Fourth Quarter Apartment Sales in Manhattan Plunge, Brokers Fear Market Freeze

In the fourth quarter, sales of apartments in Manhattan dropped by a significant 29%, leading to worries that the market could become stagnant as buyers and sellers hesitate due to economic and rate concerns.

The report from Douglas Elliman and Miller Samuel revealed that the number of sales in the quarter was 2,546, a decrease from the 3,560 sales in the same quarter last year. This was the most significant drop since the third quarter of 2020, when the pandemic was at its peak.

The median price for goods and services decreased for the first time since the beginning of 2020, with a 5.5% drop.

The recent drops in both sales and prices signify the conclusion of the strong recovery of Manhattan real estate after the most difficult period of the pandemic, and this has caused worries of further fragility in the upcoming year. It is expected that higher interest rates, a weaker economy, and a declining stock market, which has a major effect on Manhattan real estate, will all have a negative effect on the market this year.

Experts have expressed concern about a prolonged stalemate between buyers and sellers, with sellers unwilling to list their properties due to decreasing prices and buyers waiting for prices to drop even further before continuing their search.

Jonathan Miller, CEO of Miller Samuel, the appraisal and market research firm, noted that the market was trending sideways with some slight decreases in certain areas. He added that if a recession and job losses were to occur, the market could become even weaker.

Despite a decrease in prices and sales, inventory is still scarce as sellers are not putting up many listings. The report showed that there were 6,523 apartments available at the end of the fourth quarter, which is only a 5% increase from the previous year, but still much lower than the usual 8,000. Analysts believe that prices will not drop enough to attract buyers who are waiting for discounts unless there is a significant rise in inventory. The average discount from the initial list price to the sales price was 6.5%, which is higher than the 4.1% from the third quarter, according to Serhant.

As interest rates continue to increase, more Manhattan buyers are opting for all-cash deals. In the fourth quarter, these deals accounted for 55% of all sales, the highest rate ever recorded, according to Miller.

The high-end and luxury segment of the recovery is still the strongest. The median sale prices for luxury apartments, which are the top 10% of the market, rose by 4% in the fourth quarter, while the median prices for the broader Manhattan market decreased. Compared to 2019, the median prices for luxury apartments have increased by 21%, which is double the increase of the broader market.

The pipeline of deals in the works or recently signed indicates a slow start to the first quarter. Brown Harris Stevens reported that only 2,312 contracts were signed in the fourth quarter, a 43% decrease from the same period last year. Serhant's report revealed that this was the worst quarter for new contracts signed in the past decade.

Brown Harris Stevens reported that contracts signed are a more accurate measure of demand and that the end of the year was one of the slowest since 2008.

Real estate brokers are still hopeful for the future, with many forecasting a positive outcome in 2023. John Gomes, co-founder of the Eklund Gomes team at Douglas Elliman, reported that December was a busy month with a flurry of transactions.

He expressed surprise, noting that the situation had changed drastically in the month of December.

Gomes reported that a buyer had paid $20 million for a townhouse in Greenwich Village that was not even listed for sale. Additionally, he mentioned that a real estate investor had made offers for four apartments in new developments that were likely to be accepted that day.

According to Ian Slater of Compass, there was a large gap between buyers and sellers in the market during August and September. This caused the market to become weaker. However, Slater has noticed that buyers are now more willing to accept current interest rates and are more comfortable with making purchases, or at least not expecting prices to drop.

According to Gomes, a contributing factor to the December surge in activity was the reappearance of foreign buyers. As the value of the dollar decreased and travel restrictions were eased, brokers reported that buyers from the Middle East and China had come back in December.

Real estate brokers have reported that buyers are taking advantage of the current market by using cash to purchase properties and avoiding higher interest rates. Additionally, developers with newly constructed apartment buildings are reducing prices in order to sell unsold units.

The developers are being practical and offering discounts on prices and fees associated with closing, according to him. He is hopeful for the upcoming year.