Goodbye to 2023

With the fourth quarter in the books, it's time to say goodbye to a difficult year in the Manhattan residential real estate market. We finished the year in an uninspiring fashion as prices continue to weaken and activity levels continue to decline. Price per square foot, the best measure of price movement in the market, turned in its worst performance in years. Average and median prices were down 5% and 9% for the year.

?If you had the misfortune to see the recent Bloomberg headline proclaiming that Manhattan prices rose in the 4th quarter, you might be surprised to hear me say that prices had a notable decline. This one falls in the category of not believing everything you read--especially the headlines. The median price of closed apartments in the 4th quarter rose 2% year over year. This was a function of the mix of apartments, not prices. Larger, typically more expensive apartments are less sensitive to interest rates as more are purchased largely or entirely for cash.

One of the more interesting things I saw last quarter was that one-third of contract signings took less than 60 days. This is up from 20% last year. Despite this, the average days on market rose 6% year over year. I draw two conclusions from this. First, apartments priced to current market conditions can and do move quickly. However, there are still large numbers of apartments that are not priced to current market conditions. These will linger.

?There is no doubt that the most important reason for the malaise in our market has been the increase in interest rates. Looking ahead to 2024, there is good reason for optimism. The Fed has signaled that further increases in rates are not likely. Rate decreases, in fact, now appear to be on the agenda for 2024. Perhaps not a surprise with a presidential election coming up.

?In any event, the stock market has responded strongly to this development, and we have also seen interest rates start to come down. This is too recent to have been reflected in any significant impact on the 4th quarter real estate statistics. Nevertheless, it is a better backdrop for recovery in real estate activity and prices than we have had in a while.

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