Manhattan apartment sales fell by 29% in the fourth quarter, sparking fears of a frozen market in which buyers and sellers stay on the sidelines due to economic and rate fears.
There were 2,546 sales in the quarter, down from 3,560 last year, according to a report from Douglas Elliman and Miller Samuel. The decline was the largest since the third quarter of 2020, during the depths of the pandemic.
Prices also declined for the first time since early 2020, with the median price down 5.5%.
The declines in both sales and prices mark the end of the roaring comeback in Manhattan real estate after the worst days of the pandemic and raise fears of continuing weakness into the new year. Rising interest rates, a weaker economy and a falling stock market, which has an outsized impact on Manhattan real estate, are all likely to weigh on the market this year.
Analysts say their big worry is a prolonged standoff between buyers and sellers — with sellers unwilling to list amidst 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 appraisal and market research firm. “And it could weaken further if there is the backdrop of recession and job loss.”
Even as prices and sales drop, however, inventory remains tight as sellers hold off on listings. There were 6,523 apartments on the market at the end of the fourth quarter, according to the report, up only 5% from 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 fall enough to lure back many buyers waiting for discounts. The average discount from initial list price to sales price was 6.5%, up from 4.1% in the third quarter, according to Serhant.
Rising interest rates have also moved more Manhattan buyers into 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 sale prices for luxury apartments — defined as the top 10% of the market — increased 4% in the fourth quarter, compared to a decline in the broader Manhattan market. Median prices for luxury apartments are up 21% compared to 2019, twice the increase as the broader market.
The outlook for 2023
The pipeline of deals in the works or recently signed suggests a slow first quarter. There were only 2,312 contracts signed in the fourth quarter, down 43% over last year, according to Corcoran. The quarter was the worst for new contracts signed in the past decade, according to a report from Serhant.
“Contracts signed are a timelier indicator of demand and registered one of the slowest finishes to any year since 2008,” according to Corcoran.
Brokers, however, say they remain optimistic and many are predicting an upside surprise in 2023, as rates stabilize and buyers find opportunities in a softer 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 caught us off guard,” he said. “Things really turned around in December.”
Gomes said one buyer paid $20 million for a townhouse in Greenwich Village 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.”
Ian Slater at Compass said there was a big “disjoint” in the market in August and September, with a wide divide between buyers and sellers and the market started to weaken. “Now I am seeing buyers accept interest rates as the new normal and feel more comfortable purchasing — or at a minimum that prices aren’t falling.”
Gomes said one reason for the December burst of activity is foreign buyers, who started to return to the city in December. With the dollar weakening slightly and travel restrictions lifting around the world, brokers say buyers from the Middle East and China returned in December.
Brokers say buyers are also using cash to avoid the higher interest rates and taking advantage of lower prices. And developers with new apartment buildings on the market are lowering prices to unload unsold apartments.
“Developers are being realistic, they’re making concessions on price and closing costs,” he said. “I feel optimistic about the coming year.”
Correction: There were 2,312 Manhattan apartment contracts signed in the fourth quarter, according to Corcoran. An earlier version of this story misstated the source of that figure.