Luxury apartment market in New York City under pressure in 2023

New York City’s luxury housing market faces a host of obstacles in early 2023, ranging from high interest rates to signs of a disappointing bonus season on Wall Street.

Sales of the city’s most expensive apartments slowed in the second half of last year, and realtors and analysts said they don’t expect a turnaround any time soon, as the prospect of an economic slowdown spells trouble for even the most affluent homebuyers.

Bankers, traders and others in the financial services industry have traditionally used their bonuses as down payments, but Wall Street bank executives warn this year’s payouts will be significantly smaller after deal closing slumps in 2022.

“You have a low bonus season, high interest rates and a deteriorating stock market,” says Donna Olshan, president of Olshan Realty, which tracks luxury sales of $4 million or more. “That definitely hits the luxury buyer.”

New York’s luxury market ended 2022 with a respectable $10.3 billion in sales from more than 1,300 apartments priced at $4 million and above, according to Ms. Olshan. The year ranked fifth in the past decade in terms of contracts signed, but 64% of those transactions occurred before the end of June, with activity slowing significantly over the past six months.

Rising interest rates will continue to be a major drag on luxury sales in 2023, brokers say. Even high net worth buyers who buy in cash are affected by the impact of high interest rates on the financial markets as many take money out of their portfolios to pay for real estate.

“Everyone, across the board, has lost affordability to some degree,” said Rachel King, a realtor with the real estate firm Serhant.

Some developers offer concessions, she added, including paying buyers’ mortgage interest rates for several years or covering common costs for six months to close deals.

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Ms King said most of her luxury clients are on the sidelines these days unless they have to buy due to life events, such as new jobs, marriages or divorces.

Lisa Chajet, a realtor at Coldwell Banker Warburg, said concerns about the economy are scaring buyers and prices are falling as a result.

“I just had a luxury buyer pull out of something really big because he was nervous there was going to be a recession,” Ms Chajet said. “Some of these large apartments are being sold significantly below asking price.”

The median price for all homes in Manhattan was 10.2% higher than in 2019.

Ted Shaffrey/Associated Press

Although luxury real estate in New York City slowed, it still outperformed less expensive apartments last year, with prices for the most expensive properties rising twice as fast as the overall market, according to real estate appraiser Jonathan Miller, author of the market report for Douglas Elliman. And at $1.1 million, the median price for all properties in Manhattan was 10.2% higher than in 2019.

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According to Garrett Derderian, director of market research at Serhant, even the top segment of Manhattan’s luxury market, which tends to be the last segment where prices fall and are the first to recover, is starting to slow down. This “superprime” luxury market, defined as properties selling for $10 million or more, saw discounts of about 12% in the second half of last year.

Mr Derderian said the first six months of 2023 are likely to be quiet, but he expects activity in the luxury market to pick up by the second half of the year.

Asian buyers, who were largely absent during the pandemic and historically make up 30% of New York’s super-prime buyer pool, are likely to resurface as China’s Covid restrictions ease. And much of the unsold inventory on the so-called Billionaires’ Row was gobbled up by South American, European and domestic buyers during the pandemic, he said.

“We no longer have an overabundance of supply or unsold inventory in the market,” Derderian said. “That, in turn, will boost prices and put a floor on how low prices will go.”