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Changes to federal tax law and an uptick in mortgage rates spooked Manhattan apartment buyers in the first quarter of 2018, causing a steep drop in the number of sales, according to real estate industry observers. Douglas Elliman’s first quarter Manhattan market report shows that the number of home sales in the first quarter slid to 2,180, 25 percent below the same period a year ago, and the lowest sales quarter in over six years. The decline was the largest since the early days of the Great Recession nine years ago, according to the report.
Report author Jonathan Miller of appraisal firm Miller Samuel says that the market is resettling and that it will take the next year or two for buyers and sellers to get accustomed to the new price realities. Both groups are impacted by the new tax law, Miller says, and he argues that about two-thirds of the decline in sales can be attributed to uncertainty from changes in the tax code. He says that the remaining third of the dip is because large numbers of contracts for new-construction condos that have lingered for months and years have finally closed, and buyers are not lining up in comparable numbers for new apartments now.
The decline in sales activity has been accompanied by an overall dip in prices. The median home sale price slipped 2 percent to $1,077,500 in the beginning of this year, compared to the same period in 2017. The slowdown has also meant fewer bidding wars. The market share of bidding wars fell to a five-year low this past quarter, to 9.4 percent of sales, a rate well below the decade average.
All of this may mean more negotiability for buyers of new development and buyers at the higher end, but less so for buyers looking at older apartments and in lower price ranges. Along those lines, the report also shows apartments actually selling a little more quickly—spending 107 days on average on the market, which is 0.9 percent faster than last year—and, crucially resale apartments continued to climb in price, to a new median of $965,000. This is the fourth straight quarter that the cost of resale apartments has increased.
The sales slump also doesn't necessarily mean that sellers will be eager to accept what they consider below-market offers, at any price level, Miller says. Instead, he thinks the shifting landscape will make sellers more cautious, dragging out the sale process.
"There is a saying that 'home prices are sticky on the downside,' so when there is uncertainty, sellers simply wait before accepting a buyer's offer," Miller says. "Initially this is about lower sales, not about lower prices. However for the next year or two, buyers and sellers will have to get their arms around what values actually are."
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