Are We Nearing The End Of The Seller Market In New York City Real Estate?

The Manhattan real estate market remains very competitive. Monthly contract activity is still running 30% above seasonal averages, with monthly new supply running almost 25% above typical levels. After a year-plus buying frenzy, the market is showing signs that it may be slowing down. Demand appears to be moving from white-hot to red-hot, suggesting that Manhattan may be moving from a seller’s market toward a more stabilized market.

The Return of Supply

After spiking post-pandemic to nearly 10,000 units, actively-listed inventory in Manhattan fell below 5,000 in January, its lowest level in four years. This drought of listings conditioned buyers to pounce as soon as possible, increasing competition and prices, similar to the 2013-to-2015 peak when inventory averaged closer to 4,000. At that time, listing discounts were non-existent, and apartments routinely traded above their asking price. Today, while overall inventory is below recent averages, it is on the uptrend, driven, in part, by several months of higher than average new listings. In short, after remaining on the sidelines for the last year, sellers are increasingly ready to take advantage of advantageous market conditions.

Is Demand Finally Taking Its Foot Off The Gas?

At the same time that sellers are finally stepping up, buyers might be ready to take a breather. It might not look like much, and it’s certainly not 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 are typically the biggest months for signed contracts, and the expectation is that the number of contracts would rise, not fall, from March into April. So, a dip now, albeit slight, suggests that Manhattan’s buying frenzy may be settling down to more typical levels. Granted, buy-side activity remains about 30% higher than usual, but since new listings are also coming in at an elevated rate.

What is unseen is that that balance is precarious. As long as supply and demand rise and fall in tandem, the market works: neither the buy-side or sell-side has too much leverage, and activity continues. However, when balance shifts suddenly and overwhelmingly 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 a glut of units that becomes a drag on activity and prices.

Looking at days on market, or the time it took a seller to find a buyer, units over $5 million are now staying on the market a bit longer than they were earlier in the year, while other price points are trending sideways. Luxury units were a driving force for the last market push, so the increased time it’s taking for expensive deals to happen further suggests that Manhattan’s market is less exuberant than it was at the end of 2021. Even with 30% more demand than normal, buyers are not in a rush to strike deals.

Finally, a comparison of first versus last asking prices for resale units shows that buyers are not giddily following the road to higher prices. While the median first asking price is now tied with 2017’s record-high of $1.395 million, the median last asking price hasn’t increased since October. In fact, it’s fallen. This divergence suggests that current sellers may be overreaching, and may be contributing to the increased time on market. Buyers are not interested in chasing higher prices and making their choice known through inaction.

Listing Discount

As noted above, despite a slight slowdown in deal activity, the marketplace remains highly competitive. As buyers compete with one another, discounts disappear. In fact, for highly sought-after units, discounts can turn negative, meaning buyers pay over the asking price to seal the deal. During the 2014-to-2015 market peak, deals for units on the market less than two weeks were regularly traded at negative discounts. The question for buyers then was not “how much can I save?” but “how much extra should I spend?”. Since 2021, however, only a few months have seen the bulk of deals trading over ask. Today's competition seems tame compared to the 2014-to-2015 market, especially given well above-average deal volume. In general, Buyers appear more pragmatic than their peers several years ago, unwilling to buy for the sake of buying.

What to Look Out For

As the busy season reaches its peak (traditionally in mid-May), keep an eye on the weekly contract signed numbers. Compared to last month or last year, a slowing pace would further suggest the wave of buyers is ebbing. Combined with the higher-than-average number of new listings coming to market, the scale could tip from a seller’s market to a neutral market.

Conclusion

Current market dynamics, such as the lack of buyer over-enthusiasm, indicated by the slight slowdown in deal activity, increasing luxury days on market, and mediating last asking price suggests that the seller’s market in Manhattan real estate may be fading. As the market heads into the busiest time of year, the subtle shift in dynamics hints that a more normal state of affairs is on the way, where negotiation is a part of any deal. In other words, back to normal.