Manhattan’s Residential Sales Market Finally Feels Shaky Economy’s Effects

The slowdown is a sign that Manhattan’s residential market is beginning to return to pre-pandemic conditions, said Jonathan Miller, CEO of appraisal firm Miller Samuel and author of the Elliman report. But a return to normal isn’t exactly good news.

“I think that 2023 is going to be the year of disappointment,” Miller said. “Sellers aren’t going to get the prices they were expecting in 2021, and buyers aren’t going to get the significant improvement in affordability.”

Instead, an uptick in mortgage rates — at the end of 2022, the rate on a 30-year, fixed-rate mortgage reached 6.67 percent, more than double at the start of the year — are putting pressure on prospective buyers, while inventory remains historically tight in Manhattan. And sellers will see any drop in price as a loss, despite the fact that Manhattan’s median sales price was still 10.2 percent higher in the fourth quarter of 2022 than it was in the fourth quarter of 2019, Miller said.

In other words, as the market begins to tip toward purchasers, there’s a mismatch between buyers’ and sellers’ expectations and realities, said Greg Heym, chief economist for real estate firm Brown Harris Stevens. 

“Sellers initially are always going to be reluctant [to lower prices],” Heym said. “The buyer is seeing everything slowing down, reading the national headlines which show even more dramatic declines in activity, the stock market coming off a bad year, and a recession. They’re looking for deals [and] they’re expecting to find them.” 

Both the sellers looking to cash in on their investment and the millennials hoping for a housing crash so they can finally afford to buy property are in for a letdown in 2023, Miller said. Condo and co-op prices will likely continue to decline but that will happen slowly, thanks to the sheer number of sellers who would have to decide to drop their sticker prices in Manhattan’s market, said Ryan Schleis, senior vice president of research and analytics at The Corcoran Group, a brokerage.

Plus, Manhattan’s low inventory will likely bolster prices in 2023, Miller said. Manhattan had 6,523 active condo and co-op listings in the fourth quarter of 2022, a 5.1 percent increase from the fourth quarter of 2021, but still just 1.8 percent above the fourth quarter of 2019, before the pandemic, Miller said. 

While the months of supply — the number of months it would take to sell out the borough’s residences — increased more than 48 percent annually in the fourth quarter per Elliman, hitting 7.7 months, that figure remained below the 20-year average in Manhattan of 8.5 months, BrickUnderground reported.

Inventory is also likely to stay low into 2023, thanks to a pandemic-caused slowdown in construction, Schleis said. Roughly 6,664 units were available in new developments in the fourth quarter of 2022 — the lowest number in eight years, said Robin Schneiderman, a managing director at Brown Harris Stevens Development Marketing.

Still, Manhattan’s housing market is likely in a stronger position to withstand turbulent economic times, since its condo and co-op prices didn’t rise as rapidly or as high relative to other U.S. cities. And the borough’s inventory still grew when compared to 2021, Schleis said.

“A potential recession’s effect on the market, at least in New York, could be relatively mild because we simply don’t have far to fall,” Schleis added. 

But sales at the top end of the market already fell in 2022.

The number of Manhattan sales above $2 million dropped 31 percent from 2021 to 2022, while sales below $2 million declined by just 22 percent, according to Corcoran’s fourth-quarter 2022 report. And a drop in condo sales above $5 million in the fourth quarter brought down the average resale price for all apartments by 14 percent, to $1.6 million, compared to the same period a year ago, according to Brown Harris Stevens’ fourth-quarter report. 

But it’s not high mortgage rates, a potential recession and layoffs hurting the wealthy’s ability to score a Manhattan condo — it’s that they maybe don’t need one, Heym said.

“Obviously, luxury buyers aren’t as concerned about interest rates because they usually pay cash, but they’re less likely to feel the urgency to buy,” Heym said. “It’s a time where people don’t have to make a move, will be very careful, and will have to see the value jump out at them.”

And luxury buyers took their time in 2022.

Luxury condos and co-ops — which the Elliman report defines as units that traded within the top 10 percent of all sales — spent around 100 days on the market in the fourth quarter of 2022, a 17.6 percent increase from the same period in 2021. Meanwhile, Manhattan condos and co-ops overall spent an average of 76 days on the market in the fourth quarter, a 2.7 percent annual increase, according to Elliman. 

Manhattan’s not alone. Luxury home sales plummeted nationwide in 2022 as investors expected home values to fall, according to a report from Redfin. Sales of luxury homes fell 38.1 percent nationwide on a year-over-year basis for the three-month period ending on Nov. 30, making 2022 the worst year on record for the luxury housing market since Redfin began tracking the data in 2012.

But the wealthiest buyers are still active, at least in the Manhattan market, said Bernadette Brennan, a luxury broker with Serhant. 

“There’s a lot of movement for people that have money, a lot of international buyers, a lot of people that are not reliant on mortgages,” Brennan said.

For example, the townhouse at 38 East 68th Street on the Upper East Side sold for $57 million to a South African buyer in October last year, the highest price per square foot, at $6,200, ever seen in the ritzy Manhattan enclave, Brennan said. The Upper East side was the most popular neighborhood for co-op sales, while Downtown Manhattan and Midtown East saw the most condo sales, according to Serhant’s fourth quarter report.

The most expensive properties are also moving fast, according to Corcoran’s report. Condo and co-op sales that closed above $5 million spent 128 days on the market in the fourth quarter of 2022, a 24 percent decrease from the same period in 2021, where those properties spent 169 days on the market. 

The average sales price for luxury condo and co-ops also rose 3.6 percent year-over-year in 2022, and constrained inventory may help keep those prices high, Miller said. While Manhattan’s luxury listings increased 7.9 percent annually to 1,459 in the fourth quarter, inventory remains 20 percent lower than 2019 levels, Miller said.

And luxury buyers are often able to score a discount on financing thanks to their relationships with lenders, avoiding high mortgage rates, Brennan said. Luxury condo and co-op listings have kept her busy in 2022 and hopefully into 2023, she added. 

“The residential condo and co-op sales, particularly not in the luxury market, will be challenging,” Brennan said. “We at Serhant are experiencing more listings than we ever have. We’re getting a lot of luxury condo and co-op listings and we’re moving them, so we feel positive about the direction of 2023.”

Meanwhile, homebuyers who rely on financing may be forced to look at smaller homes, or pushed back into the rental market, Miller said. As the age-old saying goes, it’s expensive to be poor. 

“The spike in mortgage rates has crushed the middle class,” Miller said. “Lower-wage earners tend to be renters or entry-level home purchasers, and that has been the most beleaguered segment of the housing market. …  As we exit this boom, the upper half of the market is still in a better position overall.”

As Miller puts it, 2023 will be a letdown for everyone who hopes to score a good deal on a new home or cash in at a high sales price. But in the year of disappointment, the least let down will likely be the ultra-rich.

Celia Young can be reached at cyoung@commercialobserver.com.