Luxury real estate broker Olshan Realty, Inc. has some bad news for New York's hedge fund managers looking to dump their luxury $5 million, 1,500 square foot palaces as the market for luxury New York City real estate just might be on the verge of collapse. Accroding to a year end report published by Olshan, contracts for luxury co-ops (defined as those with an asking price above $4mm) collapsed 25% in 2016 while the average number of days that apartments sat on the market surged 31% and discounts to original listing price also jumped a point to 6%.
The decline reflects classic price resistance. There was a 2% increase in the average asking price, but a 30% increase in the average days on the market—318 days. You read that right—it took more than two months longer to sell a luxury property in 2016 than in 2015. The average price drop from listing to contract signing was 6%, an increase from 5% in 2015. There was also a 5% decline in contracts signed at $10 million and above.
The steepest fall from grace was in co-ops: 25% fewer contracts at $4 million and above from 2015, signaling a continuing market shift in the luxury market to new condos that offer freedom of ownership, new infrastructure, robust amenities, and some hip architecture—particularly seen Downtown.
Of course, this news should come as little surprise to our readers as we've frequently written about the unintended consequences of the massive overbuild of luxury apartment inventory over the past several years in Manhattan.
In fact, a few weeks ago we warned New York City apartment owners to take note of the latest 3Q16 "Elliman Report" that showed the number of apartment closings had plunged 18.6% YoY while apartments sat on the market an average of 8.2% longer. Inventory also spiked with new development inventory up a massive 27.2%.
"The number of re-sales has fallen year over year in each of the last four quarters at an increasing rate. Listing inventory reflected significant differences in the rate of growth between re-sale and new development. Re-sale inventory expanded 8.2% to 5,290 while new development inventory surged 27.2% to 973 respectively from the same period a year ago."
Meanwhile, the re-sale market looked even more bleak, on a standalone basis, as the number of closings collapsed over 20% YoY while days on the market increased 7.5%
The lesson seems to be that the marginal New York City buyer has been priced out of the market while sellers have not yet accepted that the bubble has burst deciding instead to maintain listing prices while letting their apartments sit on the market longer amid growing inventory levels...that should work out well...