When a one-bedroom co-op on the Upper East Side hit the market in February asking $739,000, it had no takers. One price cut later, the frustrated seller took it off the market in May — hoping to hit the reset button in the fall.
“We couldn’t give it away,” said Bill Kowalczuk, an agent at Warburg. He’d done his homework — looking at other Upper East Side one-bedroom units that had sold in the previous eight months — but it wouldn’t budge.
It’s a problem plaguing many Manhattan properties this summer, as even lower-end listings struggle to snag buyers.
Buyers have been hesitant, to varying extents, at all price points across the market. But amid the slowdown, tax law changes and rising interest rates, the lower end of the market has been particularly affected, brokers said. As a result, sellers are struggling to offload properties priced under $1 million — and more frequently taking them off the market.
In the last two years, about 9 percent of Manhattan listings under $1 million were taken off the market between mid-May and the end of July, according to data compiled by Warburg. This year, that percentage has nearly tripled. De-listings in the $1-3 million range have been relatively steady, Kowalczuk said.
One factor is confusion. Many buyers don’t fully understand the implications of tax and interest changes on their own purchases and monthly payments, said BOND New York’s Janine Young. Taxpayers were previously allowed to write off their property taxes by deducting the lion’s share of their state and local taxes from their federal tax bill. Those so-called SALT deductions are now capped at just $10,000.
At the same time, though interest rates are still historically low, borrowing has become more expensive. Even if the changes don’t have significant implications for the buyer, the hurdle is understanding them, Young said. A growing part of her role has been educating clients and recommending accountants and attorneys.
“It’s maybe one of the first times that I’ve been aware of how intimidated people are by this process,” she said. “You have to be open to learning new information — whether you’re a broker or a buyer or a seller.”
For example, when Kowalczuk’s UES seller did get an offer, she deemed it too low and agreed to change tack. The plan is to renovate the apartment and re-list it in September.
“It’s putting money into the apartment, so we can bring it back on at the same price,” Kowalczuk said.
While luxury listings get pulled from the market as sellers and buyers alike summer in the Hamptons, the same level of seasonality tends not to apply to the lower end. Plus, those properties may face more competition when units come back on, said Douglas Elliman’s Alexander Boriskin. That environment will make it even tougher for apartments that are overpriced — or even ones priced right but may be in a less desirable location or have a bad view, he said.
The inventory glut has added to the effect of the macroeconomic factors. In the second quarter this year, Manhattan listing inventory climbed 11 percent compared with a year earlier. In the resale market, where the median sales price was $980,000, inventory rose 13 percent.
“The softening has certainly crept into the lower end,” said Keller Williams’ Seth Levin. Two years of “doom and gloom” real estate news is catching up to that buyer pool, he said.
One silver lining is that it’s a good time for those who are selling starter homes and looking to upgrade, brokers said. While their existing home might not sell at their desired price, that’ll be partly offset by getting a better deal on the new apartment.
But broadly speaking, it’s about adjustment.
“It’s getting people over the hump of understanding the new reality,” Levin said. “It’s a lag period, trying to adjust in a changing environment.”