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Manhattan apartment sales drop in fourth quarter, brokers fear frozen market

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Craig Warga | Bloomberg | Getty Images

Manhattan apartment sales fell 29% in the fourth quarter, sparking fears of a frozen market where buyers and sellers are sidelined by economic and rate fears.

There were 2,546 sales for the quarter, down from 3,560 a year ago, according to a report by Douglas Elliman and Samuel Miller. The drop was the biggest since the third quarter of 2020, during the height of the pandemic.

Prices also fell for the first time since the start of 2020, with the average price down 5.5%.

The dips in sales and prices mark the end of Manhattan’s real estate boom after the worst days of the pandemic and raise fears of continued weakness into the new year. Rising interest rates, a weaker economy and a slumping stock market, which have an outsized impact on the Manhattan housing market, are likely to weigh on the market this year.

Analysts say their biggest concern is a prolonged standoff between buyers and sellers – with sellers reluctant to list amid plunging prices and buyers halting their pursuits until prices fall further.

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

Even as prices and sales drop, however, 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 last year, but still well below the historical average of around 8,000. Without a big increase in inventory, analysts say prices likely won’t drop enough to lure back many buyers hoping for discounts. The average discount from the initial list price to the selling price was 6.5%, compared to 4.1% in the third quarter, according to Serhant.

Rising interest rates also prompted more Manhattan shoppers to take cash deals, which accounted for 55% of all sales in the fourth quarter, the most on record, according to Miller.

As with much of the recovery, the high-end and luxury segment remains the strongest. Average sale prices for luxury apartments — defined as the top 10% in the market — rose 4% in the fourth quarter, compared with a decline in the broader Manhattan market. Average prices for luxury apartments are up 21% from 2019, double the increase in the broader market.

Perspectives for 2023

The pipeline of deals in progress or recently signed suggests a sluggish 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 a decade, according to a Serhant report.

“Contracts signed are a timely indicator of demand and have registered one of the slowest completions since 2008,” according to Brown Harris Stevens.

Brokers, however, say they remain bullish and many are predicting an upside surprise in 2023 as rates stabilize and buyers find opportunities in a weaker market. John Gomes, co-founder of Douglas Elliman’s Eklund Gomes team, said December was “on fire” with an end-of-year business frenzy.

“It really caught us off guard,” he said. “Things really changed in December.”

Gomes said a buyer paid $20 million for a Greenwich Village townhouse that wasn’t even for sale. He said a property investor had made offers for four separate apartments in new developments “that look like they’ll be accepted today.”

Ian Slater of Compass said there was a big “disjunction” in the market in August and September, with a big split between buyers and sellers and the market started to weaken. “Now I’m seeing buyers accept interest rates as the new normal and feel more comfortable buying — or at the very least, that prices aren’t falling.”

Gomes said that one of the reasons for the boom in December is foreign buyers, who started returning to the city in December. With the dollar weakening slightly and travel restrictions tightening around the world, brokers say buyers from the Middle East and China have 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 slashing prices to get rid of unsold apartments.

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