Against a backdrop of economic uncertainty and volatility in several asset classes, New York’s steady price growth, rising rents and low purchase costs are attracting investors looking for an inflation hedge in a global and transparent market. According to an assessment of current conditions in New York’s luxury residential market by Knight Frank, a leading International Property Consultants, the Manhattan’s luxury market is on a firm footing.
Over 14,500 properties changed hands in Manhattan in 2022, 23% above 2019 pre-pandemic levels, and the city posted 244 sales above US$10 million, more than any other global city in 2022. With cash buyers accounting for 80% of new home purchases in Manhattan, the market is better insulated from rate hikes.
While the S&P 500 fell 19% in 2022, and estimates suggest crypto plummeted 50%, luxury homes in New York registered 2.7% average growth, despite the Federal Reserve embarking on its fastest pace of rate hikes since the 1980s.
According to Miller Samuel, the average price of a luxury Manhattan home stood at US$1,948,603 at the end of 2021, a 2.7% increase equates to an average uplift of US$52,612 in 2022. Knight Frank forecasts 2% growth in 2023, higher than the city’s 10-year average performance of 1.1%.
Although the 30-year mortgage rate has fallen from a peak of 7.32 in November 2022 to 7.08 in March 2023 it remains high compared to historic levels. For those that are leveraged, existing homeowners are opting to stay put rather than incur a significant jump in mortgage costs, leading to reduced inventory levels.
Data from StreetEasy reveals there were 7,804 homes listed for sale in Manhattan in January 2023, down 13% from a recent high of 9,016 in May 2022. A proportion of this demand is shifting to the new homes sector instead. Inflation and the path of interest rates remain the big unknowns and the latest mood music suggests rates will remain elevated into 2024.
The rental market bounced back strongly following the pandemic. Luxury rents are up 49% since their pandemic low in Q1 2021, and increased 19% in 2022 alone. A lack of stock persists leaving tenants opting for longer leases. The number of properties available for rent in Manhattan has shrunk from a high of 41,516 in October 2020 to 14,148 in January 2023.
Tenants are looking to lock in for longer whilst mortgage costs remain elevated and rental stock constrained. Two-year leases as a proportion of all Manhattan leases have jumped from around 16% in February 2021 to 42% in January 2023, according to data from Miller Samuel.
At US$10,995, Central Park South has the most expensive median rents. The fashionable neighbourhoods of Tribeca and Soho sit in second and third place with median asking rents of US$9,500 and US$6,395 per month respectively.