Manhattan apartment sales plunge in Q4, brokers fear market freeze

Manhattan apartment sales plunge in Q4, brokers fear market freeze
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Apartment sales in Manhattan fell 29% in the fourth quarter, raising fears of a frozen market with buyers and sellers on the sidelines amid economic and rate fears.

There were 2,546 sales in the quarter, down from 3,560 a year ago, 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 median price falling by 5.5%.

The declines in both sales and prices mark the end of a great comeback for Manhattan real estate after the worst days of the pandemic and raise fears that weakness will continue into the new year. Rising interest rates, a weaker economy and a stock market crash, which has an outsized impact on Manhattan real estate, will likely weigh on the market this year.

Analysts say their biggest concern is an ongoing showdown between buyers and sellers: sellers unwilling to bid amid falling prices, and buyers pausing their searches until prices fall further.

“I can see the market moving sideways, with some modest declines in some sectors,” said Jonathan Miller, managing director of Miller Samuel, the market research and assessment firm. “And it could weaken further if there is a context of recession and job losses.”

However, even when prices and sales drop, 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, just 5% more than last year but still well below the historical average of around 8,000. Without a large increase in inventory, analysts say prices are unlikely to drop enough to attract many shoppers hoping for discounts. The average discount from the initial list price to the sale price was 6.5%, compared with 4.1% in the third quarter, according to Serhant.

Rising interest rates have also led more Manhattan buyers to all-cash deals, 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 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 increased 21% compared to 2019, double the increase than the overall market.

The prospects for 2023

The pipeline of deals in process or recently signed suggests a slow first quarter. Only 2,312 contracts were signed in the fourth quarter, down 43% from last year, according to Brown Harris Stevens. The quarter was the worst for new contracts signed in the past decade, according to a report by Serhant.

“Contracts signed are a more timely indicator of demand and posted one of the slowest finishes of any year since 2008,” according to Brown Harris Stevens.

Brokers, however, say they remain bullish with many predicting an upside surprise in 2023 as rates stabilize and buyers find opportunity 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.

“It really took us by surprise,” he said. “Things really changed in December.”

Gomes said a buyer paid $20 million for a Greenwich Village home that wasn’t even on the market. He said a real estate investor made offers for four separate apartments in new developments “that look like they will be accepted today.”

Compass’s Ian Slater said there was a big “disconnect” in the market in August and September, with a wide split between buyers and sellers and the market starting to weaken. “Now I see that buyers accept interest rates as the new normal and feel more comfortable buying, or at the very least, that prices are not falling.”

Gomes said one reason for the burst of activity in December is 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 are also using 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 get rid of unsold apartments.

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

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