Manhattan's lost decade for condos: Here's what to know

Key Concepts

• Lost Decade: Refers to a period of stagnant or declining real estate values.
• Median Price per Square Foot: A key metric for measuring Manhattan real estate values.
• Bifurcated Economy: An economy characterized by a widening gap between the wealthy and the rest of the population.
• Transaction Costs: Expenses associated with buying or selling property, including commissions, taxes, and legal fees.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Inventory: The number of properties available for sale in a given market.
• Interest Rates: The cost of borrowing money.

Manhattan's Lost Decade in the Condo Market

The Inside Wealth Report highlights a concerning trend in Manhattan's condo market, often perceived as perpetually rising. Contrary to this perception, a significant portion of condo sellers in Manhattan over the past year have experienced financial losses.

Key Findings and Data

• One-third of all condo sellers in Manhattan lost money on their apartments in the past year.
• The outcome for sellers is heavily dependent on their purchase date, not solely on location.
• Sellers who bought before 2010 saw substantial median gains, ranging from 29% to 45%. This data is from a report by Brown Harris Stevens.
• Sellers who bought after 2010 are more likely to face losses or minimal gains of just a few percent.
• When factoring in inflation, renovation costs, and transaction costs (which are approximately 6% to 10% in New York), the actual losses for those with slight gains are likely much higher.
• The median price per square foot in Manhattan has been essentially flat since its last peak in 2016, serving as a pure measure of real estate values.

Impact on Wealthy Buyers and Renting Trends

The low returns in the condo market are influencing even the wealthiest individuals, leading them to stay on the sidelines and opt for renting.

• The number of New Yorkers earning over $1 million annually who rent has more than doubled since 2019.

Market Outlook and Recent Trends

Despite the "lost decade" narrative for many, brokers suggest the market is currently trending upwards.

• Median prices have increased for the last three consecutive quarters, marking the first such sustained rise in three years.
• A significant concern is the mayoral election, which has impacted signed contracts for luxury apartments.
• Signed contracts for luxury apartments in September saw a 39% decrease. While this could be an anomaly, it raises questions about future market direction.

Condo vs. Co-op Market Dynamics

The report also touches upon the differences and parallels between the condo and co-op markets.

• The condo market is significantly larger than the co-op market.
• Both markets generally run in parallel in terms of pricing and demand.
• The condo market tends to be slightly weaker.
• Apartments in areas like the Upper East Side and Upper West Side, particularly those seeking new construction or modern aesthetics, may have fared even worse, especially for purchases made after 2010.

The Exception: The Extremely High-End Market

The market for apartments priced at $10 million and above has shown remarkable resilience and strong performance.

• This segment represents the top 4% of the Manhattan market.
• These apartments have experienced double-digit gains regardless of the purchase date (2016, 2020, 2008).
• This sustained demand at the very top appears immune to market cycles and pricing fluctuations in the broader market, a phenomenon attributed to a bifurcated economy and continued demand from the wealthiest segment.

Analysis of September's Contract Drop

The substantial drop in luxury apartment contracts in September is analyzed for its potential implications.

• While July and August saw positive contract signings, September's decline was significant.
• Brokers attribute this drop primarily to a sharp decrease in inventory, rather than a decline in demand.
• The lack of inventory build-up is linked to high interest rates, which are discouraging developers from building new properties.

Future Affordability Concerns

The current market conditions, particularly the lack of new development due to high interest rates, are expected to exacerbate affordability issues.

• The situation is predicted to worsen, further impacting the affordability of housing in Manhattan.

Conclusion and Takeaways

Manhattan's condo market has experienced a "lost decade" for many buyers who purchased after 2010, with a significant number facing losses when accounting for all costs. The median price per square foot has stagnated since 2016. This has led some wealthy individuals to rent rather than invest. However, the market has seen recent price increases, and the extremely high-end segment ($10 million+) has consistently performed well, demonstrating resilience. The drop in luxury contracts in September is attributed to low inventory, driven by high interest rates that also hinder new development and are expected to worsen affordability challenges.