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Manhattan home sales fell 29% in the fourth quarter, sparking fears of a frozen market where buyers and sellers are left on the sidelines on economic and interest rate fears.
According to a report by Douglas Elliman and Miller Samuel, there were 2,546 sales in the quarter compared to 3,560 a year earlier. The drop was the largest since the third quarter of 2020, in the depths of the pandemic.
Prices also fell for the first time since early 2020, with the median price falling 5.5%.
The declines in both sales and prices mark the end of Manhattan real estate’s spectacular comeback from the worst days of the pandemic and raise fears of continued weakness in the new year. Rising interest rates, a weaker economy and a falling stock market, which is disproportionately impacting Manhattan real estate, are likely to weigh on the market this year.
Analysts say their biggest concern is an ongoing standoff between buyers and sellers – with sellers unwilling to list amid falling prices and buyers pausing their search until prices fall further.
“I could see the market moving sideways with some slight declines in some sectors,” said Jonathan Miller, CEO of Miller Samuel, the valuation and research firm. “And it could weaken further if the backdrop is recession and job losses.”
However, even as prices and sales fall, inventories remain tight as sellers hold back offerings. At the end of the fourth quarter, 6,523 apartments were on the market, up just 5% year-on-year, but still well below the historical average of around 8,000, according to the report. Without a big increase in inventories, analysts say prices are unlikely to fall sharply enough to lure back many shoppers waiting for discounts. According to Serhant, the average discount from original list price to retail price was 6.5%, up from 4.1% in the third quarter.
Rising interest rates have also lured more Manhattan buyers to all-cash deals, which Miller said accounted for 55% of all sales in the fourth quarter, the highest on record.
As with much of the recovery, the high-end and luxury segment remains the strongest. Median selling 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. Average luxury apartment prices are up 21% compared to 2019, twice the rate of the broader market.
The outlook for 2023
The pipeline of deals in the works or recently signed suggests a slow first quarter. According to Brown Harris Stevens, just 2,312 deals were signed in the fourth quarter, down 43% year over year. The quarter was the worst for new contracts signed in the past decade, according to a report by Serhant.
“Signed contracts are a timely indicator of demand and recorded one of the slowest completions since 2008,” said Brown Harris Stevens.
However, brokers say they remain optimistic, 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 frenzy of year-end deals.
“That really surprised us,” he said. “Things really took a turn in December.”
Gomes said a buyer paid $20 million for a Greenwich Village townhouse that wasn’t even on the market. He said a real estate investor had made bids for four separate apartments in new developments “that look set to be accepted today”.
Compass’ Ian Slater said there was a major “disconnect” in the market in August and September, with a large gap between buyers and sellers and the market had started to weaken. “Now I’m seeing that buyers are accepting interest rates as the new normal and feeling more comfortable about buying — or at least that prices aren’t falling.”
Gomes said one reason for the surge in activity in December was foreign shoppers, who began returning to the city in December. As the dollar weakened slightly and travel restrictions were lifted around the world, brokers said buyers from the Middle East and China returned in December.
Brokers say buyers are also using cash to avoid the higher interest rates and take advantage of lower prices. And developers with new apartment buildings on the market are slashing prices to offload unsold apartments.
“Developers are realistic, they make concessions on price and acquisition costs,” he said. “I’m optimistic for the coming year.”