Manhattan has always been an epicenter of real estate allure and activity. But, like the city itself, the real estate market is ever-evolving, and current trends suggest a shift favorable to buyers. Whether you’re an avid real estate enthusiast or just casually observing, it’s evident that sellers are currently in a tough spot. This sets up a robust buy signal, evidenced by trends in leverage, price action, inventory options, and negotiation dynamics. This situation has been months in the making and is progressive in nature.
Looking at resale condo sales price per square foot over the summer, an incremental increase is evident:
- June 2023: $1,415
- July 2023: $1,427
- August 2023: $1,444
But this uptick doesn’t tell the whole story because sales data lags behind real-time market conditions. This delay stems from the time gap between when a contract is signed and the final sales price is officially recorded, sometimes spanning a few months. As a result, relying on this delayed data to determine current property pricing is akin to using a rearview mirror to navigate forward; it reflects past conditions rather than the current landscape. Sellers basing their pricing strategy on such historical data might find themselves misaligned with the prevailing market sentiment, risking either overpricing or underpricing their listings.
Lagging Sales Data
If we break down the recorded sales that make up the months of June, July, and August, it’s obvious that the sales are mostly deals done two months prior. June’s sales reflect April’s deal activity, July’s reflect May’s, and August’s reflect June’s. Hence, it’s a rearview mirror approach. This may work while the market moves in one direction, but when the data is slow to reflect real-world changes, buyers and sellers diverge.
Now, let’s look at the contracts signed in July, August, and September, below. We can see that while August’s median ($1,456) was higher than July’s ($1,439), the September median (and granted, the month is not over yet) is the lowest by far ($1,406).
Also, notice that the number of deals signed at or above $3,000 per square foot has fallen each month, a sign that luxury activity, typically a bellwether for Manhattan, has abated. Taken together, the decline in contract price per square foot and the shrinking number of “big” deals suggest a market actively contracting.
As new listings come online for the fall, sellers who’ve had their properties on the market since summer are increasingly vulnerable to offering discounts and flexible negotiations. This vulnerability, combined with over four months of market uncertainty, suggests a growing sell-side fatigue.
To wit, looking at sales prices by the date the contract was signed (instead of the month the sale closes) and comparing that to the median last asking price for contracts that month shows that although Manhattan prices in the long term are relatively stable, recent deals are signaling a drop in prices.
This presents a challenge for sellers today. First, many sellers rely on recent comps to guide their pricing strategy. As shown above, relying on this method will base prices on sales that occurred in a different market, where buyers were more active, and prices were rising. The second challenge for sellers is time on the market and its knock-on effects. Sellers who listed in the spring or summer and have yet to ink a deal now find themselves painted as stale and ignored by value shoppers and also suddenly in competition with more listings at more competitive prices. In short, a shifting market brings out competition. When sellers compete, buyers win. And that’s really the main point of today’s essay.
But first, let’s dig into the shift.
Sellers Compete, Buyers Win
There are three reasons, in particular, that underscore the shift in the market.
Contract Activity Breaks Lower
Liquidity, or the 30-day rolling window of contract activity, is setting new lows, typically a signal that sellers may be more open to lower bids as buyer activity fades.
The Climate Index Cools
This index measures the ratio of listings going into contract versus those going off the market. A decline in this metric suggests a more challenging environment for sellers. The data from the past months, while showing a minor uptick from August, confirms a significant market shift from what was once a neutral-to-easy selling environment.
Sellers’ Listing Success Rate Wanes
Another compelling factor is the declining rate of listing success. A chart tracking the percentage of listings (based on the month listed) that successfully go into contract or close, shows a marked decline since 2021. This trend reiterates the transition from an earlier buoyant market to a challenging one.
Yet, for all its challenges, the market isn’t entirely bleak, especially for discerning buyers. Those who are willing to look, make some concessions, and invest in some interventions could find decent value in today’s market. Remember, while we’re seeing these patterns in real time, it will take another several months for closed sales data to confirm these insights. For motivated buyers, this is the time to act, as you have choice, leverage, and less pressure than usual during a typically busy season.
Advice for Sellers
For existing sellers with a property on the market for over 90 days, the landscape is daunting. With newer listings vying for attention, if there hasn’t been any bidding activity within 30 days, it’s time to reconsider your pricing, especially as demand might see a seasonal uptick in October. For those considering listing now, it’s crucial to grasp the present buyer’s hesitation. Few properties are being rewarded, while many are being met with less enthusiastic bids, especially ones deemed needing renovations. Pricing should be strategic, and expectations must be realistic.
Advice for Buyers
The present landscape is a window of opportunity for buyers to influence sellers to meet their terms. With the triple challenges of sagging liquidity, dwindling listing success, and an overall shifting climate, desperate sellers are more amenable to negotiation. The key is to strike a judicious balance between assertiveness and pragmatism, ensuring the deal doesn’t slip through.
Buyers Have the Advantage
The Manhattan residential sales market, like many economic landscapes, ebbs and flows in response to a myriad of internal and external factors. The recent data underscores a transitional phase marked by a rise in seller challenges and a simultaneous uptick in buyer opportunities.
Sellers are advised to remain nimble, frequently reassessing their strategies in line with emerging market trends. Buyers, meanwhile, stand in an advantageous position, presented with a broader spectrum of choices and increased negotiation leverage. However, as with any transitional phase, the market’s trajectory is not set in stone. Participants and professionals must remain vigilant, continuously adapting to the market’s shifts, especially as they affect hyper-local areas. Understanding these trends and taking strategic action will be the key to success for both buyers and sellers in the coming months.
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