There were 2,974 sales in the third quarter, according to a report from Douglas Elliman Real Estate and Miller Samuel, the appraisal firm. Properties sat on the market longer, discounts were up and the inventory of houses listed jumped 11 percent.
“The Manhattan market is going through a process of resetting from the white-hot conditions of the past several years to something more sustainable in the long run,” said Jonathan Miller, CEO of Miller Samuel.
On a positive note, average Manhattan selling prices surged 17% from last year to $2.03 million, while the median sales price gained 8%. Still, those gains are likely more related to previous market conditions, rather than current ones:
Many of the sales recorded were for new apartments that went under contract during the boom times of 2014 and early 2015, and are just now closing as the buildings are completed. Nearly half of all luxury sales (the top 10 percent of the market) were from new-development closings. That time-lag benefit will likely start wearing off later this year and into the first half of next year.
As wealthy buyers rein in spending, and more high-end properties hit the market, many of Manhattan’s most expensive new units will likely sit vacant for quite some time. “The supply of new development is rising three times as fast as existing apartment inventory,” said Miller.
From an ETF perspective, a slowdown in high-end real estate doesn’t bode well for REIT-focused funds like the Vanguard REIT Index Fund (NYSE:VNQ). VNQ fell $1.38 (-1.64%) to $82.58 per share in Wednesday morning trading, and has now pulled back more than 10% from all-time highs set back in July.
Since the high-end real estate market tends to lead the middle of the market, the Real Estate sector as a whole could soon face an even more pronounced correction.