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Wall Street Journal / Biz - Money

After Tax Overhaul, Manhattan Real-Estate Sales Seize Up

The new tax law’s elimination of some tax advantages of owning property have brought about a standoff: buyers are becoming convinced that prices are due to fall, while sellers are unwilling to budge.


Josh Barbanel

The tax overhaul and its elimination of some tax advantages of owning property have settled like a cloud over the Manhattan real-estate market.

Buyers are becoming convinced that prices are due to fall. Sellers don’t agree. The result: a standoff.

The number of contracts signed from October through January was down 6% from the same four-month period beginning in October 2016, according to figures from brokerage Brown Harris Steven. That was the slowest pace of activity during those months since a broad recovery in the Manhattan market began in 2012.

“It used to be location, location, location,” said Jonathan Miller, an appraiser and market analyst. “Now it is uncertainty, uncertainty, uncertainty.”

Making matters worse, last year’s sales were already weak. Brokers and market analysts blamed uncertainty over the presidential election for the lackluster activity in late 2016 and early 2017.

For all of 2017, sales were nearly flat compared with 2016, up 0.6%. Together, the years ranked as the two worst for sales volumes since 2011.

The slowdown intensified as the year went on. Sales in January were down 7.6% from January 2016; in December, sales were 10.7% lower year-over-year.

The tax law, which most provisions went into effect at the start of the year, caps deductions for state and local taxes, including property taxes, at $10,000, and limits interest deductions to the first $750,000 of a new mortgage.

Now that the details of the tax bills are better understood, buyers have become convinced prices will come down further, said Hall F. Willkie, the co-president of brokerage Brown Harris Stevens. Sellers haven’t come to the same conclusion, he said.

Many brokers have long viewed the Manhattan real-estate market as closely linked to the fortunes of stock markets. Many buyers of expensive properties—the median​sale for a Manhattan apartment is above $1 million—have investment portfolios and many residents work in finance.

But that relationship, if it existed in the past, broke down over the past year, said Frederick Peters, chief executive of brokerage at Warburg Realty Partnership. While sales slowed, the stock market surged.

Now some worry the pullback in the stock market in the last few days could add uncertainty, even though rising stocks didn’t help before.

“Volatility doesn’t help anybody,” said Noah Rosenblatt, a broker and founder of real-estate search site UrbanDigs.com. “It makes bids for real estate less aggressive. Some will sit it out to see what happens. There are other people who will think this is an opportunity.”

The higher-end market, where many purchases are discretionary, has been particularly hard hit of late. In January, the number of contracts signed on listings of $4 million or more fell 29% from January 2017, according to data from Olshan Realty Inc.

It will likely take six months for the market to digest the impact of the new federal tax law on New York real estate, said Donna Olshan, president of Olshan Realty. Some buyers, she said, might decide to look in other states, where state and local taxes are lower. Others will dig in and buy.

“You can’t continually put off having a home,” she said.

Howard Margolis, a broker at Douglas Elliman, said he was about to list eight properties for between $1 million and $5 million, at a time when buyers are demanding lower prices.

“Buyers are tough” on sellers, he said.

Still, there are signs that some sellers he works with are losing patience and are willing to make concessions.

“The sellers are saying what do I need to do to sell my apartment,” Mr. Margolis said. “There are a lot of choices now.”

Write to Josh Barbanel at josh.barbanel@wsj.com