Steven James, CEO of New York City, Douglas Elliman

NEW YORK CITY—While the Manhattan residential sales market is still very strong, posting a median sale price of more than $1 million and an average sale price of more than $2 million, the specter of tax reform as well as the high cost of housing caused a sharp decline in sales activity in the fourth quarter of 2017.

Residential real estate brokerage firm Douglas Elliman Real Estate reports that fourth quarter closed sales in Manhattan totaled 2,514 transactions, down 25.4% from three months earlier and 12.3% from the fourth quarter of 2016. Fourth quarter 2017 sales activity in Manhattan was the lowest in the past six years, according to Douglas Elliman.

The median sale price of a residential unit in Manhattan in the fourth quarter of 2017 was $1.06 million, which marked the third consecutive quarter where the median sale price increased as compared to the same period a year earlier. However, the fourth quarter median price was 9.4% lower as compared to the third quarter 2017 median price of $1.17 million.

The median sale price of a newly developed unit in the fourth quarter was $2,744,184, down 1.9% from three months earlier and 7% from a year ago when the median price almost reached the $3-million market ($2,949,494). The median price for a resale residential unit in Manhattan in the fourth quarter was $916,425, down nearly 8% from the third quarter, but 1.8% higher than the median posted at the end of 2016.

Steven James, CEO of New York City, Douglas Elliman, says that median sale price growth was fueled by resales activity. “It is important to note that the average price of Manhattan homes fell below $2 million for the first time in seven quarters,” James notes “This can be attributed to final moments of the new development contract pipeline where deals signed several years ago have closed once construction was completed. Amid all the changes and uncertainty since Labor Day, the market is seeing modest median price growth, bidding wars remaining above average and resale inventory still fairly tight overall—especially in the entry and mid-markets.”

According to the Douglas Elliman fourth quarter report, the average sale price of a residential unit in Manhattan was $1,897,503 at year's end 2017, down 10.6% from a year earlier when the average sale price stood at $2,121,331. The third quarter 2017 average residential sale price was $2,002,835.

While James says the debate and eventual passage of sweeping tax reform legislation in late 2017 definitely had an impact on sales, he believes another key factor was the continued escalation in prices that has priced some Manhattan buyers out of the market.

Noting that buyer demand remains strong in Manhattan, rising costs have priced many potential buyers out of the market and prompted them to purchase housing in areas such as Northern Manhattan, Southern Westchester, Brooklyn and Queens.

James believes that the impact of the tax reform law may provide buyers some needed leverage. “I think that any buyer who is out there, and I believe there are plenty of buyers out there, will, as any good business person, will see an advantage here. They will see that they can use the new tax law as an instrument to get a better negotiating point for themselves.”

He adds this new buyer leverage will take time to impact the market, but he expects more prospective buyers using the tax law as a means to securing a better deal.

James also expects there will be a host of luxury residential closings registered in 2018 as high-end projects at 520 Park Ave., 432 Park Ave. and elsewhere come on-line, which would put upward pressure on the median sale price and at the very least help offset any possible leverage some buyers secure from the new tax reform law.

The median sale price of a co-op in Manhattan in the fourth quarter of 2017 was $770,000, up 2% from the same period a year earlier, while the $1,634,186 fourth quarter 2017 median price for a condo in Manhattan was in fact 4.7% lower than the $1.715 million median price registered in the fourth quarter of 2016.

The author of the report Jonathan Miller of Miller Samuel Inc., says that while he is not ready to predict the specific price impact of the tax reform bill on the Manhattan market as yet, he does indicate tax reform will have more of an effect on the higher end of the market.

“I expect that in the near future, buyers will come in lower on offers initially and sellers will resist, a repeat of what we have been seeing. However, I wouldn't be surprised to see a sales pickup in the first quarter of 2018 as fall's pent-up demand is released.”

Other key takeaways from the Douglas Elliman report were that smaller apartments continued to see more bidding wars than larger apartments; 90% of sales at or above $5 million were “all cash” and new development inventory expanded annually for the sixth consecutive month, but the growth rate cooled in the fourth quarter. In addition, listing inventory rose slightly by 1.1% to 5,451 and the days on market increased 3.2% to 97 days.

Douglas Elliman also released a sales report on the Northern Manhattan residential market (the area north of West 116^th Street, Central Park, and East 96^th Street) that indicated this section of the borough also experienced median sale price increases and spotty sales activity.

The median sale price of a co-op or condominium in Northern Manhattan rose slightly year-to-year to $579,000 in the fourth quarter of 2017, while sales in this sector fell 28.2% during that same period. Townhouses in Northern Manhattan enjoyed an 8.3% increase in sales, but a 4.5% decline in the median sale price to $2.125 million.

Residential brokerage firm Stribling & Associates also released a fourth quarter report that indicated buyer uncertainty played a role in the spotty sales results.

Garrett Derderian, director of data and reporting at Stribling, said, “Looking at the economics, the fourth quarter was plagued by the vagueness of the new tax policy, which for much of the quarter was not finalized. Now that the bill has been signed, consumers will be able to make a more informed decision. We anticipate more potential buyers coming off the sideline early next year.”

Derderian believes there could be a possible rebound in pricing in coming quarters. “We have yet to see several super-luxury projects initiate closings. When they start to come through, they will have an upward effect on pricing, even if it is not reflective of current market conditions,” he says.

Instant Insights /

Tax Reform, High Prices Cause Sharp Residential Sales Decline in NYC

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