Manhattan apartment sales fell 29% in the fourth quarter, raising fears of a frozen market in which buyers and sellers stay away due to economic and pricing fears.
There were 2,546 sales during the quarter, compared to 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, at the height of the pandemic.
Prices also fell for the first time since the start of 2020, with the median price down 5.5%.
The drop in sales and prices marks the end of Manhattan real estate’s strong comeback from the worst days of the pandemic and raises fears of continued weakness in the new year. Rising interest rates, a weaker economy and a declining stock market, which is having an outsized impact on real estate in Manhattan, are all expected to weigh on the market this year.
Analysts say their big worry is a protracted stalemate between buyers and sellers – with sellers unwilling to list amid falling prices and buyers pausing their searches until prices fall 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. “And it could weaken further if there is a backdrop of recession and job loss.”
However, even though prices and sales are falling, inventory remains tight as sellers delay 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 around 8,000. a sharp rise in inventory, analysts say prices are unlikely to drop enough to attract many buyers waiting for discounts. The average discount between the initial list price and the sale price was 6.5%, compared to 4.1% in the third quarter, according to Serhant.
Rising interest rates also shifted more Manhattan shoppers to all-cash transactions, which accounted for 55% of all sales in the fourth quarter, the highest on record, according to Miller.
As with much of the recovery, the upscale and luxury segment remains the strongest. Median sale 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 are up 21% from 2019, twice as much as the overall market.
The outlook for 2023
The pipeline of transactions in preparation or recently signed suggests a slow first quarter. There were just 2,312 contracts signed in the fourth quarter, down 43% from a year ago, according to Corcoran. The quarter was the worst for new contracts signed in the past decade, according to a report by Serhant.
“Contracts signed are a faster indicator of demand and had one of the slowest finishes of any year since 2008,” according to Corcoran.
Brokers, however, say they remain bullish with many predicting an upside surprise in 2023 as rates stabilize and buyers find opportunities in a weaker market. John Gomes, co-founder of the Eklund Gomes team at Douglas Elliman, said December was “on fire” with a year-end deal frenzy.
“It really caught us off guard,” he said. “Things really changed in December.”
Gomes said a buyer paid $20 million for a townhouse in Greenwich Village that wasn’t even on the market. He said a property investor had made offers for four separate apartments in new developments “which appear to be accepted today”.
Ian Slater of Compass said there was a big “disjunction” in the market in August and September, with a wide gap between buyers and sellers and the market started to weaken. “Now I see buyers accepting interest rates as the new norm and feeling more comfortable buying – or at the very least prices not falling.”
Gomes said one of the reasons for December’s surge in business is foreign buyers, who began returning to the city in December. As the dollar weakens slightly and travel restrictions lift 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 prices. And developers with new apartment buildings on the market are lowering prices to unload unsold apartments.
“Developers are realistic, they make concessions on pricing and closing costs,” he said. “I am optimistic for the year ahead.”
Correction: According to Corcoran, 2,312 Manhattan apartment contracts were signed in the fourth quarter. An earlier version of this story misrepresented the source of this figure.