, it is evident that the market peaked sometime in Q3 or Q4 2007. Since its peak, listing days on the market has increased to more than 12 months, while prices paid have decreased in the range of 12-20%.