What an Ugly Yr for Manhattan Luxury Condos & Co-ops, However the Market Got here Unglued in 2016

“It was more drama than any market could withstand as Manhattan sellers started slashing prices.”

By Wolf Richter for WOLF STREET.

The luxury housing market in Manhattan didn’t quite descent to the levels seen after the Lehman Brothers blowup, but close, and it totally wiped out the euphoria that had reigned from 2013 into 2015 when some of the most glorious mind-bending global-headline-grabbing deals were signed and touted.

Sales of Manhattan condos, co-ops, and townhouses, in terms of signed contracts, with prices of $4 million or more plunged by 31% in 2020, from 2019, to just 645 contracts signed, according to data by Olshan Realty. This was the lowest number of contracts signed since 2011, after having already dropped by 16% in 2019, by 5% in 2018, and by 18% in 2016 – with a 6% false-hope uptick in between in 2017. The Pandemic, which had pulled the rug out from under the market in the spring, just accelerated the process:

Signed contracts for homes in the trophy category of $10 million-plus plunged by 42% in 2020 from the prior year, to just 106 sales, down by 61% from peak-luxury euphoria year 2014 (270 sales).

The dollar volume of contracts signed in 2020 plunged by $2.6 billion, or by 33% from 2019, to $5.1 billion, and was down by $6.2 billion, or by 55%, from the $11.3 billion volume in peak-luxury euphoria year 2014:

Developers trying to unload their luxury inventory have faced stiff headwinds for the third year in a row, with just 206 sales in the $4 million-plus category, down 26% from a year ago, after sales in this category had already plunged by 35% in 2019. The number of contracts signed in 2020 was down 57% from peak euphoria year 2014 (481 contracts signed).

“Not since the bleak days of Lehman Brothers crash in September 2008 and the subsequent fallout into March 2009 has the Manhattan luxury real estate market experienced such an unpredictable and disruptive impact as the Covid-19 pandemic,” wrote Donna Olshan in the Luxury Market Report 2020.

The underlying market dynamics are not pretty. The average number of days on the market before a sale occurred soared to 589 days, “mostly because developers were reluctant to discount inventory, often at their own peril,” says Olshan:

In order to get buyers interested, sellers cut prices on average by 12% from original asking price before a contract was signed, up from 10% last year, and up from 3% and 4% during the euphoria years 2013 and 2014, according to Olshan Realty’s data:

The report ascribes the accelerated downturn in Manhattan’s luxury real estate to these factors:

  • Change in federal tax law that capped the deduction for mortgage interest on home purchases of $750,000 and up.
  • Change in federal tax law that capped the deductions for state, local, and real estate taxes at $10,000.
  • State of New York’s increased mansion and transfer taxes and changed rent laws “that discouraged investors.”
  • And the Pandemic, which “sent buyers running for the Hamptons, suburbs, and beyond.” The now famed exodus.

“It was more drama than any market could withstand as Manhattan sellers started slashing prices,” Olshan says.

But sharply lower prices and record low mortgage interest rates are bringing in buyers, and sellers are now willing to take huge losses to get rid of their condos that they’d bought at peak euphoria. And so, in the fourth quarter, volume rose above last year’s level. But Olshan cautions, “This is not to imply that the 4th quarter’s performance will extend into next year’s first quarter. After all, we live in unpredictable and disruptive times.”

The bloodletting in the Manhattan luxury market for sellers who’d bought during the euphoria and had paid epic prices for their condos is becoming legend, including earlier in December a $12-million loss on a condo on “Billionaire’s Row” that the seller had acquired in 2014, one among many big-money losers in the same condo tower. Read…  Manhattan Luxury Condos See Demand, But at Much Lower Prices with Big Losses for Sellers

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