Unsold luxury homes are piling up in the Hamptons. Is new tax law to blame?

Lavish vacation homes are losing their luster in New York's Hamptons, the beachfront retreat favored by financiers and celebrities.

There were 869 luxury properties available at the end of the first quarter - almost triple the supply from a year earlier and the most in seven years of data-keeping by appraiser Miller Samuel Inc. and Douglas Elliman Real Estate. While higher-end homes piled up, buyers flocked to deals below $1 million. Those made up 59 percent of Hamptons sales in the quarter, the firms said in a report Thursday.

The market is resetting following federal tax changes that capped deductions for mortgage interest and property levies and made costly second-home purchases less attractive. Across all price categories, sales in the Hamptons have declined for five straight quarters. The 297 homes that changed hands in the three months through March was the lowest for a first quarter in seven years, according to the firms.

"We are in the middle of this transition period post the new tax law, where the high end is struggling," Jonathan Miller, president of Miller Samuel, said in an interview. "What's actually selling is shifting much lower so there's more inventory exposed."

The move toward cheaper homes pushed the median price for all deals down 5.5 percent from a year earlier to $850,000. It also lowered the threshold for what the firms consider luxury - the top 10 percent of purchases, which in the first quarter meant those costing $3.2 million or more. That's below the five-year average of $3.8 million, Miller said.

It would take about seven-and-a-half years to sell all the available luxury homes at the current pace of sales, the longest stretch in the firms' records.

Ernie Cervi, senior vice president at brokerage Corcoran Group, said sales in the Hamptons should pick up in the second quarter, now that tax season is over, mortgage rates are lower and financial markets have stabilized. The added supply will also push sellers to be more flexible.

"Price adjustment is the trigger," Cervi said. "That's what brings people back into the market."

Some buyers seeking more value for their money are looking toward Long Island's North Fork, where sales increased 12 percent in the first quarter from a year earlier, Corcoran said in its report Thursday.

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