(CNBC) – Apartment sales in Manhattan plunged by 46% in the third quarter, as homebuyers continued to flow to the suburbs and Florida, according to new real estate reports.
There are now about 10,000 apartments for sale in Manhattan, which would be a record, according to Compass. With so many new listings pouring onto the market and so few buyers, the inventory of unsold apartments continues to rise in a city that already had a glut of high-end apartments before the pandemic. The current supply of luxury apartments for sale would take nearly three years to sell, according to a report from Miller Samuel and Douglas Elliman.
“There is no shortage of apartments for sale, but there is a shortage of buyers,” said Jonathan Miller, CEO of Miller Samuel.
There were a total of 1,375 sales in the third quarter, down 44% from a year earlier. The prospects for a turnaround before the election also look increasingly unlikely. Signed contracts for September fell 42% in Manhattan from last year, according to Miller Samuel.
Manhattan is looking at high unemployment, rising crime, growing sanitation and public transit problems, and only 10% of office workers in Manhattan are returning to their buildings. All this makes buyers reluctant to make a big bet on Manhattan real estate.
The likelihood of rising taxes to pay for the city’s and state’s multibillion-dollar budget holes is also driving more and more of the city’s real estate dollars to the suburbs and other states. Signed contracts in the Hamptons were up 76% in September compared with last year. They increased 56% in Westchester County, New York, and 36% in Fairfield County, Connecticut.
Florida has seen a nonstop surge in buying, with signed contracts for homes in Palm Beach County up 62% and up 21% in Miami-Dade County.
Aside from urban flight, Manhattan’s real estate market continues to suffer from high prices. Brokers have been touting a “buyer’s market” in Manhattan for months, saying prices will drop and lure in bargain-hungry buyers and families who have been waiting to buy in Manhattan for years.
Yet the average sale price in Manhattan rose 32% in the third quarter to $2.18 million. The median sales price also increased by 7% to $1.1 million.
Analysts say the increase was mainly due to statistical flukes. Activity in the third quarter of 2019 was depressed by the launch of the city’s mansion tax. Also, a spate of hyper-priced deal closings at the new luxury condo tower 220 Central Park South, which were negotiated years ago, also raised prices.
Analysts also say the average and median sales prices in Manhattan are more a reflection of which apartments are selling versus a way to gauge the value of the same apartment over time. Because the third quarter saw more sales of larger, more expensive apartments, the average and median prices skewed higher.
A more accurate reflection of price drops, they say, is the average discount between the asking price and sale price. Apartments in the third quarter sold for an average discount of 9% — compared with a more typical discount of 5% before the coronavirus pandemic.
Still, the average price-per-square foot in Manhattan also rose in the third quarter, suggesting that prices still have further to fall before buyers rush in.
“If you look at 2009 and then Sept. 11, the sellers can take a few years to adjust,” Miller said.
Miller said he doesn’t expect true prices to fall more than about 10%. Before the pandemic, prices were already down 15% from the peak of 2015-2016, he said. So the combined discount of 25% off the peak should be enough to attract buyers to the city again, he said.
“But that all depends on quality-of-life issues like policing, sanitation and public transportation,” he said. “I don’t see an improvement in the market in the fourth quarter. But I think we could see notable improvement in 2021.”