The Short:
When compared to 2021, Manhattan Luxury Market (as defined by all sales over $4M) sales continue to show a robust market, but given the lengthy closing timeframes in New York, looking at Contracts Signed both in Q2 and Year to Date for 2022, a slow down is evident in the luxury market, when compared to 2021.
The Quarterly reports will show a hint of this given that Jan and Feb 2022 were stronger than 2021, however, the Manhattan market didn't really take off until March and April 2021, so 2022's contract signed activity when comparing to March and later becomes much more telling.
We are seeing a slow down of contract activity above $4M since March and especially in the $8M+ sector of the market as ultra wealthy buyers pause their searches or wait to see where the market is going. Given how robust Q1 2022 reports were, sellers and brokers respectively pushed prices up, exactly at the moment that equity markets started to waiver and drop and mortgages rose quickly.
The "R" (Recession) word is being mentioned for the first time in several years, so that is influencing their buying decisions as well.
Perspective:
While the luxury market was high on the sales side, contracts have dropped significantly starting in April and continuing into May and June which to me are key months to look at as traditionally they are the end of the Spring market and usually are one of the most robust months in the sales cycle each year. When you take out 2020 and 2021, 2022 is still an extremely robust luxury sales year when comparing to any year since 2015 (the last peak). Contract activity is more than double in 2022 for some price categories, when looking at Jan 1 to June 28 of 2022 compared to prior years.
2021 Anomaly
It will be hard to replicate 2021 in any year, given the sheer number of people who made life decisions to move in 2021 after vaccination rollouts and 18 months of living under a pandemic. So we must look at the numbers compared to Q2 2021 with a grain of salt, because pent up energy in the market resulted in the most robust selling year in the last 8 with 30% more contracts in 2021 than any other year in Manhattan sales, period.
Weak Points?
The 8M+ market shows signs of pull back - contract activity is well down over 2021 and this is the market which drove contract activity from 27-30 contracts per week to over 45 contracts signed per week. In fact in 2021, some weeks the $6M+ market was stronger than the $4-6M market. For May and June 2022, the 4-6M sub sector is the strongest performing sector above $4M, in Manhattan.
Prediction
If Q2 closed sales reports don't point to the slow down that we are already seeing in the upper end of the market and caution against over exuberance by sellers and their listing brokers, we will find ourselves watching price reductions increase for existing properties in Q3. Sellers who plan to list between now and Q3 should price accurately vs. reaching for the stars. Why? Buyer activity is down and your days on the market counter will clock up each day the home sits without a contract. By the end of September, I expect some sellers will start to acknowledge that 2021 was the anomaly that we knew but wouldn't believe that it was and need to reduce pricing in the 8M plus market.
Devil's Advocate
The rental market is still extremely tight and it may see some rise in inventory as sellers who are not able to sell in this market at the price they were hoping for, turn to the rental market to wait out the market. One property at Greenwich Lane in April was on the market for $5M+ for many months and did not sell. The owner put it on the rental market and within 24 hours, they had 50 inquiries and sent a lease out within 2 days 'well over ask' per the listing broker. Some clients looking at 2-Bedroom luxury condos downtown are looking at $18,000 per month asking prices over 2021 when the same unit was asking closer to $13,000. This is across the board. Luxury rentals are getting snapped up as well, with properties asking $25-30K in 2021 now asking closer to $40K.
2021 Q3 & Q4 Contract Activity was the most robust of any year since 2015, and in some instances compared to 2012-2014 as well. It will be hard to match that activity in 2022, given rising inflation, mortgages, Cost of Living, etc. I anticipate that unless buyers jump in to secure deals in Q3 and Q4, we will see a continued "slow down" in 2022 compared to 2021.
Things to Keep In Mind:
- 2021's banner year was driven in part by vaccines taking hold, people choosing to change their living arrangements - either buying in New York by expanding living space or moving to NYC from other areas - either for 2nd / 3rd homes or actual primary living.
- There is a lot of movement to NYC in the Fin-Tech Sector due to many buyers choosing to move to NYC from the West Coast and the San Francisco Bay area in particular.
- We have gone from a high of 35-40+ contracts a week in June of 2022 to about 18-25 contracts per week, for units priced above $4M in Manhattan (June 2022).
- The 4-6M price point has continued to be steady and the biggest volume of contracts signed since April in the $4M plus, while the upper end of the market has slowed considerably against 2021.
Buyers Getting Ahead of the Mortgage Rate Increases?
- This really happened straight out of the gate in Jan / Feb and early March. I do believe that the surge of buyer activity, especially under $3.5M in Manhattan in the end of 2021 and early 2022 was driven by low interest rates and many buyers in the entry level competing against each other for 2 bedroom apartments and small 3 bedroom units. The numbers show the rise in 2 Bed sales in multiple categories or areas over 2021 and that to me speaks to the re-sales of 1-2 Beds surging, which was most impacted by lower mortgage rates. That said, 5.5% is still historically a great interest rate, and buyers may continue to be motivated to buy in Manhattan, due to surging rental prices which make the cost of buying much closer to renting than in prior years.
Where is new inventory coming from? Who is selling and why?
- Sellers in the luxury and especially the downtown penthouse market tend to be those who are not using their penthouses as their primary residence in the city any longer or have moved overseas or to other areas of the country. As owners get used to their new lives of less travel and new homes or rooted in new areas, I find they are the ones to list at the moment.
- Others sellers are people who are aging out of the city or their current homes or are looking to downsize. Given great market reports from 2021 and early 2022, some sellers are opportunistic, but in the general market, sellers have a life reason that they are listing to sell at the moment. Job changes, life or marriage changes, kids, etc. Move to the suburbs for more space or green space for their families or themselves.
Why is Real Estate Worth Buying Now?
- In prior downturns when equity markets were getting crushed, Manhattan real estate became a safe haven for many, including high net worth individuals, mixing financial / portfolio needs with client objectives to have a New York home due various personal or professional reasons including hedging against stocks or portfolios which lost 30%+ vs. smaller increases or decreases in value.
- Also worth noting - the market surge in 2021 was driven by domestic demand, not international. The international sector really hasn't yet come back in Manhattan in the way it drove the surge of 2012-2014 in Manhattan luxury real estate.
- Times of global uncertainty increases people's need to 'nest' which historically has benefitted the real estate market in New York
- Prices, while facing some upward pressure in the luxury sector in 2021, did not rise to 2015 levels in most cases - so 2021 and 2022 prices still lag behind 2013-2017 prices for many properties, so while our volume peaked, in most cases prices above $8M did not come close to the prior peak, though in Q1 2022 sellers were starting to push for higher prices.
Why is 2022 still Robust When Compared to Prior Years?(Jan 1 - Jun 28) ?
- 10M+ Contracts Signed: 2022: 145 vs. 2019: 73
- 6-10M Contracts Signed: 2022: 244 vs. 2019: 114
- 4-6M Contracts Signed: 2022: 391 vs. 2019: 171
- 2-4M Contracts Signed: 2022: 1,354 vs. 2015: 587 (the last peak #)
Bottom Line:
In comparison to 2021, 2022's luxury market contract activity has started to show some pullback since mid to late March, 2022 - however when compared to pre-pandemic years, 2022 continues to be very robust on all levels.
That said, come fall, if inventory rises and contract activity above $8M continues to be slower than 2021, sellers and selling brokers will need to adjust their expectations and price more accurately to account for the reduced volume of buyers and contracts that are being signed. It is palpable and real. Current sellers should get ahead of the market and price accurately to sell quickly especially if a home is not turnkey and truly special. I'll be keeping an eye on market activity as we move further into 2022, to keep you abreast of where I see the market going in real time.
Tony Sargent
Source of Information: Compass.com
(C) 2021 Tonysargentnyc
Photo: DDREPS
