While optimism in the luxury sales segment was strong during the favourable spring market, sales are now slowing down and brokers are decidedly more anxious.

After a rocky 2016, the industry had high hopes for 2017. And the start of the year did indeed seem promising. But things began changing just after the year’s midpoint.

The luxury market logged its worst summer in terms of the number of contracts signed since 2012, according to data from Olshan Realty. While luxury contracts are now starting to edge back up, the sector is still seeing lingering properties, slow absorption and a glut of new product that is getting worse.

Sources said that despite a recent spate of high-profile deals the challenges for the high-end market are very real, especially for new developments.

Between June 26 and Sept. 3, the number of contracts priced at $4 million-plus declined by 14 percent, to 158, from the same time last year. That drop was even more pronounced for new condo contracts of $4 million-plus. Those fell by a massive 37 percent year over year.

For those who thought Manhattan’s stubborn new development inventory issue was subsiding, think again. In fact, the situation is worsening.

By the end of this year, there will be 6,300 unsold new units in Manhattan, according to data from appraisal firm Miller Samuel. That figure includes shadow inventory — condos that are intentionally being held off the market. The firm estimates it would take 3.3 years to chew through that many units at the current pace of sales.
Next year, the market is expected to add another 3,000 units, with absorption time also increasing, to 3.9 years.
Miller Samuel CEO Jonathan Miller said a healthy absorption rate for the New York market is around one to two years.

In general, Manhattan buyers are very much aware that their choices are piling up. However, while inventory in Manhattan’s new development market is growing, the supply of listed resale units in the borough has shrunk. In the third quarter, Manhattan resale inventory dropped 3 percent from the previous quarter, according to Miller Samuel. That’s already proved to be a good thing for pricing among resales. And while Brooklyn has a rental glut— with nearly 3,000 new units flooding the market in the third quarter — the for-sale market in the borough saw inventory fall 30 percent year over year during that time. That has translated into more demand than supply and an absorption rate that’s moving at a “blistering pace” of 1.9 months, according to Miller.

Miller estimates that condo buyers at high-end new developments are signing contracts priced an average of between 15 and 20 percent lower than buyers were at the peak of the luxury market in 2014.
(source: The Real Deal)