We have been covering the bursting of the Manhattan luxury real estate bubble for quite some time now (here, here, and here). Most recently we noted that REIT Equity Residential slashed its full year guidance due to the fact that a supply glut was causing the firm to give considerable concessions in order to secure tenants in Manhattan. On the earnings call, COO David Santee even said "There's some crazy stuff going on in New York."
We are now seeing more evidence that the only way luxury homes are moving on the island is if the seller offers dramatic price cuts. As Mansion Global reports, according to Olshan Realty's weekly snapshot of Manhattan's luxury market, 35 luxury Manhattan homes changed hands last week (the highest number of contracts this year for homes $4 million and above), which was up from 19 the previous week, and up from 24 the week commencing May 30.
However, Olshan believes that the underlying reason for the number of contracts signed was the fact that desperate sellers, whose properties were on the market an average of 311 days, gave buyers significant price discounts to the tune of 11% on average. The average discount in the w/c June 13 was nearly double that of the prior two weeks, and the number of contracts signs reflects that in order to move units, prices need to come down dramatically.
"The luxury market is bloated and choking with a lot of over-priced inventory, but once sellers capitulate and adjust to realistic price levels, the market moves. Not coincidentally, the May and June weeks that showed the strongest activity of the year were also those that saw prices slashed" said Donnan Olshan, president at Olshan.
As an example of how far prices are falling on these luxury homes, the number one contract last week was a townhouse at 18 East 69th Street on the Upper East Side, sold for $22 million. Prior to selling, the five-story house with 7,831 square feet was listed at $26 million, meaning a reduction of over 15% in price. For context, the home was purchased in March 2012 for $13.25 million and was renovated. Prices have run up, but now are working their way back down as the supply glut becomes a reality and people begin to realize (especially REITs such as EQR and developers such as the Bauhouse Group) once again that real estate doesn't always rise in perpetuity.