By James S. Moffett
“Every boom is followed by a bust.” – business cycle theory
“Buy land – they aren’t making any more of it.” – attributed to Will Rogers/Mark Twain
Since the 1950’s, Nantucket real estate prices, despite the occasional aberration, have moved ever higher. In the more recent past, Island real estate sustained a powerful bull market from the early 1990’s until peaking in 2005/6. The median home appreciated some 400% during this period open land even more. Since the market top, prices have retreated by about one third. This downturn, the steepest since 1989 – 92, should be viewed in the context of the boom which preceded it.
The past decade has been a turbulent one for investors. The Dow Jones Industrial Average stands now about where it did ten years ago; the Nasdaq is still 50% below its all-time high. Under the circumstances, Nantucket real estate has performed remarkably well, roughly doubling in value over the same time period, even after the recent setback. Going forward, as long as growth is muted in the national economy, and especially in the financial sector (key to Nantucket demand), a new boom seems unlikely any time soon on the Island.
Nevertheless, a modest economic recovery, such as the one now apparently underway, can positively impact Nantucket. There are already hopeful signs. After declining steadily for over four years, quarterly sales volume (number of sales) of Island real estate bottomed in early 2009, finishing the year at a robust quarterly pace (see chart). First quarter data for 2010 remain positive, despite a normal seasonal lull. While there is no definitive reversal in the downward price trend, stronger volume may portend a turnaround. Increased volume should clear out inventory and eventually bring supply and demand into equilibrium.
This much is certain: “they aren’t making any more” Nantucket real estate. In fact, they are busy taking it away. The Conservation Foundation, Land Bank, Nantucket Land Council, ‘Sconset Trust, and the local government itself are a steady force, removing open lands from the market forever. This ongoing draw on supply is a major positive – supporting real estate prices and ensuring the future integrity of the Island. Combined with Nantucket’s unique historical character, pristine ocean and bountiful recreation resources, these open spaces bolster the Island’s position as one of the premier resorts in the world. Further, Nantucket is strategically located nearby – but not too close to – the Northeast’s sprawling megalopolis.
A market bottom can only be pinpointed with hindsight. My view is that Nantucket real estate is in the process of bottoming, and that prices will resume their long-term uptrend (this time perhaps at a more measured pace). The Island is small and distinctive – the potential demand so great. The window of opportunity for buyers will not remain wide open forever. For owners of Nantucket real estate, things are likely to improve over time, as they historically have.
(Data sources: NAREB; Atlantic East Real Estate; Denby Real Estate; Trulia.com).