Residential sales in Manhattan decreased 37.5% year over year in Q1 as mortgage rates continued to fluctuate and buyers and sellers continued to be mostly at odds over pricing. 2,242 homes were sold for a total of $4.4 billion, down from 2,546 in the first quarter of 2022. The median sale price dropped 10% to $1.075 million, while the average sale price dropped 5% to $1.95 million.

This decline was expected is attributed to comparing 2023 to the record-breaking 18-month long market of 2021 through Q2 of 2022, combined with the unprecedented steep interest rate increases that began in March 2022. Lower sales volume is a given when mortgage rates double in less than six months.

The drop in volume and prices follows a 29% Y-o-Y decline in the fourth quarter, and indicates that our market is correcting after a post-pandemic boom in demand. Prices slipped 15% from the same time last year to a median of $1.02 million, the lowest figure since the shutdown in 2020.

Apartment sales in particular have certainly declined from the extraordinary volume recorded in the 18-month long market of 2021 through Q2 of 2022, but ultimately they have simply returned to pre-pandemic levels. The number of sales in the first quarter of 2023 was slightly higher than the first quarters of 2018, 2019, and 2020.

Many buyers have been waiting for this moment; owners who need to sell are becoming more realistic, and prices in Manhattan are at their lowest point in years. 50% of closings in Q1 were at less than $1 million. This was the largest percentage of market share for sales under $1 million in three years.

However, challenge to greater volume going forward is the remaining disconnect between buyer and seller price expectations. Relatively low levels of active inventory and other sellers simply delisting to hold for the foreseeable future means that buyers don’t have much to choose from. There were 6,996 homes on the market in the first quarter, lower than the five-year average of around 7,200, and over 5,000 properties that simply delisted–the third highest number of off-market listings since 2010.

This disconnect between buyers and sellers means that sellers are generally not cutting prices to meet buyer demand to get deals done. They have confidence and wherewithal to wait for buyer pools with more to spend someday in the (possibly distant) future. 

Active sellers have generally trimmed prices, but not enough for today’s less-liquid buyers who are understandably concerned about overpaying in the face of a potential recession, rising interest rates, a volatile stock market and recent bank failures. 

Faced with uncertainty for the last three quarters, they’ve largely been on the sidelines hoping for price reductions that aren’t coming, or are coming, but very slowly. The average discount from the initial list price to contract price in the first quarter price was 7%, up from 5% in the fourth quarter.

The number of contracts for new developments priced $10 million and increased 6%, whereas all lower price points showed declines. Bidding and interest has indeed remained strong at the high end. Bidding wars on deals in the top 10% of the market by price rose to a record high of over 11% in Q1. Wealthy buyers pay cash and are therefore less affected by higher mortgage rates. Cash deals rose to a record 57% of all sales in the quarter. At the high end of the market, three-quarters of all sales over $5 million were all cash.

Momentum is expected to continue through Q2, as it always does.