Plunging sales, falling prices, and all-cash deals sum up the first quarter of Manhattan's real estate market. 

Key Points:

• The drop in sales and prices follows a 29% decline in the fourth quarter and suggests that Manhattan's real estate market is going through a sharp correction after a post-pandemic boom.

• Limited inventory is keeping prices from falling further as sellers have little incentive to move and take on higher loan costs.

• We expect Q2 to deliver three distinct groups of bearish buyers - the pessimist, the intrigued, and the active.

According to Compass, sales plunged 35% YoY in the first quarter, with the median sales price dropping by 7.3% compared to last year. The slow pace of sales, however, did not lead to an inventory pile-up which one might think. Inventory increased only 1.4% YoY, slightly below the historical average. The pressing issue we face today is inventory. An absence of new listings is keeping prices from falling further as current owners have little incentive to move and take on higher loan costs.

Furthermore, cash is pouring into New York real estate at record highs. Wealthy buyers are pulling money out of stocks and using that cash to negotiate deals, resulting in record-high all-cash sales. The market share of cash buyers was 57% in Q1 and 75% for luxury deals above $5M.

Signed contracts, an early indicator of future market demand, were down 32% YoY, with the median sales price for signed contracts down 9.6% compared to last year.

Outlook: We expect the second quarter to deliver three distinct groups of bearish buyers - the pessimist, the intrigued, and the active. 

The pessimist buyer is waiting for further negative economic data to trigger a steeper correction across all asset classes, including real estate. Meanwhile, the intrigued buyer, the largest group of the three, has their money tied up in money markets, with high rates making it challenging for them to move away from risk-free 5% returns that will not last forever. Finally, the active buyer views real estate as a safe-haven alongside gold (which has already rallied hard) and will continue moving cash into real estate, further contributing to the cash transaction boom. Ultimately, we expect all three buyers to take advantage of this safe-haven hard asset. 

Timing the bottom in this market is like catching a falling knife. It feels like there’s more downside to come, but once it gets to a certain level, the rebound will be too fast to catch.

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