Manhattan real estate is now a buyers' market, but many sellers are stuck in denial, causing something of a standoff, according to Jonathan Miller, president of the appraisal firm Miller Samuel and the author of Douglas Elliman’s Third Quarter 2018 Manhattan Market Report, released today.
Sellers are clinging to outdated price expectations set when interest rates were lower and the old federal tax law was still in play, explains Miller. This disconnect between sellers' expectations and what today's buyers—who are grappling with rising interest rates and the new federal cap on mortgage interest deductions—are willing to pay is resulting in fewer sales in Manhattan.
The number of sales in Manhattan declined year over year for the fourth consecutive quarter, dropping 11.3 percent to 2,987, according to the report. The median sales price declined 4.5 percent to $1,117,000.
Miller described the process of sellers waking up to reality, otherwise known as a buyer's market, as ‘de-anchoring’ themselves. He says his theory is that it takes about two years for sellers to adjust their thinking when there's been a market shift and adapt to current pricing, and that it will be another 10 months before sellers “can go into a closing and not feel like they've left money on the table.”
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Buyers, on the other hand, are “in the moment,” and better connected with market conditions as they hunt for the lowest price possible, he said.
Miller said uncertainty over the federal tax law changes was like a “wet blanket” on buyers' sense of urgency. The new federal tax law is expected to hurt New Yorkers because of the law’s cap on mortgage interest deductions, and on state and local tax deductions.
His report also found that sales of studio and one bedrooms declined year-over-year for the fourth consecutive quarter, which makes sense considering that this segment of the market is heavily dependent on financing and so more sensitive to rising interest rates.
Despite the slowdown, Miller says "we're not in a black hole."
“The economy is running on all cylinders while the housing market is soft,” Miller said, pointing to a “disconnect” between buyers and sellers as “keeping conditions slower than what you would otherwise expect.”
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