Manhattan - First of the year was a mixed bag if you collectively look at Q1 and Q2. Q1 got the year off to a slower start when looking at the market on a year-over-year (YoY) basis, however, Q2 finished with a 31% increase in sales compared to Q1 and a 7% increase YoY. This yearly increase in sales volume was the first time for Manhattan in nearly 18 months.
So what is driving the real estate market, and what do we expect as we think about the rest of 2019?
At both a national and local level, taxes have been a huge influence on the luxury market thus far in 2019 and will likely continue to be so. From a National, perspective, the reduction of State and Local Taxes (SALT), have certainly had an impact in a high-tax marketing like Manhattan. Some benefits of homeownership such as tax deductions have been reduced as a result of the new Federal tax laws.
On a local level, the passage of a new Progressive Mansion Tax can be observed in Q2, but we likely have not seen the full brunt of the impacts this may have on the higher end of the market - $10M+. The increase of YoY sales volume for Q2 2019 can likely be attributed to Buyers that pushed up closings in to late June to avoid the new, increased, progressive taxes that took effect as of July 1, 2019.
Furthermore, after July 1, the Manhattan market went nearly 3 weeks without a property over $10M going in to contract. If this is any indication of the Progressive Mansion Tax’s impact on the luxury market, it is certainly not favorable. This will be a key trend to monitor for the remaining part of 2019, specifically the volume of deals at $10M where the tax liability as escalated as a result of this.
Looking at the data and negotiating for our clients, it is evident that pricing is still an ongoing issue, namely, the market is saying properties are still a bit overpriced. With that said, price reductions have been instrumental to keep product moving. Sellers are reducing prices for luxury properties anywhere between 9-11% before they enter contract. Pricing will continue to normalize in order to keep transactions moving through the rest of 2019.
With that said, pressure on pricing is being influenced by myriad things including inventory and negotiability. We are certainly in a Buyer’s market, however, there are many Buyer’s that continue to sit on the sidelines. Buyers know they can get a deal and have a wide array of selection, so they can become stubborn in instances, waiting for a deal they think is “better” to come down the line. As a result of increased inventory and a degree of Buyer hesitancy, time on the market has climbed for the luxury market in Manhattan. In Q2, average time on market had climbed to 168 days. This number can escalate quickly as price tier increases. We have seen some ultra-luxe properties on the market in excess of 365 days.
Similar to the impact of Taxes, we have seen and expect political impacts to be felt from both the local and national levels. Thinking about the remaining part of the year, the 2020 Election will definitely have an impact on the market in some way as we progress towards the election throughout the cycle. That, of course, remains to be seen, but we expect some impact on the market at a larger level
Additionally, aspects of the current political climate that have resulted in Macroeconomic impacts such as a possible Trade War with China and Stock Market volatility have ancillary effects that trickle in to the luxury market. Largely, both of these events have contributed to some of the lingering hesitancy in the market from Buyers despite amazing deals being prevalent on properties.
At a local level, there has been influence on the market as a result of political decisions that resulted in Amazon pulling out of NYC as the location of its second headquarters as well as the recent passage of updated Rent laws by City Council.