(Bloomberg) -- New York’s real estate market started 2021 with a whimper.
Rents in Manhattan and Brooklyn had the steepest year-over-year drop on record in January, according to a new report from StreetEasy, with Manhattan rents slipping 15.5% and Brooklyn rents down 8.6%. Home prices in January also showed major declines compared to a year prior, according to the report, falling a precipitous 6.2% in Manhattan and 5.4% in Brooklyn.
A recent surge in contract activity suggests at least some improvement on last month’s dismal results. Pending sales, meaning homes that have already gone into contract, are up 30.8% in Manhattan in comparison to January 2020. In Brooklyn, pending sales are up 17.3% for the same time frame.
The contrast between rising sales volume and sinking prices is a simple question of supply and demand, says Nancy Wu, an economist at StreetEasy. Sales might have boomed compared to last January, but a year’s worth of inventory that sat fallow during the pandemic continues to dwarf demand.
“Inventory has been at record highs, and buyers have had more options,” Wu says. “What’s happening now is that sellers seem to be coming to terms with the fact that there’s record inventory on the market, and unless they reduce prices significantly, it won’t sell.”
This oversupply, Wu says, is particularly pronounced in the luxury tier, which StreetEasy pegs at over $3.7 million.
“There’s 25% more inventory than last year in the luxury tier,” she says. “This glut of inventory means that prices have even more room to fall, which would then lead to more contracts. So it’s a pretty busy market right now.”
That’s something of an understatement. StreetEasy’s January report found that Manhattan saw a 57% increase in luxury contracts signed year over year, “and even with that surge,” Wu says, “inventory for luxury homes has still been near all-time highs.”
This isn’t good news for New York’s sellers, who will have to get used to even deeper price cuts, Wu says. “There’s no end in sight for how long prices will continue to decline,” she says. “This 6% drop in Manhattan seems to be the first milestone of what’s yet to come.”
©2021 Bloomberg L.P.