The Mansion Tax Hike Prompted Record High-End Sales, But Trouble May Lie Ahead

June 2019 was a spectacular month for the high-end sales market in New York, with record sales of homes above $2 million. But unfortunately for sellers, this bump is likely to be temporary, since it was due entirely to a looming increase in the state mansion tax.

As of July 31, the city had recorded 820 sales of homes priced at $2 million or more, the highest level on record, and 19 percent of all units sold. (That’s up from 9 percent in June 2018.) With an outsize chunk of deals at the top of the market, the median sale price for Manhattan in June hit $1.58 million, up 54 percent from the prior year.^[1]

It’s a Mansion Tax Sales Bump, Not the New Normal

This isn’t the natural state of affairs. As we highlighted in June, an increase in the city tax on properties above $1 million or more was set to take effect July 1, and it gave buyers and sellers a strong incentive to strike a deal by the end of the month.

Ultimately, this surge in sales made a relatively small dent in the large number of high-priced homes lingering on the market. As of the end of July, some 4,200 homes were listed for sale at more than $2 million on StreetEasy, roughly the same number that were sold above $2 million citywide from June 2018 through May 2019.

Of these 4,200 homes, nearly three quarters were listed before the start of June. If sales data from the spring of 2018 is any indicator, it’s likely that even more homes are quietly sitting off-market, with their owners hoping dynamics will turn in their favor.

Deep Price Cuts Are Fueling Many High-End Sales

Unfortunately for the sellers of these homes, overall sales trends are still pointed downward. Though the mansion tax incentive bumped June’s high-end sales up 92 percent from the prior year, overall sales in the city were still down 11 percent from the previous year as of the end of July.

Even sellers of high-end units who did find buyers in June did so by cutting prices. Of the hundreds of sales for which StreetEasy was able to identify corresponding listing data, four out of every five homes that sold for above $2 million went for less than their final asking price on StreetEasy.

The average discount from the StreetEasy listing price for these homes was roughly 4 percent, though many had steeper cuts. This Upper West Side brownstone knocked 28 percent off its $23 million asking price, ultimately selling for $16.5 million. Just across the park, this 3-bedroom unit on Park Avenue slashed $1.4 million off its final asking price and sold for 40 percent below its original September 2018 ask.

Deep cuts were not limited to the resale market. Several recent developments looking to offload sponsor units — including 432 Park Ave. and the recently renovated Woolworth Building — ultimately sold units at substantial discounts from StreetEasy listing prices, ranging from 10 to 25 percent of their initial asking prices.

These trends appeared to continue into July, when more than 400 homes priced at $2 million or more received a price cut.

Who’s Paying the New Mansion Tax? Right Now, It’s Sellers

Making matters worse for sellers, June’s bump in sales has likely severely reduced the pool of remaining buyers for high-priced homes. Sellers still seeking these buyers in late summer and fall will need to make significant price concessions. And with buyers holding all the negotiating power, sellers are likely to shoulder the entire burden of the new mansion tax.

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^[1] The New York City Department of Finance makes information on recorded sales available on a lagged basis that can range from a few days to several months. Based on past years, only half of the transactions completed in June were reported by July 1. Roughly 95 percent of transactions for the preceding June are typically reported as of July 31, though this number could prove to be higher in 2019 due to the strong incentive to close in the final days of June.
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