Manhattan’s Record Price Paradox
If you ask almost any seller in Manhattan, they would tell you it’s a tough market. Listing inventory is anywhere from 10% to 20% lower year-over-year and at some of the lowest levels we’ve seen over the last seven years. Transaction volume is also down roughly 10%.
But if you look at August resale condo prices per square foot, you’ll see they hit $1,500 per square foot. From that record price, you might assume that sales, deals, and bidding wars are abundant and the market is booming. Actually, just the opposite is happening. Transaction volume remains subdued, mortgage rates are high, and the market doesn’t feel anything like 2008, when the previous record price per square foot was $1,508, or the COVID rebound market, when some of the highest transaction volumes were recorded between 2021 and 2022. So why—and how—are prices setting records in a market that feels relatively stagnant and quiet?
Contributing real estate advisor to Forbes.com and co-founder of UrbanDigs, John Walkup, dove into this interesting dynamic last month. As a real estate broker in New York City, I thought it was an especially interesting topic given the struggles I’m seeing sellers go through on a day-to-day basis in what has arguably been a flat to somewhat depressed Manhattan real estate market.
The simplest explanation is low supply. Add to that the fact that less than a quarter of the available inventory in any given market segment may actually be priced correctly. That leaves a very small portion of the market positioned to go into contract and ultimately close, helping to push price per square foot to record highs. Buyers who are actively looking are competing for significantly fewer apartments—and even fewer that are priced correctly. The “lock-in effect” has caused many potential sellers with ultra-low mortgage rates to stay put. Higher interest rates have brought transaction volume down, but they haven’t necessarily brought pricing down with it. Basically, supply has fallen faster than demand, putting more pressure on buyers vying for well-priced properties. That has helped push resale condos to record-high prices per square foot. However, that record high is not necessarily how you should determine what your individual property is worth.
So how much is your property worth when the price per square foot is at a record high? Residential real estate pricing is intensely local. Your neighborhood matters. Your building matters. Your floor, layout, condition, timing, views, light, and a myriad of other factors all need to be considered before pricing your property. So pricing simply off a record-high price per square foot is not advisable—and could very well put your property into the large percentage of listings that aren’t selling.
Speaking of which, Compass recently provided data illustrating just how many listings are not selling. For example, 78% of one-bedroom condos on the Upper East Side did not sell within three months. Another example: 70% of one-bedroom condos on the Upper West Side did not sell within three months, while 48% of three-bedroom condos on the Upper West Side did not sell within one year. So basing your asking price on headlines and a median price per square foot without considering condition, competition, timing, and the specific limitations or advantages of your property is not only shortsighted—it could put you squarely into the category of the “unsold.”
Scarcity of listings does not rescue bad pricing, as John Walkup plainly and precisely put it. Inventory is tighter, for sure, but that doesn’t mean sellers have a blank check when it comes to pricing. If buyers don’t see the value, aspirational pricing can lead to stagnation, which can lead to price adjustments and eventually a negative stigma around the listing.
So, in conclusion, if sellers want to be part of that record-breaking market, my advice is to create urgency and price competitively. Let buyers determine the current market value organically and allow the market to do its “bidding.” In a market with limited quality inventory, the right price can create competition—and sometimes the best way to achieve a higher price is not to start there.
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