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Oct 11, 2019

New York City apartment prices hit four year low

Manhattan apartment sales tumbled during the third quarter and prices fell to their lowest level in four years, a Wall Street Journal analysis showed.

Much, but not all, of the decline was triggered by a higher state transfer tax on luxury Manhattan real estate that took effect in July, brokers and market analysts said.

To beat the new tax, many buyers of apartments costing $2 million or more had rushed to close deals in June, resulting in fewer high-ticket sales during the third quarter and an overall average price decline of more than 32%.

Still, sales also fell for apartments that sold for less than $2 million, the Journal’s analysis showed, even though their tax rates were unchanged. These sales fell by 4.3% compared with weak sales in the third quarter of 2018, to the slowest pace in years.

The Manhattan co-op and condo market had been in a slump for several years as buyers resisted many sellers’ overly optimistic prices, according to Gregory J. Heym, the chief economist for brokerage firms Halstead and Brown Harris Stevens. He said that the gap between buyers and sellers was now shrinking.

“The data is terrible,” he said. “Even with the rush before the taxes and hangover afterwards, we are still in a sluggish market.”

The declines for properties selling for $2 million or more was striking, illuminating the powerful impact of tax increases even on very affluent buyers.

During the second quarter, the median price of a Manhattan apartment rose 19.3% to a record of nearly $1.4 million, after accounting for a rush of sales during the last week in June. But in the third quarter, the median price fell to just over $1 million, a decline of 25%, to the weakest pricing since 2015. The figures include sales filed with the city as of Sept. 27.

The average price of a Manhattan apartment fell to $1.7 million from just under $2.5 million in the second quarter, a decline of 32.4%.

Overall sales in the third quarter fell by 11.5% compared with the third quarter of 2018, while sales for more $2 million or more fell by 31.5% to the lowest level since 2011.

There were only 24 sales for $10 million in the third quarter filed as of the end of last week, down from 140 in the second quarter, and the smallest number since 2013. Many of these sales were in new developments and had been in contract for many months or even years. Properties that were in contract by April 1 were exempted from the higher tax rates.

The new state transfer tax—a one-time payment on any property selling for at least $2 million in New York City—ranges from 0.25%, or $5,000, on a $2 million sale, to 3.15% on sales of $25 million or more.

The biggest sale during the quarter was the nearly $65.8 million purchase of a penthouse at a new condominium at 220 Central Park South by Gordon M. Sumner, better known as the musician Sting. It was exempt from the higher tax rates.

This was followed by the $53 million sale of a duplex co-op at 834 Fifth Avenue to Stanley Druckenmiller, a former investment strategist for George Soros who now invests through his own family office. The apartment was once listed for $120 million. Property records show that when the co-op closed in late August, a state transfer tax of $2.4 million was paid under the new rates.

Elizabeth Ann Stribling-Kivlan, a senior managing director at brokerage Compass, said the transfer tax had a big impact because it came on the heels of federal income-tax changes limiting the deductibility of state and local taxes, including property taxes, that increased the cost of owning a home in New York. She added that worries over impeachment proceedings launched last week against President Trump and concerns about the direction of the country could further impact the Manhattan luxury market.

Still, Ms. Stribling-Kivlan said many sellers had lowered their asking prices and many brokers were busy showing properties to potential buyers, especially those priced between $1 million and $3 million.

That makes it a good time for apartment owners to put their properties on the market and look for larger units. “It is a great time to trade up,” she said.

Published in The Wall Street Journal, Sept. 30, 2019

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