In anticipation to sweeping changes to tax legislation, resale activity ramped up during the fourth quarter as buyers rushed to lock-in the full $1M mortgage interest deduction on new mortgage originations. Resale closings for condos and co-ops within the $1M - $3M price segment, where buyers could be most impacted by the new limit in mortgage interest deductions, increased 11% and 13% year-over-year, respectively. Furthermore, resale activity within the $500K - $1M price segment increased 21% year-over-year as potential buyers originally feared a mortgage interest cap of $500K. In fact, median condo resale prices were down 13% this quarter compared to 4Q16, which was not attributable to any particular project or neighborhood, but as a result of a broader shift in resale volume to units priced between $500K - $1M. However, it remains to be seen how the GOP Tax Bill will impact Manhattan real estate performance long-term, especially when taking into account the $10K cap to state and local income taxes (SALT) deductions, lower marginal taxes for many income brackets, and the new $750K limit in mortgage interest deductions.
The disconnect between luxury condo inventory and market demand remains wide as condo inventory priced above $3M made up 38% of condo inventory, but only 25% of condo contracts signed. Notably, condo inventory priced between $3M-$5M increased by 7% year-over-year, which added choices for buyers and reduced urgency. Co-op inventory is limited (44% of total inventory) and demand is high (56% of contracts signed) as the relative price differential between ownership types continues to push buyers toward co-ops.
The median price of a new development condo fell to $2.8M during the fourth quarter, which represents a 5% year-over-year decline, as there continues to be less ‘noise’ from closings at ultra-luxury projects such as 432 Park Avenue and 56 Leonard, which have typically distorted new development median prices. During the fourth quarter, new development pricing was impacted by clustered closings at projects in the $1M - $3M price segment (i.e. One West End Avenue, Citizen360, and 389 East 89th Street). Furthermore, in neighborhoods such as Upper West Side, Midtown, and FiDi & BPC, the new development median price changes were affected by clustered closings at one or two projects, which essentially defined median new development prices in these submarkets (i.e. One West End Avenue on the Upper West Side, 252 East 57th Street in Midtown, and 5 Beekman in FiDi & BPC).