Manhattan apartment sales hit a six-year low last quarter and the average transaction price fell to its mark in nearly a decade.
Brokers and market trackers attribute the fall-off to prospective buyers collectively holding their breath after the federal tax reform roll-out at the end of last year. While questions linger about the impact of the new tax code as well as rising interest rates, expert see sales picking up as this year goes on.
“I don’t think it’s as doomy or gloomy as the biggest reports in the city might portend,” Douglas Wagner, executive vice president of broker services at Bond Real Estate, said. “It’s a warning to be noted but not a harbinger of another recession or anything like that.”
Bond’s report noted a 20 percent year-over-year decrease in contract activity during the first quarter and a nearly 8 percent dip in average price. Wagner said after buyers a slow start to the year, his firm saw activity creep up again in March.
However, as a smaller brokerage that specializes in resales and homes valued less than $3 million, Bond’s first quarter output was not necessarily in tune with the broader market, as its total number of properties sold fell less than four percent.
Meanwhile, Douglas Elliman saw its year-over-year sales decline by 24.6 percent, Halstead’s closings were down 30 percent and Corcoran moved 314 fewer properties, an 11 percent decline. Industry executives credit this to buyers being unwilling or unable to meet high asking prices and sellers are unwilling to drop them.
At 9.4 percent, bidding wars were at a five-year low for Douglas Elliman, said Jonathan Miller, whose appraisal and consulting firm, Miller Samuel Inc., prepared Elliman’s first quarter report. While this is lower than the average rate, which typically hovers around 6 percent, Miller said the reduced number of competitive purchases acts a sign of the times.
Specifically, he explained, last year’s tax reform caused buyers to pause and re-evaluate what they could afford.
Meanwhile, sellers who had watched fast sales and high prices flourish in recent years, held prices steady. This created a stalemate that will have to be negotiated down over time.
“Our market is expecting more impact in terms of value,” Miller said of the post-tax reform reality in New York real estate. “Over the next one to two years you’ll have a lot of price discovery that buyers and sellers will dance around until they can agree on that value.”
Miller also noted that all-cash purchases hit 53.8 percent, a 5.1 percent jump from 2017 and the highest rate he’s seen since he began tracking that statistic four years ago.
“What that tells me is that there is plenty of cash in the market,” he said. “That wasn’t a fluke during the development surge of the last several years.”
Price disparities were most evident in the newly-built luxury market, Halstead Real Estate CEO Diane Ramirez said, which felt a steeper decline than resale condos and co-ops. Often, she explained, this is because developers have paid such high premiums for land and construction, as of late, that they need to keep prices high to deliver profits to their investors.
“From a big picture standpoint, it’s clearly becoming two different markets,” Ramirez said. “There was a 30 percent decline in new development and that skews the average down. Luxury resale is actually doing very well, up 9 percent, and the co-op market, the ones that don’t fall under new development, are up 16 percent. Combined, they’re up 14 percent.”
She also attributes the declining first-quarter metrics to lagging data. Yes, Ramirez said, tax reform caused a slowdown, but that trend had already begun reversing itself early in 2018; sales from those early weeks and months simply hadn’t closed before the end of March.
“It’s just a timing issue,” she said.
Ramirez suspects 2018 sales might continue losing pace to 2017 as the market adjusts to new realities but she predicts only mild declines.
Similarly, Miller also predicted the market would level off.
“It doesn’t look like we’re going to see a continuation of this kind of decline in sales,” he said. “We may have more declines in store but I don’t expect them to be at this level.”