The Manhattan real estate market remains highly competitive. Monthly contract activity is still 30% above the seasonal average, while monthly new supply is nearly 25% above normal. After a year plus buying frenzy, the market is showing signs that it may be slowing down. Demand appears to be shifting from white-hot to red-hot, suggesting Manhattan is moving from a seller’s market to a more stabilized one.
The return of the offer
After raising to nearly 10,000 units in the post-pandemic, Manhattan’s actively quoted stock fell below 5,000 in January, its lowest level in four years. This drought of offerings forced buyers to strike as soon as possible, increasing competition and prices, similar to the 2013 to 2015 peak when inventory averaged closer to 4,000. At the time, there were no listing discounts and apartments were routinely trading above their asking price. Today, while total inventory is below the recent average, it is on the uptrend, driven in part by several months of higher-than-average new offerings. In short, after being on the sidelines for the past year, sellers are increasingly willing to take advantage of favorable market conditions.
Is the question finally taking its foot off the gas?
At the same time that sellers are finally emerging, buyers may be ready to take a breather. It may not seem like much, and it certainly isn’t a trend yet, but the number of contracts signed in April 2022 was lower than in March 2022. They were also lower than those in March and April 2021. April and May tend to be the biggest months for signed contracts, and the number of contracts is expected to rise, not fall, from March to April. So a drop now, albeit a slight one, suggests that Manhattan’s buying frenzy could dip to more typical levels. Admittedly, buy-side activity remains about 30% higher than normal, but as a lot of new listings come in too.
What is unseen is that that balance is precarious. As long as supply and demand rise and fall at the same time, the market works: neither the buy nor the sell side has too much leverage and activity continues. However, when the equilibrium suddenly and overwhelmingly shifts to one side at the expense of the other, market activity slows. With this in mind, the best case scenario for Manhattan is that as deal volume and supply return to more normal levels in parallel, avoiding an overabundance of units that hinder activity and prices.
Looking at days in the market, or the time it took a seller to find a buyer, units over $5 million now stay on the market a little longer than they did earlier in the year, while other price points move sideways. Luxury units have been a driving force behind the latest market push, so the increased time it takes for expensive deals to happen suggests that Manhattan’s market is less lavish than it was at the end of 2021. Even at 30% more then ask normally, buy buyers are in no rush to make deals.
Finally, a comparison of the first and last asking price for resale units shows that buyers are not lazily following the path to higher prices. While the median first asking price is now equal to the all-time high of $1,395 million in 2017, the median last asking price hasn’t risen since October. In fact it has fallen. This divergence suggests that current sellers may be going too far and may be contributing to longer time in the market. Buyers are not interested in chasing higher prices and making their choice known by doing nothing.
As mentioned above, despite a slight slowdown in deal activity, the market remains highly competitive. When buyers compete with each other, discounts disappear. For highly sought-after units, discounts can even turn negative, meaning buyers pay the asking price to close the deal. During the 2014-2015 market peak, deals for units that had been on the market for less than two weeks were regularly traded at negative discounts. The question for buyers back then was not “how much can I save?” but “how much should I spend extra?”. Since 2021, however, most of the trade has been traded on demand in just a few months. Today’s competition seems tame compared to the 2014-2015 market, especially given the well above average deal volume. In general, buyers seem more pragmatic than their peers a few years ago, unwilling to buy for the sake of buying.
What do you have to pay attention to?
As the busy season reaches its peak (traditionally in mid-May), keep an eye on the drawn weekly numbers. Compared to last month or last year, a slowing pace would further indicate that the wave of buyers is ebbing. Combined with the above-average number of new offerings entering the market, the scale could swing from a seller’s market to a neutral market.
Current market dynamics, such as the lack of over-enthusiasm from buyers, indicated by the slight slowdown in deal activity, increasing luxury days in the market and brokering the final asking price, suggest that the seller’s market in Manhattan real estate may be fading. As the market enters its busiest time of the year, the subtle shift in dynamics indicates a more normal course of business is on the way, with negotiation a part of any deal. In other words, back to normal.