NEW YORK CITY- New York City's condo market is facing the music. Data shows tunes once playing over an unfolding market correction have paused, revealing a dip in sales volume and a shift in market activity in the sector, according to Diane Ramirez, chairman & CEO of Halstead.
Manhattan apartment sales volume has dropped 16% from the third quarter of 2018, with sales over $5 million falling 48%, pushing the average apartment price down to $1.6 million, 13% below year-over-year, according to Halstead's Third Quarter 2019 Market Report based on 2,114 third-quarter sales, 14% fewer than the same period last year.
Over the past four quarters, condo investment sale prices increased because large deals that were in the pipeline for several years at the high of the market were closing, when in actuality, the condo market had begun to slow down. The data now paints an accurate picture.
"We're seeing a price correction, it is a buyers' market," Ramirez tells GlobeSt.com. "I like the fact I don't have to explain inflated numbers when in actuality there's been some sort of decline."
Amid a changing market, large and marginal developers are getting creative to navigate around price corrections and foreclosures. With the condo sales market down in Manhattan and expected to take a tumble over the next couple of quarters, foreclosures are happening within the lender and borrower sector.
Due to a shrunken investor pool because of high pricing and oversupply, landowners who brought land at a premium, cannot discount the units at a certain price leading properties to go belly-up, according to Eric Orenstein, partner at Rosenberg & Estis, working on closeouts and foreclosures.
Developers paid upwards to $1,200 per square foot for products conceived several years ago, at the market's peak when condos were selling for north of $3,000 per square foot, and it penciled out. Now, with many new units coming to market going unabsorbed, developers are struggling to sell out at the $2,200-$2,300 per square foot range, said Orenstein.
"You have all these units coming online, and it's creating this perfect storm. You will see real problems," Orenstein said. "The more experienced developer will survive, but the less experienced developer will have a problem."
Prices have gone up about 9% a year for a full decade. At the height of the market in 2015, buyers gripped their dollar with inventory and supply at a high, realizing they had the power, said Ramirez.
There are some developments with venture capital money behind them for a cushion, and developers have begun to offer packages where buyers can rent a condo unit for a year and use the proceeds to fund an ultimate buy, such as Extell Development's One Manhattan Square.
"Strong developers are going to figure out a way to make it happen, and they're going to have to get creative," Ramirez said. "One in four development apartments are for sale, and that's 25%, which are not selling in Manhattan."
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Mariah Brown
Mariah Brown is the New York Bureau Chief and Real Estate Reporter for GlobeSt.com, covering the New York Metro area, Northeast region and national real estate trends. She is responsible for producing multi-media content, including articles, podcasts and video. Before joining the GlobeSt team, she served as a New York Times fellow, reported for the Associated Press in New York and Philadelphia and several other New York City-based outlets.
