Manhattan apartment sales fell in the fourth quarter, with brokers fearing a market freeze

Manhattan apartment sales fell in the fourth quarter, with brokers fearing a market freeze
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Craig Warga | Bloomberg | Getty Images

Apartment sales in Manhattan fell 29% in the fourth quarter, prompting fears of a frozen market, with buyers and sellers staying out due to economic and price fears.

Douglas Elliman and Miller Samuel reported 2,546 sales in the quarter, compared with 3,560 last year. The decline was the largest since the third quarter of 2020, deep into the pandemic.

Prices also fell for the first time since the start of 2020, with the average price down 5.5%.

The drop in both sales and prices marks the end of a roaring comeback in Manhattan real estate since the worst days of the pandemic, raising fears of continued weakness into the new year. Rising interest rates, a weak economy and a stock market crash that has had a major impact on Manhattan real estate will weigh on the market this year.

Analysts say their biggest concern is the lingering conflict between buyers and sellers — with sellers reluctant to list amid falling prices and buyers putting off their search until prices drop further.

“I could see the market moving sideways, modest declines in some sectors,” said Jonathan Miller, CEO of valuation and market research firm Miller Samuel. “And amid the recession and job losses, it could weaken further.”

Although prices and sales are down, inventory remains tight as sellers maintain listings. There were 6,523 apartments on the market at the end of the fourth quarter, up just 5% from last year, but still well below the historical average of about 8,000, according to the report. Without a big increase in inventory, analysts say prices are unlikely to fall enough to bring back many shoppers waiting for a discount. According to Serhant, the average discount from the original list price to the sale price was 6.5%, up from 4.1% in the third quarter.

Rising interest rates have moved more Manhattan buyers to all-cash deals, which accounted for 55% of all sales in the fourth quarter, according to Miller.

As with much of the recovery, the high-end and luxury segment remains the strongest. Median sales prices for luxury apartments — defined as the top 10% of the market — rose 4% in the fourth quarter, compared with a decline in the broader Manhattan market. Median prices for luxury apartments rose 21% year-over-year in 2019, double the price of the broader market.

Forecast for 2023

Deals in the works or recently signed indicate a slow first quarter. According to Brown Harris Stevens, a total of 2,312 deals were signed in the fourth quarter, down 43% from last year. According to Serhant’s report, the quarter was the worst for new contracts signed in a decade.

According to Brown Harris Stevens, “Signed contracts are a more timely indicator of demand and have been recorded as one of the slowest completions for each year since 2008.”

Still, brokers say they are optimistic, with many predicting a bullish surprise in 2023 as rates stabilize and buyers find opportunity in a softer market. John Gomes, co-founder of the Eklund Gomes team at Douglas Elliman, said December was “igniting” with the frenzy of year-end deals.

“It really caught us off guard,” I said. “Things really changed in December.”

Gomes said one buyer paid $20 million for a townhouse in Greenwich Village that wasn’t even on the market. He said the real estate investor was offering four separate apartments in the new developments “to be accepted today”.

Compass’s Ian Slater said August and September saw a major “fragmentation” in the market, with a wide gap between buyers and sellers and the market starting to weaken. “Now I’m seeing buyers accept interest rates as the new normal and feel more comfortable buying — or at least prices aren’t falling.”

Gomes said one reason for the increase in activity in December is foreign buyers starting to return to the city in December. Buyers from the Middle East and China returned in December, brokers said, with the dollar weakening slightly and travel restrictions lifted around the world.

Buyers also use cash to avoid high interest rates and take advantage of low prices, brokers say. And developers with new residential buildings on the market are lowering prices to free up unsold apartments.

“Developers are realistic, compromising on price and closing costs,” he said. “I feel optimistic about next year.”

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