Craig Warga | bloomberg | Getty Images
Manhattan condo sales fell 29% in the most recent quarter, sparking fears of a market freeze as buyers and sellers stay on the sidelines due to economic and interest rate concerns.
There were 2,546 sales in the quarter, down from 3,560 last year, according to a report by Douglas Elliman and Miller Samuel. The decline was the largest since the third quarter of 2020, during the depths of the pandemic.
Prices also fell for the first time since early 2020, with the average price down 5.5%.
The declines in both sales and prices signal the end of a roaring comeback in Manhattan real estate after the worst days of the pandemic and raise concerns of continued weakness into the new year. Rising interest rates, a weak economy, and a stock market slump, which have a huge impact on real estate in Manhattan, are likely to affect the market this year.
Analysts say their biggest concern is the long stand-off between buyers and sellers – with sellers unwilling to list amid lower prices and buyers pausing their searches until prices drop further.
“I could see the market moving sideways, with some modest declines in some sectors,” said Jonathan Miller, CEO of Miller Samuel, the valuation and market research firm. “It could weaken further if there is a backdrop of recession and job losses.”
Even with lower prices and sales, inventory remains tight as sellers hold off listings. There were 6,523 apartments on the market at the end of the fourth quarter, according to the report, up just 5% from a year ago but still well below the historical average of about 8,000. Without a significant increase in inventory, analysts say prices are unlikely to fall. Enough to attract many buyers waiting for the sale. The average discount from initial list price to sale price was 6.5%, up from 4.1% in the third quarter, according to Serrant.
Higher interest rates also moved more Manhattan buyers to all-cash deals, which accounted for 55% of all sales in the fourth quarter, an all-time high, according to Miller.
As with much of the recovery, the premium and luxury segment continues to be the strongest. Average sales prices for luxury apartments — defined as the top 10% of the market — increased 4% in the fourth quarter, matching the decline in the broader Manhattan market. Average prices for luxury apartments increased by 21% compared to 2019, double the increase in the broader market.
A pipeline of deals in the works or recently signed indicates a slow first quarter. There were only 2,312 contracts signed in the fourth quarter, down 43% from a year ago, according to Brown Harris Stevens. The quarter was the worst for new contracts signed in the past decade, according to a report from Serhant.
“Contracts signed are an indicator of demand in good time and have recorded one of the slowest finishes in any year since 2008,” according to Brown Harris-Stevens.
However, brokers say they remain bullish and many expect a bullish surprise in 2023, as prices stabilize and buyers find opportunities in a softer market. December was “on fire” with a frenzy of year-end deals, said Jon Gomez, co-founder of Eklund Gomez’s Douglas Elliman team.
“It really surprised us,” he said. Things really changed in December.
Gomez said one buyer paid $20 million for a Greenwich Village house that wasn’t even on the market. He said a real estate investor had submitted offers for four separate apartments in new projects that “look as if they would be accepted today”.
Ian Slater, of Compass, said there was a significant “disconnection” in the market in August and September, with a wide gap between buyers and sellers and the market starting to weaken. “Now I see buyers accepting interest rates as the new normal and feeling more comfortable buying — or at least that rates aren’t going down.”
Gomez said one of the reasons for the explosion of activity in December was foreign buyers, who began returning to the city in December. With the dollar weakening slightly and travel restrictions lifted around the world, brokers say buyers from the Middle East and China returned in December.
Brokers say buyers also use cash to avoid higher interest rates and take advantage of lower rates. And developers with new apartment buildings on the market lower prices to offload unsold apartments.
“Developers are realistic, they compromise on price and lock in costs,” he said. “I feel optimistic about next year.”